Endomines - Valuation running ahead of things

Name: Evli
Price range: $

Endomines will release its H2 2023 figures on February 15th. Our interest in the report lies in Pampalo's profitability, progress and plans for Karelian Gold Line exploration, and update on the US assets. Despite the story developing fairly in line with plans, the valuation has become elevated.

2023 progress was mostly aligned with the strategy and goals

The company’s strategy focuses on four key areas: Pampalo production, exploration in the Karelian Gold Line, ESG and US assets promoted through a partnership model. In 2023, Pampalo’s production grew according to the company’s plan and resources grew in the Karelian Gold Line. The main negative in 2023 was that the company wasn’t able to conclude the negotiations regarding the US assets. We also anticipate to hear results from the 2023 drilling program for Karelian Gold Line (Kuittila), and more details on the exploration plans and timeline for 2024.

Aiming to boost volumes in 2024

With the preliminary production figures published for 2023, the main interest operationally is on the cash cost level of the Pampalo mine. We currently estimate EBITDA of EUR 0.8m for FY 2023 (Pampalo EBITDA EUR 4.9m). The y/y profit improvement is driven mainly by higher volumes and gold spot price, in addition, costs in the US are lower. One of the company’s medium-term goals is to reach annual gold production of 20,000 ounces at Pampalo by the end of 2024. In early February, Endomines released that it has started production in Hosko. Our current estimate for production in 2024E is at 17,613 ounces, of which roughly 15% is from the Hosko deposit. Profitability wise, we estimate Pampalo EBITDA of EUR 8.9m and group EBITDA of EUR 5.1m for 2024E.

Valuation turns expensive

With an increase to our long-term gold price estimate and adjustments to our models, we revise our TP to EUR 5.6 (prev. EUR 4.7) while downgrading our rating to SELL (HOLD) as the stock has rallied roughly 40% since our last update. Our SOTP based valuation range is currently EUR 5.6-7.9 per share. We continue to base our TP at the lower end of the range driven by the uncertainties.

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