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Endeavour Mining plc's (EDVMF) CEO Sebastien de Montessus on Q2 2021 Results - Earnings Call Transcript

Aug. 04, 2021 3:37 PM ET | Endeavour Mining plc (EDVMF) | 2 Likes

Endeavour Mining plc (OTCQX:EDVMF) Q2 2021 Earnings Conference Call August 4, 2021 8:30 AM ET

Company Participants

Martino De Ciccio - Vice President of Strategy & Investor Relations Sebastien de Montessus - President and Chief Executive Officer Mark Morcombe - Executive Vice President and Chief Operating Officer Joanna Pearson - Executive Vice President and Chief Financial Officer Patrick Bouisset - Executive Vice President Exploration & Growth

Conference Call Participants

Fahad Tariq - Credit Suisse

Ovais Habib - Scotiabank

Anita Soni - CIBC Capital Markets

Wayne Lam - RBC

Don DeMarco - National Bank Financial

Lawson Winder - BoA Securities

Mark Bentley - ShareSoc

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Endeavour Mining's Q2 and Interim 2021 Results Conference Call. At this time all participants are in listen-only mode. After management's presentation, there will be a question- and-answer session. [Operator Instructions] Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow.

I would now like to hand the conference over to the management. Please go ahead.

Martino De Ciccio

Hi, everyone. I am Martino, Vice President, Strategy and Investor Relations, and I'd like to welcome you to our Q2 2021 results webcast. On the call, I am joined by Sebastien, Mark, Joanna and Patrick. Before we start, please note the usual disclaimer. Today's call will follow our usual format. Sebastien and Joanna will start by discussing the Q2 operational and financial highlights, Mark will then walk you through our detailed results by mine and finally Patrick will give you a brief overview of our half year exploration results. We'll try to be as quick as possible to leave time for questions at the end.

And now I'll hand it over to our CEO, Sebastien, to walk you through our Q2 highlights. Sebastien?

Sebastien de Montessus

Thank you Martino. It's definitely been a busy year so far and we have achieved several important milestones, including our LSE listing back in June. To recap the quarter, I would summarize in one sentence, we have had a strong business performance, which has underpinned our ability to deliver excess shareholder returns. And you'll see on the left top box that we delivered a record operating performance with production up 18% compared to Q1. We produced over 400,000 ounces during the quarter, and that's an annualized run rate of over 1.6 million ounces while the initial guidance is 1.4 to 1.5 million ounces.

As a result, we are on track to achieve the top-end of our production guidance and our costs are also on track. Our strong operating performance has of course translated into a very robust set of financials. Our operating cash flow increased by 44%, 45% over Q1 to reach roughly $300 million and our adjusted net earnings nearly doubled to reach roughly $180 million. So yes, we are generating a lot of cash and we are allocating that cash to continue to strengthen our balance sheet, exploration, gross and, of course, shareholder returns. We overall reduced our net debt this quarter with our leverage ratio now standing up near zero. This put us in a very strong good position to deliver excess shareholder returns.

This started earlier this year when we paid our maiden dividend of $60 million for the 2020 fiscal year and today we are pleased to announce the dividend of $70 million for H1 2021. Our minimum commitment for this year is $125 million, so as you can see today's dividends demonstrates our intent to pay more than the minimum. In addition, given the attractiveness of our stock price, we've been actively buying back our stocks and the program was launched in April. To date approximately $70 million has been purchased and we intend to keep the program going as long as we see our share price undervalued. This cash flow has also allowed us to continue to aggressively explore with $50 million spent this year already and given the strong results we will be announcing in the coming weeks, I can already confirm that the group is on track to deliver again over 2.5 million ounces of indicated resources this year, thanks to Patrick and his team.

Moving to Slide 7, you can see our key performance indicators tracking through the year-to-date. Our safety performance has continued to track well ahead of our industry peers and we have enhanced several safety programs with our ultimate goal of zero harm. Despite being busy with corporate activity during the first half of the year, we are very well positioned in terms of production related to our target for the full year. Our performance to date has put us well on track to the top-end of our guidance range with the inclusion of Wahgnion and Sabodala-Massawa for the full quarter having a positive impact. Similarly all-in sustaining costs are on track and during the first half are in the bottom half of our full year guidance range.

On Slide 8, you can see our production and the all-in sustaining costs for the past five quarters with the consolidation of Sabodala-Massawa and Wahgnion for the full quarter. We've had a strong improvement in our production, which is up 18% as well as solid performance on cost controls. Our portfolio moves over the last year have had a clear benefit with production up by more than 2.5 times, while unit cost have declined by 9% compared with the prior year quarter. As we look to the individual contribution of our operation, you can see that Ity, Hounde and Karma are all contributed positively compared with Q1, we saw an anticipated decline at Boungou due to grade sequencing while Mana was essentially flat. In addition, we have the full quarter consolidated benefit of Sabodala-Massawa and Wahgnion.

On Slide 10, I'd like to draw your attention to how our results compared with the first half of 2020, not only in terms of production and all-in sustaining cost, but also in terms of assets and geographic diversification. Our business has changed significantly with the left by representing our original portfolio and the right by representing our current portfolio. We produced 433,000 ounces, more ounces of gold while all-in sustaining costs declined by $56 per ounce. Not only that our portfolio is well-diversified with seven different operations across three different countries with one flagship mine in each of those countries with Sabodala in Senegal, in Ity in Côte D'ivoire and Houndé in Burkina.

On the following slides, Joanna will take you through our financial performance in more detail. Joanna?

Joanna Pearson

Thanks, Sebastien. Moving to Slide 11, our all-in sustaining margin has continued to trend upwards. The combined benefit of increased consolidated production reduced all-in sustaining costs and a modestly stronger gold price have resulted in a 19% increase on a quarter-over-quarter basis. Compared with the prior year quarter, our all-in sustaining margin has increased by more than 250%. This is due to stronger production at our legacy mines, as well as our acquisitions of SEMAFO and Teranga. On Slide 12, you can see the trend of our operating cash flows, which increased by 51% over Q1 2021 and by more than 400% compared to the prior year quarter. When looking at this metric, this is our second best quarter ever following the strong performance of Q4 last year, where the gold price was roughly $50 per ounce higher. Our Q2 performance is not fully representative of the operating performance of the company due to the seasonality of our tax installment payments, which are always higher in the second quarter of the year.

As such moving to Slide 13, we have tried to illustrate a few of the key factors behind the variance and operating cash flows between Q1 and Q2. The waterfall chart starts with our Q1 cash flow of $198 million. You then see that the largest portion was driven by an increase in gold sales, as noted earlier in the presentation. The second quarter is when we normally pay most of our corporate income taxes leading to the outflow for taxes paid. We also benefited from an inflow in changes in working capital of $14 million, while last quarter we had an outflow of $58 million, which was driven primarily from the working capital acquired in the Teranga acquisition. We also got some modest help from the gold price in the quarter. For reference, we had put a few details on the right of the page and, of course, there's a more fulsome notes in our MD&A.

On Slide 14, we show how our net debt position has continued to improve since the start of the year. We are now sitting at a very healthy leverage ratio of 0.07 times net debt to last 12 months of adjusted EBITDA, despite observing the Teranga debt as well as repaying, nearly $120 million of gross debt. Our cash balance remains high at $833 million. We reduced our gross debt during the quarter by $120 million, and we will assess opportunities for further reductions given our large cash position. Slide 15 illustrates the strength of our balance sheet. Despite $59 million of buybacks during the quarter, we have been able to reduce our net debt down to $77 million and our leverage ratio down to about 0.07 times. We have demonstrated a steady trend of debt reduction aside from Q1 of this year, where we assume $332 million of net debt from Teranga. In Q2 alone, we reduced our net debt by $85 million and our gross debt by $120 million.

Moving to Slide 16, we have a detailed breakdown of our net earnings for the past two quarters. At the bottom of the slide, you can see a 46% increase in our adjusted net earnings per share from continuing operations compared to the prior quarter. As usual, I won't go through every line here, but we'll address a few of the most significant items. Earnings from continuing mine operations increased due to stronger production, the full consolidation of the Teranga assets and a slightly better gold price while costs are remained in check. Corporate costs and acquisition and restructuring costs were higher than usual due to the heightened corporate activity as you are all well aware.

Current income tax expense decreased relative to Q1, despite the inclusion of the new mines acquired for the full quarter due to adjustments related to the prior taxes upon filing of our tax returns, as well as the decrease in taxes spent - tax expense in the quarter, based on the lower effective tax rate on the company's taxable earnings in the quarter. Overall, this translated into net earnings of $149 million and adjusted net earnings of $183 million. On Slide 17, you can see how our adjusted net earnings per share has trended over the past several years. Overall, we are very pleased with the trend here and we made more than nine times as much for sharing Q2 2021 relative to Q2 2019, which is quite remarkable.

I'll now hand it back over to Sebastian so that he can probably comment on our shareholder returns program.

Sebastien de Montessus