Endomines - Downgrade to HOLD

Endomines’ revenue in Q1 was limited to SEK 2.1m due to lack of production at Friday and as such profitability remained weak, with EBIT at SEK -13.0m. Ramp-up of production at Friday is expected in Q2. With Endomines’ financial situation becoming a concern we downgrade to HOLD (BUY) with a target price of SEK 6.0 (8.0).

Friday production expected in Q2

Endomines’ Q1 revenue and EBIT amounted to SEK 2.1m and -13.0m respectively. Ore production at the Friday mine is on-going but due to damage to the processing facility no new gold concentrate was produced and revenue was only generated from sales of remaining concentrate from Pampalo. Ramp-up of gold concentrate production at the Friday site is expected to start in Q2. Although the concentrate production was delayed Endomines has remained on schedule with the mining of ore and retained its 2019 guidance production for Friday of 5,000-8,000 oz gold concentrate.

Financial situation concerning

Endomines’ financial situation has increased causes for concern. The liquid funds at the end of the period amounted to SEK 7.8m, despite issuance of the EUR 3.7m bond, as Q1 cash flow after investments amounted to SEK -46.7m. The situation should be alleviated with the ramp-up of production at Friday, with the larger investments also having been done. With the additional costs of the processing plant at Friday the financial situation is in our view now even more fragile and Endomines can’t really afford more setbacks in production start-up without additional financing.

HOLD (BUY) with a target price of SEK 6.0 (8.0)

Endomines is in our view in a delicate situation financially and the need for additional financing, at least to finance any new projects, seems inevitable. Endomines already issued a rather expensive bond and further financing will likely not come easily or cheap. We downgrade to HOLD (BUY) with a target price of SEK 6.0 (8.0).

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