Endomines - Secured financing for production increase
Financing up to EUR 3.6 million secured
Endomines secured a convertible loan of up to EUR 3.6m from Finnish investors for gold production at Hosko and increased production at Pampalo. The agreement includes an initial EUR 1.8m in June 2023 and an option for another EUR 1.8m in October 2023. The convertible loans can be exchanged for shares after 24 months. The loans have a 36-month maturity with a 12% annual interest rate. Despite the high cost and risk for dilution, we see the financing positive as it supports the company’s strategy execution in the Karelian Gold Line.
We revised our production estimates upwards
Endomines aims to produce 20k ounces by 2024 through investments in Hosko and Pampalo. Hosko is projected to contribute 10-30% of total production in 2024. With the investment in Pampalo underground mine, our production estimates for Pampalo have slightly increased. Alongside this, we expect Hosko to contribute around 20% of total production in 2024. Our 2024 production estimate is around 15.5k ounces, well below the company's target, due to the Pampalo gold reserves at the end of FY 2022 being only 29k ounces. We have also adjusted our estimates for CapEx, interest expenses, and depreciation.
BUY with TP of EUR 5.6 (6.5)
The revised production estimates do not have significant impact on our SOTP valuation, as we have already accounted for the potential of the satellite deposits along the Karelian Gold Line in our real option value model. The valuation of the company's US assets remains the biggest uncertainty in the SOTP model as Endomines has not yet released any information regarding the potential partnerships and/or divestments of these assets. We adjust the valuation downwards and value the US assets at EUR 42-46/oz (incl. net debt) which is roughly in line with the peer group EV/Resources (Table 3) and close to the original purchase price. Given the uncertainties, we maintain our valuation on the lower end of our SOTP-based valuation range.