Here are Aapeli’s comments on Pampalo’s production figures for Q1.
Endomines published Pampalo’s Q1 production figures on Wednesday, which exceeded our production forecasts. Correspondingly, the realized gold price development was in line with our forecast, while the weakening of the dollar slightly diluted the production overshoot at the revenue level. In any case, we see at least slight upward pressure on our forecasts for the current year. In addition, the development increased confidence in the company’s goal of continuously increasing production in the coming years. We will review our forecasts shortly.
Could the company now pay off those much-discussed high-interest loans and finance near-future investments with internal funding? And for what might additionally be needed, surely other types of financing would already be available than high-interest loans at 12% interest? Once the US mines are monetized, they should be able to make even larger acquisitions?
I believe that even the Pohjois-Karjala Cooperative Bank branch in Joensuu would be willing to provide some kind of loan to a future significant local taxpayer and employer, if one were to simply walk in humbly, cap in hand.
What I’ve heard being discussed here, that funds from the US mines could be returned to investors as a capital repayment, sounds absurd at first glance. A business that has required and will continue to require large amounts of capital, in a situation where it could be obtained freely and unconditionally from somewhere, it would be given away and probably immediately afterwards, more would be sought from somewhere else. In the worst case, more high-interest loans. Surely not?
I calculated that the price of gold has risen by over $500 since the beginning of the year, at the current rate of 1500 ounces per month, just that unexpected rise in gold price brings an additional 8 million euros into Endomines’ cash flow this year. And if production grows from this, even more. So, exactly as much as the upcoming new financing package should be.
Shouldn’t this spring’s financing round be manageable painlessly in some other way already? What do you think, @Aapeli_Pursimo?
I read the notice of the general meeting more carefully yesterday, and there was a section:
The Board proposes that it be authorized to decide, in one or more tranches, on share issues and on the issuance of option rights and other special rights entitling to shares as referred to in Chapter 10, Section 1 of the Companies Act, as follows: The number of shares to be issued under the authorization may not exceed [10,000,000](tel:10 000 000) shares.
So, does this mean, @Aapeli_Pursimo, that the Board is practically asking for permission to double the company’s share count?
Have I been somewhat naive when I imagined that the company would have progressed in some way to a better position, for example, regarding access to financing and otherwise?
Apologies for the delayed response. I’m on the same page with your thoughts (e.g., regarding the USA). The spring financing package will probably also be influenced by the type of financing the company is exploring, for example, in terms of flexibility. However, I agree that by all accounts, the financing terms could be expected to be better due to the improved financial situation, current profit and cash flow generation capacity (at least regarding operating cash flow), and successful production growth. Of course, obtaining only bank financing, for example, might still be difficult due to the nature of the business. Considering this, I wouldn’t be too surprised if the latter part were to include more than one component. At the same time, it’s worth noting that current global uncertainty could affect the availability of financing (at least for some lenders) if the situation were to escalate again.
In this regard, it’s good to note that this is an authorization (these are quite typical, and they don’t have to be used) and is valid until the end of 2027. Of course, the amount of the authorization is quite large. However, at this stage, it’s only an authorization, which could then enable various moves regarding financing in the coming years. Naturally, the most crucial aspect would be the terms under which the authorization might eventually be used. Hypothetically, this could, for example, also enable bringing in a larger player to the ownership base through a directed issue to bring in resources, but this is, of course, difficult to assess further at this stage.
Well, it certainly seems that the American mines are not considered valuable even within the company, or that any kind of support would be sought from them to finance these Finnish operations, even though the company originally promised it.
Endomines’ production growth has progressed impressively in recent years, considering the overall picture. This has also increased our confidence in future production growth, and we have raised our production forecasts for the coming years. Correspondingly, due to the prolonged and increasingly chronic global uncertainty, we have significantly raised our gold price forecasts, as gold enjoys safe-haven status. With these updates, our sum-of-the-parts valuation rose quite sharply, and we see the stock’s pricing as quite balanced at the moment, reflecting the market situation. Reflecting these backgrounds, we raise our target price for Endomines to 16.2 euros (previously 10.4 €) and reiterate our reduce recommendation, in line with a neutral valuation.
In my view, this was expected, as the stock price had run away from the previous target price by about 50%, so it’s normal “price chasing,” which has been quite common for many companies in both directions. Of course, the justifications are often, in my opinion, correct, but sometimes it feels like they’re pulled out of a hat to justify the change in the target price.
In my opinion, quite confusing explanations (starting from 45min) as to why funding is needed and where all those millions generated by cash flow disappear.
The CEO states in the same context that the funding to be acquired will change the company’s profile and create a “security” for investors, so their ownership is not always diluted. I mean, what?! Excuse me for asking stupid questions, but how does authorizing the general meeting to issue 10 million new shares add to this security? Or improve the company’s image / profile in the eyes of investors in this regard? At the same time, the company is making enormous amounts of money.
Indeed, I find it strange if one cannot get some kind of quickly drawable, flexible 5-10 million credit line from a bank. I have people in my close circle who get similar investment loans from banks for their SMEs for acquiring new production facilities and machinery, and their free cash flow is not 2M€ per month.
Also, the sales process for the US mines does not seem to be on track. They should at least start it themselves if they can’t sell it.
Looks good. However, the question still arises whether authorization for the additional issue of 10M shares is still sought at the general meeting and for what purpose?
PS. And even though I didn’t mention it separately, all my previous comments were indeed intended as ideas for the company to freely utilize.
I would believe that even the North Karelia Cooperative Bank (Pohjois-Karjalan Osuuspankki) branch in Joensuu would be willing to give some kind of bill of exchange to a future significant local taxpayer and employer, if one were to just walk in humbly, cap in hand.
Evli’s new report states that Endomines’ value increases by 0.206 euros while the price of gold rises by $10. A $100 increase corresponds to a little over 2 euros.
With the current gold price of $3320, the company’s value would therefore be almost €19.
Endomines will publish a strategy update and new long-term targets at noon. In connection with this, the company will also hold a press conference later today starting at 3 p.m., which can be followed, for example, via the link above. Questions can be submitted to management via chat during the event.
00:00 Introduction
00:15 Key points of the updated strategy
01:32 Plans regarding critical minerals
04:14 Gold and mineral enrichment
05:26 Financing package
08:03 Anti-dilution authorization
09:01 How to reach the gold reserve target of 1.5–2.0 million ounces?
12:00 Reserve development is not steady
13:00 Financing secured
13:47 Gold production target
15:27 Distribution of reserves between regions
16:32 Production target tolerance
19:10 Pre-feasibility study for the Southern Gold Line
20:46 Investment magnitude
21:39 Fossil-free gold production
23:36 USA assets
25:54 Strong production development in the early part of the year
However, the question still arises whether authorization for the additional issue of 10M shares is still sought at the general meeting and for what purpose?
