Opening a thread for Endomines on the forum as well! A lot is happening in the company right now, as Friday’s production is being ramped up, other development projects are moving forward, the project portfolio has been strengthened, and short- and long-term financing is likely also being arranged.
I have made our four latest reports freely available to everyone, and they can be found on Endomines’ company page (Endomines Finland - Inderes). Our own view on Endomines is cautiously optimistic for now due to the uncertainty related to Friday’s production ramp-up and financing risks, even though the gold market situation is favorable under current conditions. However, opposing views on the company have also been presented. In junior mining companies, the return potential is naturally high if risks do not materialize.
I am happy to answer questions from my own perspective. I can also, at some point, collectively forward questions to the company if they are able/willing to open up their plans on this front!
There is no universal definition for junior and senior mining companies, but generally, junior companies are classified as those focused on exploration and/or operating one or a few mines, with revenues at most in the tens of millions of euros (e.g., Endomines). Senior companies, on the other hand, are larger companies focused on operating several mines and often producing multiple metals, as well as managing a portfolio of exploration projects (e.g., Barrick Gold, Rio Tinto, Glencore BHP, etc.). Their revenues are in the billions. In between these are the so-called mid-tier players (several mines and development projects, revenues of 100-1000 million euros).
Endomines has estimated the cash costs for the Friday mine to be 650-900 USD/ounce (there is still significant uncertainty regarding this level, as commercial production is just starting). Thus, at the current gold price, the mine should have an operating margin of roughly 700-1000 USD per ounce. However, from this, group expenses, investments required to maintain production, and the group’s financing costs must still be paid before considering how much the company can allocate to 1) development projects and investments in other projects, 2) repayment of debts, and 3) dividends. Therefore, I expect Friday to be a very profitable project in itself (provided that the cash cost level holds true). Given the relatively small size of the Friday mine and the capital required for other projects, I believe it is perfectly clear that the cash flow from Friday alone will not finance Endomines’ ambitious development program.
Today’s release practically confirmed what was anticipated in early April (i.e., commercial deliveries are starting). Of course, this eliminates certain risks, and starting deliveries from the USA is a milestone for the company. The Q1 report will be seen on Thursday. The numbers in the income statement are not yet of great importance; attention will focus on Friday’s production volume and its expected development curve (there should now be the means to provide production guidance), as well as, of course, the financial situation. The pre-comment was in this morning’s morning review.
Much has happened in the company recently, in addition to Friday’s ramp-up. The Transatlantic deal is nearing completion at the end of the month, and short-term financing has also been raised. Long-term financing is also likely being worked on in the background. The market situation is, of course, also very favorable now.
An update on Endomines will come on Friday. The aim is also to get a comprehensive report out before the summer.
Now that the latest Endomines update is called “We are awaiting a financing solution,” @Antti_Viljakainen, would it be possible to shed some light on what you predict the size of the upcoming financing solution will be?
It is extremely difficult to estimate Endomines’ financing needs from outside the company (Endomines has also not commented much on the matter), and naturally, the amount of money needed also depends on the desired pace of development. At the moment, however, I believe that the long-term financing need to achieve a production of 100,000 ounces in the coming years will be an eight-figure sum in dollars. The company will likely need capital in the coming years for at least the following:
Friday’s negative cash flow before changes in working capital (at least in Q2, the volume may be so low that costs cannot be covered), 2020
Friday’s working capital, 2020
Drilling in Friday to improve the classification of the mine’s mineral reserves and extend its lifespan 2020-2022
Drilling in Rescue/Unity and Kimberly to confirm production potential, improve mineral reserve estimates, and discover new ore 2020-2023
Drilling in Buffalo Gulch and Friday’s open pit to confirm production potential, update mineral reserve estimates, and discover new ore 2022-2025
Renovation of the Rescue (and Unity) concentrator and investments in the mine, 2021-2022
Concentrator in Kimberly and investments in the mine, 2022-2023?
Concentrator for Buffalo Gulch and Friday’s open pit and investments in the mine 2023-
Working capital for mines starting after Friday in the US 2021-
Renovation of the US Grant concentrator and investments in the mine 2020-2023
Drilling in US Grant and Kearsage to confirm production potential, update mineral reserve estimates, and discover new ore 2020-2023
Gold exploration on the Karelian gold line 2020-
Investment in the deep extension of the Pampalo mine and return to production, 2020-
These are probably the most important. There are quite a lot of variables and also degrees of freedom involved, but in light of the length of the list, it is clear to me that the long-term financing need required at this stage is substantial relative to Endomines’ market value. Much, of course, also depends on when Friday and later other mines start generating positive cash flow, which would alleviate the financing needs. Thus, operational development plays a large role in financing matters, even if the required development work cannot be financed solely by operational cash flow.
The company’s cash balance was almost empty at the end of Q1. In Q2, more financing will become available, but on the other hand, the company will also pay cash payments for the Transatlantic arrangement in Q2, and in Q4, a short-term loan taken in Q2 must be repaid. Thus, financing news is likely to be expected soon. The arrangement of financing is naturally supported by the excellent situation in the gold market and also an increasingly favorable outlook, without which the company might struggle to obtain long-term (risk) financing on the required scale. In this situation, I believe that interested investors will be found, but the price of financing and the structure of the package are, of course, open.
Endomines’ gold production volume in Q2 was clearly below our expectations, which was directly reflected in the company’s revenue and profit. The low production volume was affected by challenges encountered during the ramp-up of the Friday mine, related to ore feed volume and gold grade. The company’s management has identified tailings dewatering as a bottleneck for production volume, and an evaluation to resolve the situation has begun. The gold grade in Q2 was also affected by the fact that rock material collected during the mine’s construction phase was still being used in ore feeding. The gold grade is therefore expected to increase significantly when the company starts using minerals collected from deeper within the mine in production.
However, the company’s cash position at the end of Q2 was challenging, and we believe that to bring the Friday mine to full production capacity, the company needs to strengthen its financial position. Other development projects are also expected to be postponed for now, until the company secures its long-term financing. A company update on Endomines will be published early next week.
Cash flow from operating activities -59.5
Cash flow from investing activities -18.6
Cash flow from financing activities 65.9
Liquid assets at the end of the period 3.4
Gearing ratio (net debt divided by equity) 24 %
It is the Board’s assessment that current working capital is not sufficient for all planned activities in the coming 12-months period.The operations might as a consequence need to be adjusted by postponing some investments and other mine development costs in order to secure the working capital level. The Board is actively engaged with financing as a significant part of the company ́s growth strategy.
Yes, they’re burning a huge amount of money, but unless the CFO is completely incompetent, I’d think that in this market and with these specs, a loan or a directed issue to a few major investors would be arranged. This could be quite an interesting stock after the financing is secured. I don’t really believe it’s going under without unexpected accidents or shady activities on the part of the Americans.
Indeed, raising money on tolerable terms for a junior mining company is very difficult even in this market, and even corona, as odd as it may sound from a gold company’s perspective, can throw a wrench in the works (e.g., it’s difficult to get people to do technical due diligence work on mining sites). Thanks to the robust situation in the gold market, the situation is probably not impossible, whereas in a more “traditional” market situation, turning to the owners would likely be the only option to solve an acute cash challenge. I believe that Endomines is hunting for an investor or investors who will put external equity and debt into the company. The second option would thus be a rights issue, and in my opinion, it would be quite unusual if the main owners were not willing to further finance the company at this stage. The cost of money is certainly high in all scenarios, and with the financing and production situation, the stock’s risk profile is now very high.
I completely agree that finding funding is never easy for juniors, but if you can’t find a loan or major investors for a project on the Finland-US axis in this market situation (zero interest rates, stock markets at their peak, gold prices at their top), a meaner person would say that there are the wrong people working there
That mention of corona was good, as the disease situation tends to slip my mind sometimes. It certainly complicates the situation in its own way, as deals of that caliber have traditionally been agreed upon over dinner or at a mahogany table. Visiting Idaho is probably difficult in terms of transport connections even without corona
Endomines postpones its Q3 report from Thursday this week to Friday, November 27.
Our preview was released today. Attention is still focused on the company’s financial situation, which remains very unclear, and no concrete news has been heard from the financing negotiations (excluding the bridge loan raised for the completion of the Transatlantic arrangement).
Third transfer. The report will be out after the stock market closes. I’m really looking forward to the content, even if it means working late. The share price is up, and this morning’s announcement didn’t significantly affect it.
A report popped into my email late last night. Comments will be out soon, but the financing deadlock had to be resolved with a fairly large share issue, and the dilution is, of course, significant. It was probably not the first option, but apparently, external investors just couldn’t be found.
Some of the anti-funds (Antirahat) are also staying in Finland as the Pampalo mine begins to ramp up production. This should be profitable with current gold prices, but in my opinion, the greater potential is still in the USA.
We initiated coverage of Endomines in October 2018, when the number of shares outstanding was 48 million, including mandatory conversions of convertible bonds. Our current forecast for the number of shares in 2021, taking into account the planned share issues, is 273 million. The expansion of the share series, driven by operational challenges and also the pursuit of rapid development, has once again eroded the per-share value of the sum-of-parts. In our opinion, the dilution of the share series and the challenging operational situation currently facing the company were not fully priced into the stock as of yesterday. Endomines still holds significant potential, of course, if the company were to reach annual production of around 100,000 ounces by the mid-2020s.
Endomines’ Extraordinary General Meeting yesterday approved the share issue plans and the capital raise will begin next week. Remember, shareholders, to act on your subscription rights! Next Monday (January 11, 2021), Endomines will present its plans related to the share issue. The English broadcast is at 12 p.m. and the Finnish version at 5 p.m. The invitation and links to both broadcasts can be found here.
I also updated my view on the company today, as the share price had fallen below the sum-of-the-parts valuation, which remained unchanged. The risk/reward ratio has thus been neutralized due to the December share price decline, but the upside potential is still too thin. More detailed comments can be found in the morning report, and a slightly more extensive report is available in the service for premium members.
Are these already the new shares?
Can they be sold yet?
The difference from the actual share is surprisingly small, when compared to the Finski rights issue.
