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TABLE OF CONTENTS Apr 7 - 13, 2014 Volume 100 Number 8 - 0 comments

Endeavour posts huge loss, but powers up for growth in 2014

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Due to hefty impairment charges, West Africa-focused Endeavour Mining (TSX: EDV; US-OTC: EDVMF) reported a US$332.5-million net loss in 2013, or US81¢ per share, compared to a US$15.1-million loss in 2012 at US6¢ a share,.

The Vancouver-based firm operates four gold mines: Tabakoto in Mali, Nzema in Ghana, Youga in Burkina Faso and Agbaou in Côte d’Ivoire.

It booked non-cash pre-tax impairment charges totalling US$506.9 million after the nearly 30% slump in the gold price last year.  The impairment charges include US$53.3 million of goodwill, US$368.3 million on mining properties, US$83.5 million on plant and equipment, and a US$142.7-million deferred income tax recovery.

Removing one-time charges, the adjusted net loss was US$27.7 million, or US7¢ a share, which came below analyst expectations of a US2¢-per-share loss.

“This miss was attributable to higher-than-expected costs at all operations — notably at Tabakoto — as well as higher-than-expected general and administrative expenses and interest costs,” Raymond James analyst Chris Thompson writes in a note.

Despite the poor financials, Endeavour’s CEO Neil Woodyer stayed upbeat on a recent conference call. He pointed out that the company met its production and cost targets, brought the Agbaou mine online ahead of schedule and on budget, and expanded the mill at Tabakoto.

“We had a very good year in terms of production, costs and the development of Agbaou and other projects [such as the Houndé project in Burkina Faso],” he commented.

While doubling Tabakoto’s mill capacity to 4,000 tonnes per day and building a mine increased expenditures, it also contributed to a 47% growth in gold production last year. Endeavour generated a record 324,275 oz. gold. This included 6,132 oz. pre-commercial production from the Agbaou mine, which poured its first gold on Nov. 29, 2013, with commercial production starting in late January.

Of the 324,275 oz. gold produced, Endeavour sold 318,505 oz. at an average realized gold price — before royalties — of US$1,392 per oz., generating US$443.3 million in revenue, up 21% from 2012.

Total cash costs, excluding royalties, were US$886 per oz. compared to US$767 per oz. in 2012. All-in sustaining costs per gold oz. sold were within the guidance at US$1,099.

This year Endeavour forecasts gold production of 400,000 to 440,000 oz. The welcomed growth comes from adding Agbaou, targeted to deliver up to 95,000 oz. this year, and the mill expansion at Tabakoto.

“Tabakoto will be moving up from 125,000 oz. to over 140,000 oz. based on the expanded mill for the full year,” said Christian Milau, the company’s chief financial officer.

All-in sustaining costs for 2014 are expected between US$985 and US$1,070 per oz.

The company says it will continue the cost-savings initiative it launched last year in response to the lower gold price. To date, it has trimmed costs by moving from contractor mining to owner mining at the open pit at Tabakoto. It plans to do the same at Tabakoto’s underground mine this year.

Endeavour exited 2013 with  US$73 million in cash. Its shares are trading at 98¢, after closing March 19 at 91¢ on the financial results.

“We believe Endeavour offers at least two years [2014E–2015E] of more than 400,000 oz. production and cash flow per share growth fuelled by attractive operating margins from the Agbaou mine, which provides ample time to add quality tonnes to Nzema and extend Tabakoto’s mine life,” noted Thompson of Raymond James. He has an “outperform” rating and a $1.30 target price on the stock.

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Endeavour Mining's Nzema gold mine in southern Ghana. Credit: Endeavour Mining
Endeavour Mining's Nzema gold mine in southern Ghana. C...

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