London-based precious metals company Endeavour Mining (LSE:EDV, Financial) has announced the reinstatement of its stock buyback program, which will see it repurchase 5% of its current stock float via open market transactions before March 2024.
The gold miner, which primarily operates in West Africa, has reinstated its buyback plan amid an improved outlook stemming from higher gold prices and various supportive events.
Although Endeavour's stock repurchase program provides investors with a bullish signal, it remains an isolated factor. However, there are several other factors that make me positive about the stock's future; let's take a look.
Recent earnings and outlook
A broad-based analysis of Endeavour's recent results conveys that it has achieved production success by reaching the higher end of its guidance. Moreover, the company has mitigated rising input costs by curbing its all-in-sustaining costs to $928 per ounce. Keep in mind that rising inflation has been a uniform phenomenon; however, I believe that Endeavour's cost base will soon revert to a more favorable level amid the recent softening of fuel prices and a softer labor market. Catherine Wood (Trades, Portfolio)'s outlook is that we will see a tipping point towards deflation eventually, which should decrease the demand for higher wages.
Source: Endeavour Mining
As per its fourth-quarter results, Endeavour recorded a 44% year-over-year increase in operating cash flow, driven by an 18% increase in adjusted net earnings. Although much of the company's financial success stemmed from rising gold prices and foreign currency translations, its core assets performed magnificently.
In terms of asset-specific performance, the company's flagship Sabodala-Massawa mine in Senegal is yielding robust results. The mine's grades and throughput increased once more in Endeavour's fourth quarter, and management anticipates the property to produce up to 340,000 ounces of gold in 2023.
Furthermore, Endeavour's Hounde Mine in Burkina Faso is expected to produce up to 295, 000 ounces of gold in 2023. However, shareholders must note that the mine will produce a substantial amount of fresh ore, which is likely to dampen throughput and recovery. Nonetheless, higher gold prices and smoother forecasted regional production remain key tailwinds.
Lastly, Endeavour is yielding significant benefits from its Mana mine. The mine is set to produce nearly 210,000 ounces of gold in 2023 while continuing to widen its profit margins through enhanced ore blends and more efficient unit processing.
Source: Endeavour
Although Endeavour's existing projects are yielding strong results, the company remains in its early stages as much of its current activities relate to early-stage exploration.
Heightened interest rates and elevated equity risk premiums have subdued the general merger and acquisition environment. However, Endeavour possesses a lot of internal capital, which it intends to commit to growth projects. For example, the company recently made a substantial greenfield discovery on the Ivory Coast, which is projected to form part of its flagship asset portfolio. The discovery goes by the name of Tanda-Iguela and is said to contain 14.9 megatonnes of indicated resources.
Another recognizable capital allocation is the expansion of its cornerstone mine, Sabodala-Massawa. The expansion includes a new processing facility, which is anticipated to yield an internal rate of return amounting to 72%.
Endeavour's return on new projects shows that any capital retained by the company is allocated effectively, resulting in enhanced shareholder value.
Surging gold prices
Gold is surging amid fears of tail risk stemming from recession risk and a potential banking crisis following the collapse of SVB Financial Group (SIVB, Financial). Moreover, the market believes pivoting interest rates are inbound, which may hinder the U.S. dollar's prospects, therefore providing a tailwind to gold.
If sustained, higher precious metals prices will be exceptionally beneficial to Endeavour's stock price.
Source: Gurufocus (Inflation Adjusted Gold Price)
Valuation
Before delving into the company's valuation metrics, it must be noted that rising gold prices will likely lead to enhanced growth. Moreover, if efficiently executed, Endeavour's share buyback program will lower the cost base of its existing shareholders, consequently adding to the stock's value per share.
Considering the aforementioned factors, Endeavour's price multiples signal that its stock might be in undervalued territory. The stock's price-book ratio of 1.47 is highly respectable, especially when considering that the company's exploration projects are not included in the ratio. Moreover, Endeavour's forward price-earnings ratio of 15.87 is cheaper than 76.77% of its sector peers, meaning the future earnings estimates are undervalued on a relative basis.
Lastly, Endeavour provides its investors with carry returns through its dividend yield of 3.62%. Endeavour's impressive dividend yield bodes well with its stock buyback program as it signals that the management is committed to providing shareholder value.
Final word
Endeavour's share buyback program suggests that the company anticipates a strong fiscal year stemming from ongoing production increases and heightened gold prices.
Furthermore, Endeavour possesses lucrative exploration projects that could provide its shareholders with significant residual value. The stock looks relatively undervalued and possesses a lucrative dividend profile.
Despite looming recession risks, these key indicators suggest that Endeavour's stock could perform well.
