Endomines - Production hiccups in Pampalo
Endomines released a profit warning due to lower-than-expected production volume growth in Q4 driven by issues in both Pampalo OP and UG mines. We still estimate strong revenue growth in 2024E helped by the robust gold market.
Issues in both OP and UG production in Pampalo
Previously Endomines expected that gold production will increase by 15-35% compared to last year (2023 production 12 790 ounces, implied guidance roughly 14 700 – 17 300 ounces). Now due to slower than expected production in Q4, the company expects that production will grow 8-15% compared to 2023 (implied production guidance roughly 13 800 – 14 700 ounces). Therefore, the production guidance middle drops some 11%. The reasons behind the lowering of the production guidance are defects in the production equipment in the open pit mine and rock mechanical challenges encountered in the underground mine. According to our understanding, the rock mechanical challenges in the UG mine are related to the northern ore lense, where the ore is associated with talc. The company has previously managed to compensate for lost volumes due to rock mechanical issues related to the northern lense with production from the open pit. The current challenges in the underground mine, coupled with defects in the production equipment in the open pit, resulted in the profit warning.
Production estimate revisions
Due to changes in production guidance, we have revised our production estimate for 2024E downwards to 14,110 ounces, reflecting an estimated production growth of 10.3% y/y. Following adjustments in volume estimates and modifications to our market parameters for Q4, we now project net sales of EUR 27.6m for 2024E (prev. EUR 31.0m), indicating a 40% y/y growth driven by the robust gold market. We have also adjusted our production cost estimates upwards due to the production hiccups. Consequently, we now forecast EBITDA of EUR 4.9m for FY 2024E (prev. EUR 6.8m). Although we view the current production issues as temporary, we've slightly lowered our production estimates for 2025. We continue to expect volume growth supported by additional production from Hosko.
HOLD with a TP of EUR 7.7 (prev. EUR 8.1)
Due to a negative adjustment in Pampalo’s value in our SOTP model, we lower our TP to EUR 7.7 (prev. EUR 8.1). We consider the present production disruptions to be largely temporary; however, we have adjusted our future production estimates also to reflect a more conservative outlook.