Gold SWOT: Endeavour Mining Stock Is Doing Well

Strengths

• The best performing precious metal for the week was gold, but still down 0.03%. The Personal Consumption Expenditure (PCE) core price index eased further in December, perhaps laying the groundwork for the Federal Reserve to continue to ease up on rates. Consumer spending also fell over the coinciding period.
• Endeavour Mining pre-released fourth-quarter gold production of 355,000 ounces, a beat versus consensus of 337,000 ounces, as reported by Reuters. Fourth-quarter all-in sustaining cost (AISC) was $954 per ounce, a beat versus $962 per ounce consensus. 2022 full-year production was 1.4 million ounces versus guidance of between 1.3 and 1.4 million ounces.

• Shares of Star Royalties rose 18% this week on record preliminary fourth-quarter revenue growth of 30%, a positive considering 2022 is the company’s first year of operation. A more open investment environment for consolidation is in motion with the gold market firming up to some extent in the royalty space with Triple Flag Precious Metals completing its acquisition of Maverix Metals.

Weaknesses

• The worst-performing precious metal for the week was palladium, falling 6.71% on no specific headline; however, all the headlines about increasing electric vehicle (EV) battery plants across the U.S. have negative implications for future palladium demand. UBS estimates that South Africa’s 2022 primary production of 12.8 million ounces of platinum group metals (PGM) was one of the worst on record in the past two decades, surpassed only in 2020 (Covid disruptions) and 2014 (prolonged strike impact). To put this in perspective, primary PGM supply in 2022 was around 1.1 million ounces below the 20-year average and 3.2 million ounces below the 16-million-ounce peak produced in 2007.
• According to RBC, Evolution Mining’s second-quarter operational performance was slightly weak overall, following a soft first quarter. Persistent issues at Red Lake and rain at Mount Rawdon saw the December quarter’s 166,000-ounce missing consensus by 6%. However, Cowal did well on better throughput and rising grade.
• St. Barbara announced this week that in the December quarter of 2022, its total production was 60,976 ounces of gold, reports Kitco News, down 7% year-on-year and down 4% compared to the previous quarter. The company said that the increased ore mined at Gwalia was offset by delays accessing high-grade stopes to next quarter, resulting in lower-grade development ore being processed.

Opportunities

• West African Resources reported meeting its gold guidance this week, as growth gets going, according to MiningNews.net. The company produced around 50,000 ounces at AISC of US$1,286 per ounce in the December quarter, taking full-year production to 229,224 ounces at ASIC of $1,086 per ounce. The market was unimpressed, selling the shares off nearly 13% locally in Australia.
• Equinox Gold has provided a construction update at its 60% owned Greenstone Project in Ontario. As of January 13, 2023, the company says the project is now 66% complete and is on schedule to pour gold in the first half of 2024. On December 31, 2022, 71% of total capital costs had been contracted and $680M (55%) of the $1.23 billion construction budget had been spent (100% basis), meaning the company’s share of the remaining budget is $330 million.
• Dundee Precious Metals shares have performed well year-to-date, up 40% in the first month of 2023. However, after the release of the Ada Tepe updated technical report and announcement of the high-grade deposit at the Čoka Rakita prospect in Serbia, key catalysts are now priced in. The Ada Tepe asset has a short mine life remaining, and any exploration upside from the Čoka Rakita prospect is expected to be long-dated, with additional work on the Timok feasibility study paused to focus on further exploration.

Threats

• Ramelius Resources released the Edna May Stage 3 Cutback pre-feasibility study (PFS) and made the rejection of the project official. Last year's strategy outlook did not include the open pit extension after it was included in 2021. This suggested the company was already planning for Edna May life without the cutback. The 2022 strategy update likely finalized its removal from most market expectations, dampening the effect of this week’s announcement.
• First Majestic’s fourth-quarter production of 2.4 million ounces of silver and 63,000 ounces of gold is driven by higher gold production at Jerritt Canyon. Fiscal year 2023 cash cost and AISC are guided at $13.88-$14.66 per ounce. The fourth-quarter 2022 operational results and fiscal year 2023 guidance appear as a negative for First Majestic shares as the fourth quarter fell short of consensus production estimates due to lower-than-modeled grade and throughput (and fiscal year 2023 cash costs and AISC were guided higher than consensus).
• Continued blackouts in South Africa threaten the industry’s viability to operate. Bloomberg reports power outages last year lowered production, and the days of power cuts in each month continued to increase in magnitude, reaching 30 days in December. South Africa mines about 70% of the world's platinum and 40% of all palladium production. With the risk of an unplanned power shortfall, it become untenable to risk worker safety going into deep mines with limited infrastructure to move employees underground and back to the surface.

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