By Ronald Chawatama: Animus Sustainability Portal
Endeavour Mining (TSX:EDV) (ASX:EVR) (OTCQX:EDVMF) is a mid-tier mining company with established operations in 4 West African countries. The gold mining properties include Agbaou mine in Cote d’Ivoire, the Nzema mine in Ghana, the Tabakoto mine in Mali, and the Youga mine in Burkina Faso. Endeavour also has an exploration portfolio in each of these countries.
Spatial location of Endeavour Mining Operations in West Africa
The company’s operations are concentrated in West Africa which is known as a gold mining hot spot with several companies exploring and mining the region’s significant gold reserves that are hosted in Birimian greenstone belts.
“As a company we have just come out of an expansion drive that saw us invest over 300 million dollars over the last two years building the Agbaou mine, expanding the Tabakoto plant, and developing the Segala underground mine. Our principal focus currently is to generate cash and sort out the balance sheet. We are focused on effective management of our assets to maximise cash flow and simultaneously pursue organic and strategic growth opportunities. We are also planning to make a construction decision on the Houndé project (Burkina Faso) at the start of 2016, and, if positive, we would start building that mine by Q2 next year. Houndé has an all-in sustaining cost (AISC) of under $725/oz and the addition of that mine would continue to improve our AISC costs for the group and also generate an average 240,000 ounces per year for the first 3 years of its 10 year mine life” said Doug Reddy, Executive VP Business Development for Endeavour Mining.
Aerial View of Adbaou Plant
The company has been employing strategies to reduce cost amid sliding gold prices. “Now that Endeavour has completed our major capital projects, we have reduced capital spending to approximately $20 million in 2015. We have also targeted to reduce our all-in sustaining cost to below $1000/oz at each of our mines and have in fact achieved an overall AISC of $898/oz in Q2. Our guidance range for all-in sustaining cost for 2015 is $930 to $980/oz. We are now well below the current gold price” said Reddy.
As he explains, the AISC of $898/oz during Q2 2015 demonstrates the cost savings trend has continued as demonstrated in the figure below.
Source: Endeavour Mining
“The cost saving efforts will continue and we intend to put free cash flow towards improving the balance sheet. The company is also set to deliver on projected production at the upper-end of the 475,000 to 500,000 ounces gold production guidance and at the lower-end of the $930 to $980 AISC/oz guidance”.
Given the cost reductions and the generated cash flow, Endeavour has been addressing the balance sheet. Reddy further states “In the past 6 months to June 30, Endeavour generated $59 million of free cash flow (before tax and financing) to deliver 59% of the $100 million full year target based on guidance range mid-points. Using the cash generated we have made two principal payments of $20 million on April 30th and July 8th reducing our balance drawn to $260 million debt from the $350 million revolving credit facility. Our current balance sheet also positions us to internally fund the Houndé construction should the board give the project construction a green light”.
Operating a mining company in Africa sometimes comes with risks despite the attractive returns. In ensuring that investor and shareholder investments are cushioned from various risks especially those related to specific regions, Endeavour uses a spatial approach.
“Our current mining operations are well spread amongst 4 countries in West Africa and this diversification helps reduce some of the risks we face operating in any particular country in the region. There are risks associated with changes in national and local government regulation of mining operations, tax rules and regulations, and political and economic developments in countries in which Endeavour operates. The company further mitigates such country risks through an understanding of the political terrain, cultures and importantly by developing long term relations with all stakeholders, communities included. The company has an office in Ghana that gives them more insight of the political environment in the region” Reddy stated.
Endeavour’s preparedness to various risks was also tested with the cases of Ebola in 2014/15. Even though none of its mines were affected, the company still developed preventative measures, procedures and emergency response plans. Such measures included, controlled access to mine sites, monitoring workers and halting non-essential work outside of the mine properties.
Despite some of the challenges, the West African region remains a hub for mining especially as some of the countries continue to invest in roads and other infrastructure to support the sector. In Ghana for instance, there are good highway links to most mines and power can be obtained through a connection to the national power grid. In cases where such infrastructure is not available, Endeavour has had to develop both road and power links.
Mr. Reddy says Endeavour’s operations and investments are not short-term but long term and as such they want to play a part in mitigating impacts on the society and environment. The company makes it a point that it is important to manage expectations, observe the regulations and understand the culture of the communities in the areas where it operates.
Endeavour is committed to strong relations as evidenced by its social responsibility programmes and work. The company has implemented community and social programmes in each of the 4 countries.
Portable water system at Agbaou
Endeavour’s impact and social footprint in Agbaou, Cote d’Ivoire for example includes:
• Drilled boreholes to provide water to Agbahou and Zaroko
• Renovated maternal health clinic in Zego
• Refurbished classrooms in Agbahou
• Refurbished teachers’ housing in Agbahou
• Constructed community centre in Agbahou
• Constructed local power line from the main grid that has been given to CIE as infrastructure to manage and provide local power as needed for communities
• Relocation village was completed and residents moved in advance of mining with 300 people moved (30 families) and constructed 35 units
• Refurbished school in Daouville.
Mr. Reddy says that the company helps fund initiatives led by local government. “As part of our social programs and funding incorporated in the Côte d’Ivoire mining convention, we allocate 0.5% of revenues annually to support a social program fund administered by government, local groups and company representatives. There is also a training fund to support scholarships for Ivorian students and engineers interested in mining. We further provide funding to support local work and environmental initiatives” he explained.
The impact of Endeavour, socially and economically is a factor of its successful track record in building and operating mines in the region. The company has recently attracted significant investments and partners. The company recently announced a strategic, Long-term partnership with La Mancha focused on creating a premier African gold mining company. As part of the transaction, Endeavour will acquire a 55% interest in the Ity Gold Mine in Côte d’Ivoire, plus various regional exploration properties, and La Mancha will contribute US$63 million cash into Endeavour. In exchange La Mancha acquires a 30% interest in Endeavour.
Looking into the future, Endeavour has the expertise and the funding to grow across Africa. Developing the Houndé project will strengthen the company and add to its production growth.
Source; Ronald Chawatama, Animus Sustainability Portal