21 August 2020 Endeavour’s Q220 results were materially ahead of both Edison and

consensus estimates. Adjusted EBITDA of US$120.2m was within 7.5% of

the first quarter’s record, while adjusted net earnings reached a new recent

record of US$52.8m, or 47.6c/share. At least as importantly, all operations

were reported to be continuing to operate at near-normal levels, despite

COVID-19. As a result, we have upgraded our FY20 forecasts materially,

driven by sharply increased production in Q4 in particular, combined with

a materially higher gold price. Given its current rate of deleveraging, we

calculate that Endeavour could be net debt free early in FY21, at which

point it is likely to transition to dividend payments and a focus on

shareholder returns at the same time as developing new projects, such as

Fetekro (currently valued at US$1.68/share – see page 12).

Year end Revenue

(US$m) EBITDA (US$m)

PBT* (US$m)

Operating cash flow per share (US$)

Capex (US$m)

Net debt** (US$m)

12/18 1,048.6 378.9 75.8 2.31 689.5 ***518.6

12/19 1,362.1 618.4 220.4 3.30 401.2 525.2

12/20e 1,816.0 1,002.4 639.8 4.98 352.5 29.9

12/21e 2,034.0 1,027.0 668.3 5.19 191.5 (503.8)

Note: Pro forma basis. *PBT is normalised, excluding amortisation of acquired intangibles and exceptional items. **Excludes restricted cash. ***Pre-acquisition basis.

Elimination of net debt and new listing beckon

The integration of Mana and Boungou into Endeavour’s well established West

African operating model has now been almost completed only a month after the

SEMAFO acquisition. In the wake of La Mancha’s 3 July injection of US$100m into

the enlarged group, pro forma net debt has fallen to just US$309m, which equates

to a gearing (net debt/equity) ratio of c 20.4% and a leverage (net debt/[net

debt+equity]) ratio of c 16.9%. Perhaps more significantly, given the much stronger

performance that we expect from the enlarged group’s six mines in H220, coupled

with a stronger gold price environment, we believe that Endeavour could be net

debt free as early as the beginning of FY21, at which point it will be in a position to

make dividend distributions to shareholders. In the meantime, its exploration

programme continues apace, with the company having successfully achieved 83%

of its five-year target of discovering 10–15Moz by the end of FY21. Finally, in

recognition of its achievements, management has confirmed that it is pursuing a

secondary listing in either London or New York in the near future.

Valuation: US$43.34/share plus US$1.68/share

Since 29 June, our forecasts and valuation have reflected Endeavour’s acquisition

of SEMAFO. Within this context, our terminal valuation of the combined entity at

end-FY22 is now US$51.74/share – little changed from our previous valuation –

which (in conjunction with forecast intervening cash flows) discounts back to a

value of US$43.34/share in FY20, to which a further US$1.68/share may also be

added for the Fetekro PEA (see page 12). In the meantime, on a relative basis, the

enlarged Endeavour remains materially cheaper than the ranks of the world’s major

gold producers on at least 88% (32 out of 36) of common valuation measures

regardless of whether Edison or consensus forecasts are used (see Exhibit 9).

Endeavour Mining Q220 results

Strong Q2 tees up strong H2

Price C$35.80

Market cap C$5,835m

C$1.3206/US$

Net debt (US$m) at end June 2020* 472.6

*Pre-acquisition, excludes convertible premium.

Shares in issue 163.0m

Free float 75.2%

Code EDV

Primary exchange TSX

Secondary exchange US OTC

Share price performance

% 1m 3m 12m

Abs 10.0 11.7 36.0

Rel (local) 6.9 0.3 33.8

52-week high/low C$37.03 C$20.01

Business description

Following its acquisition of SEMAFO, Endeavour

joins the ranks of the major gold producers, with

two mines in Côte d’Ivoire (Agbaou and Ity) and

four in Burkina Faso (Houndé, Karma, Mana and

Boungou) plus three major development projects,

all in the West African Birimian greenstone belt.

Next events

Kari West, Center & Gap maiden reserve Q320

Updated Le Plaque reserve Q320

Updated Fetekro PEA Q420

Kalana updated feasibility study H220

Analyst

Charles Gibson +44 (0)20 3077 5724

mining@edisongroup.com

Edison profile page

Metals & mining

Endeavour Mining is a

research client of Edison

Investment Research Limited

Endeavour Mining | 21 August 2020 2

Endeavour Q220 results (pre-acquisition)

Results in the first quarter of the year at Endeavour were characterised by record revenue, record

adjusted EBITDA and record operating cash flow. Whereas we had expected a moderation in

performance in Q220 on account of the disruption occasioned to maintenance schedules by the

coronavirus pandemic, in fact adjusted EBITDA of US$120.2m was within 7.5% of the previous

quarter’s record, while net adjusted earnings exceeded those of the previous quarter by 57.5% and

– not for the first time – vastly outperformed both Edison and consensus expectations (see Exhibit

1).

In general, production was very close to our expectations, albeit with a positive variance at Houndé

offsetting moderated production levels at both Ity and Karma. Although revenue was close to our

prior forecast in percentage terms therefore (+2.8%), it translated into a more material US$6.9m

increase in absolute terms. At the same time, cash costs were well controlled, leading to a positive

3.9% variance in operating expenses, albeit this again translated into a more material US$4.2m in

absolute terms, which added to a US$7.6m positive variance in depreciation after an unexpectedly

low depreciation charge at Houndé. At the same time, there was a positive US$6.9m variance in

corporate costs, relative to our prior expectations, which we had expected to have been augmented

by a US$6.0m expense related to coronavirus costs, and a US$7.4m positive variance in

acquisition costs, which were materially lower than the US$10m that we had expected in respect of

the SEMAFO acquisition. The sum of these positive variances, of US$33.0m, accounts for the vast

majority of the total US$35.5m variance recorded between Edison’s prior forecast of Q2 net

adjusted earnings and the actual outcome.

Otherwise, the other major feature of the company’s Q220 results was a large, US$71.9m loss on

financial instruments. These are not typically forecast by Edison, although we had pre-figured the

potential for a loss of up to US$32.2m from its gold revenue protection programme in our last note

on Endeavour (see Maiden fully consolidated valuation (EDV+SFO), published on 29 June 2020).

In the event, the loss from this item actually amounted to a relatively modest US$10.2m. However,

this was augmented by a large US$63.9m unrealised loss on the company’s convertible senior

bond derivative. This (albeit non-cash) item arose as the company’s share price has increased and,

in doing so, caused an increase in the market price of its convertible bond, which has consequently

begun to mirror the price of its equity, rather than behaving as a pure bond (see Risks and

sensitivities – Gains or losses on financial instruments, below). While this item is little more than a

notional accounting entry and is inevitably excluded from both net adjusted income and analysts’

forecasts, it nevertheless distorts the appearance of the headline numbers in Exhibit 1.

Otherwise, Endeavour also benefited from an unusually low current tax charge (not least as a

consequence of a tax rebate at Karma) partially – but only partially – offset by a deferred tax

charge, such that the overall marginal tax rate amounted to just 11.5% of the aggregate pre-tax

profits of its four mining operations (cf an apparent rate of -91.1% of the group’s pre-tax profit – see

Exhibit 1, below).

A detailed analysis of Endeavour’s Q2 performance relative to both the prior quarter’s performance

and also Edison’s and consensus expectations is provided in Exhibit 1, below. In addition, Edison

has also provided its best estimate of Endeavour’s pro forma Q220 income statement for the

combined EDV-SFO group, based on the information provided about SEMAFO’s two producing

assets, Mana and Boungou.

Endeavour Mining | 21 August 2020 3

Exhibit 1: Endeavour Mining earnings, by quarter, Q419–Q220

(US$000s unless otherwise Q419 Q419 Q120 Q220e Q2e Q2a Q2/Q1 *Q2a/Q2e *Q2a/Q2e Q220e

Indicated) (underlying) (consensus) Change (%)

Variance

(%)

Variance

(units)

(pro forma)

Houndé production (koz) 55.0 55.0 55.9 50.6 57.4 2.7 13.4 6.8 50.6

Agbaou production (koz) 35.0 35.0 27.5 23.5 24.4 -11.3 3.8 0.9 23.5

Karma production (koz) 27.2 27.2 27.6 24.0 20.3 -26.4 -15.4 -3.7 24.0

Ity production (koz) 60.4 60.4 61.0 50.2 46.8 -23.3 -6.8 -3.4 50.2

Boungou production (koz) 31.1

Mana production (koz) 47.5

Total gold produced (koz) 177.6 177.6 171.9 148.3 145.8 149.0 -13.3 0.5 0.7 227.6

Total gold sold (koz) 171.9 171.9 174.6 148.3 140.2 149.8 -14.2 1.0 1.5 217.6

Gold price (US$/oz) 1,445 1,445 1,581 1,706 1,687 1,689 6.8 -1.0 -17 1,697

Mine level cash costs (US$/oz) 678 678 661 725 725 675 2.1 -6.9 -50 697

Group level AISC (US$/oz) 819 819 899 1,076 939 4.4 -12.7 -137 979

Revenue

– Gold revenue 248,398 248,398 269,902 246,211 248,000 253,084 -6.2 2.8 6,873 369,167

Cost of sales

– Operating expenses 124,707 124,707 114,403 107,512 103,308 -9.7 -3.9 -4,204 153,925

– Royalties 13,638 13,638 17,452 16,105 17,771 1.8 10.3 1,666 24,236

Gross profit 110,053 110,053 138,047 122,593 132,005 -4.4 7.7 9,412 191,006

Depreciation (54,608) (54,608) (52,529) (51,328) (51,328) (43,760) -16.7 -14.7 7,568 (75,796)

Expenses

– Corporate costs (3,250) (3,250) (5,231) (11,957) (5,049) -3.5 -57.8 6,908 (9,772)

– Impairments (127,380) 0 0 0 0 N/A N/A 0 0

– Acquisition etc costs (4,552) (4,552) (4,330) (10,000) (2,589) -40.2 -74.1 7,411 (2,589)

– Share based compensation (8,819) (8,819) (1,623) (5,333) (4,942) 204.5 -7.3 391 (6,516)

– Exploration costs 0 0 (1,333) (2,750) (1,796) 34.7 -34.7 954 (1,796)

Total expenses (144,001) (16,621) (12,517) (30,040) (14,376) 14.9 -52.1 15,664 (20,673)

Earnings from operations (88,556) 38,824 73,001 41,225 41,200 73,869 1.2 79.2 32,644 94,537

Interest income 0 0 0 N/A N/A 0 452

Interest expense (11,591) (11,591) (11,662) (9,056) (11,982) 2.7 32.3 -2,926 (14,778)

Net interest (11,591) (11,591) (11,662) (9,056) (11,982) 2.7 32.3 -2,926 (14,326)

Loss on financial instruments 2,194 2,194 (3,492) (71,931) 1,959.9 N/A -71,931 (71,931)

Other expenses (12,219) (12,219) 1,935 (1,791) -192.6 N/A -1,791 (1,791)

Profit before tax (110,172) 17,208 59,782 32,169 32,200 (11,835) -119.8 -136.8 -44,004 6,489

Current income tax 29,661 29,661 23,699 16,008 2,313 -90.2 -85.6 -13,695 7,142

Deferred income tax (31,151) (9,446) 620 0 8,468 1,265.8 N/A 8,468 8,468

Total tax (1,490) 20,215 24,319 16,008 10,781 -55.7 -32.7 -5,227 15,610

Effective tax rate (%) 1.4 117.5 40.7 49.8 (91.1) -323.8 -282.9 -140.9 240.6

Profit after tax (108,682) (3,007) 35,463 16,161 (22,616) -163.8 -239.9 -38,777 (9,121)

Net profit from discontinued ops. (4,394) (4,394) 0 0 0 N/A N/A 0 0

Total net and comprehensive income (113,076) (7,401) 35,463 16,161 (22,616) -163.8 -239.9 -38,777 (9,121)

Minority interest 4,487 4,487 9,465 7,307 14,613 54.4 100.0 7,306 17,639

Minority interest (%) (4.0) (60.6) 26.7 45.2 (64.6) -341.9 -242.9 -109.8 (193.4)

Profit attributable to shareholders (117,563) (11,888) 25,998 8,855 27,830 (37,229) -243.2 -520.4 -46,084 (26,760)

Basic EPS from continuing ops (US$)

(1.030) (0.068) 0.235 0.080 -0.335 -242.6 -518.8 -0.415 (0.169)

Diluted EPS from continuing ops (US$)

(0.999) (0.066) 0.235 0.076 0.108 -0.335 -242.6 -540.8 -0.411 (0.162)

Basic EPS (US$) (1.069) (0.108) 0.235 0.080 -0.335 -242.6 -518.8 -0.415 (0.169)

Diluted EPS (US$) (1.038) (0.105) 0.235 0.076 0.108 -0.335 -242.6 -540.8 -0.411 (0.162)

Normalised basic EPS from continuing operations (US$)

0.151 (0.047) 0.306 0.170 0.336 9.8 97.6 0.166 0.301

Normalised diluted EPS from continuing operations (US$)

0.146 (0.045) 0.306 0.162 0.336 9.8 107.4 0.174 0.290

Adjusted net earnings attributable (US$000s)

36,890 36,890 33,517 17,256 16,550 52,793 57.5 205.9 35,537 64,483

Adj net EPS from continuing ops (US$)

0.336 0.336 0.303 0.155 0.115 0.476 57.1 207.1 0.321 0.407

Source: Endeavour Mining, Edison Investment Research, Refinitiv (consensus estimates), Bloomberg. Note: Company reported basis; *Compares Q220 actual figure with Q220 Edison estimate.

Endeavour Mining | 21 August 2020 4

Items included in the reconciliation between adjusted net earnings attributable and total net and

comprehensive earnings are losses from discontinued operations, deferred income tax effects,

gains/losses on financial instruments, other expenses, share-based compensation and acquisition

costs (all shown independently in the table above), plus the tax impact of adjusting items, non-cash

and other adjustments and the minority interest attributable to the adjusting items (not shown

independently).

In general, all four of Endeavour’s mines recorded lower stripping ratios in Q2 than Edison had

forecast. In addition, there was evidence of a close control in costs in the fact that capital

expenditure (either sustaining or non-sustaining, or both) was also lower at all four mines. A full

explanation and description of the factors and forces affecting operations in Q220 cf Q120 is

provided in Endeavour’s press release accompanying its results and also its management

discussion and analysis (MD&A). However, a brief summary of each of its mines’ performances

during the quarter is as follows:

Exhibit 2: Endeavour Mining operations’ performance in Q220

Mine Mining and processing Costs Grade Recovery

Ity Operated at close to normal levels, despite COVID-19, but focused on accelerated waste extraction and a tailings storage facility (TSF) raise in order to provide increased future operational flexibility. Pre-stripping commenced on the Colline Sud pit.

Unit mining costs increased with higher drill and blast and equipment maintenance costs associated with mining a higher proportion of fresh ore. Processing unit costs broadly flat despite increased downtime and lower mill throughput.

Processed grade declined 2.5% as mill feed was supplemented by lower-grade oxide stockpiles as mining focused on waste extraction.

Recovery rates declined 7pp, as a result of processing greater quantities of transitional and fresh ore from Daapleu.

Houndé Operated at near-normal levels, despite COVID-19. Stripping ratio decreased as scheduled waste capitalisation deferred to later in the year and mining focused on the lower strip Vindaloo Central and Bouéré pits.

Mining costs declined as a result of lower drill and blast activity required for mining oxidised ore at Vindaloo Central. Processing costs increased on account of higher reagent costs. Non-sustaining capital up reflecting compensation and resettlement for the Kari Pump area as well as a TSF raise.

Processed grades increased as waste capitalisation in Q120 resulted in access to higher-grade ore. Also, less material from low-grade stockpiles used to supplement mill feed.

Recovery rates improved 1pp in Q220 (cf Q120 when recoveries declined as proportion of material from Bouéré increased).

Agbaou Operated at near-normal levels despite COVID-19. Tonnes mined decreased owing to focus on the deeper elevations of the North and South pits plus higher rainfall and lower equipment productivity as mining concentrated on the fresh material horizons, which also depressed tonnes milled. Lower overall stripping ratio.

Mining costs increased as a result of the increase in the proportion of fresh material mined from deeper elevations in the North and South pits. Processing costs increased on account of a greater proportion of fresh ore in the blend. Sustaining capex declined owing to lower capitalised waste. AISC flat overall.

Processed grades declined as a result of higher tonnage from the lower-grade South pit and the use of low-grade stockpiles to supplement the plant feed.

Recovery flat after Q120 decline when the percentage of fresh ore increased.

Karma Operated at near-normal levels despite COVID-19. Total tonnes mined remained relatively flat cf Q120, albeit a higher proportion of ore was sourced from the lower-grade GG1 pit. In the meantime, a waste stripping campaign commenced at the Kao North pit. Ore tonnes stacked increased owing to the benefit of the recently completed conveyor and stacking system upgrades. Mining operations successfully transferred to a local contractor on 8 June.

After increasing in Q120 on account of higher load and haul costs from the GG1 pit and the mining of lower elevations in the Kao North pit, mining costs remained flat in Q2.

Processing costs increased owing to the higher use of cyanide and cement associated with the lower-grade GG1 material stacked.

Sustaining capital costs increased owing to increased capitalised waste at Kao North. Non-sustaining capital costs increased owing to security and process plant upgrades.

Stacked grade decreased as lower-grade ore sourced from GG1 pit (cf Q120 when grade increased as high-grade ore was mined from the Kao North pit).

Recovery declined owing to stacking of transitional material and an increase in gold locked in the heap, which is expected to be recovered in future quarters.

Source: Endeavour Mining, Edison Investment Research

Endeavour Mining | 21 August 2020 5

FY20 guidance vs forecasts

Historically, Endeavour has a good record of meeting its production and cost guidance targets and

FY19 was the seventh year in succession in which the company achieved its production cost and

all-in sustaining cost (AISC) targets.

A summary of our outlook for each of Endeavour’s operations for the remainder of the year is

provided in Exhibit 3, below:

Exhibit 3: Endeavour Mining’s operations’ outlook, Q3–Q420

Mine Outlook

Ity Plant feed will continue to be sourced from the Daapleu and Bakatouo pits supplemented by material from the old heap leach dumps. In general, more fresh ore will be mined as the pits deepen. Mined and processed ore grades are anticipated to be approximately flat for the remainder of the year. Having declined in Q2, metallurgical recoveries are expected to recover in Q3 and Q4. Carbon-in-leach (CIL) plant should naturally be less affected by the Q3 rainy season than the historical heap leach operation.

Houndé The focus of mining operations at Houndé in FY20 will be waste mining and removal. After low-grade stockpiles continued to contribute to processed ore into Q220, in H220 both mined tonnages and grades are expected to improve, although waste extraction will remain high in order to access high-grade material. Endeavour has recently received a mining permit for Kari Pump, which we expect will contribute to mill feed in Q4. Sustaining capex in H2 is anticipated by slightly less cf H1 as sums deferred from the earlier period relating to waste removal are expended, but is expected to remain approximately unchanged for the full year (relative to our prior expectations). The mill is expected to continue to perform at or above nameplate capacity.

Agbaou Mining at Agbaou in 2020 will continue from the North and South pits but will cease at the West pit in H2. Throughput and recovery will decline in H2 as a greater proportion of hard, fresh ore is mined and processed. However, grades are now expected to improve in H220 relative to our earlier forecasts.

Karma Mining at Karma in 2020 will continue from the Kao North and GG1 pits. Having declined in Q2, as the grade in the Kao North pit declined, processed grades are expected to increase back up to Q419 and Q120 levels once again by Q420. In the meantime, Karma will continue to benefit from the installation of its new stacker system.

Mana Siou open pit mining activities are expected to be completed in H2, after which activity will focus solely on Wona. In the meantime, underground mining activity is anticipated to increase. Sustaining and non-sustaining capital expenditure for FY20 is presumed to remain unchanged compared to SEMAFO’s published guidance, amounting to US$70.0m and US$2.0m, respectively.

Boungou Boungou is expected to recommence mining activities in Q420, once a new mining contract has been awarded, the airstrip has been built and the necessary security protocols have been implemented within Endeavour’s operating model. In the meantime, processed grades and recovery rates are anticipated be on a declining trend as higher quality ore stockpiles are processed as a priority. Sustaining and non-sustaining capital expenditure expectations remain unchanged cf SEMAFO’s published guidance at US$10m and US$3m, respectively.

Source: Endeavour Mining, Edison Investment Research

In the wake of Q220 results, Endeavour’s production and cost guidance for FY20 remains

unchanged and compares with Edison’s updated forecasts as follows:

Exhibit 4: Endeavour production cost and AISC guidance, by mine, FY20 vs Edison forecast

Production (koz) AISC (US$/oz)

Mine FY20e guidance (koz)

Current Edison FY20e forecast (koz)

Previous Edison FY20e forecast (koz)

FY20e guidance (US$/oz)

Current Edison FY20e forecast (US$/oz)

Previous Edison FY20e forecast (US$/oz)

Houndé 230–250 250.8 244.0 865–895 877 936

Agbaou 115–125 114.0 113.1 940–990 979 1,021

Karma 100–110 100.2 103.9 980–1,050 975 1,027

Ity CIL 235–255 235.8 231.3 630–675 673 808

EDV assets’ total 680–740 700.9 692.3 *845–895 *874 *965

Mana 185–205 202.0 1,050–1,120 1,098

Boungou 130–150 132.0 680–725 689

SFO assets’ total 315–355 334.0 895–960 938

New EDV total 995–1,095 1,034.9 865–915 870

Source: Endeavour Mining, Edison Investment Research. Note: *Includes corporate general and administrative costs.

Endeavour Mining | 21 August 2020 6

EDV FY20 estimates (pre-acquisition and pro forma)

While Endeavour was not entirely unaffected by the coronavirus pandemic in Q220, it is clear that

the effects on its operations were limited to little more than maintenance schedules as a result of

travel restrictions on technical and engineering consultants. Significantly, there was little or no effect

on costs, which were particularly well restrained at both Houndé and Ity (Endeavour’s two most

consequential mines). In the meantime, Endeavour has insured itself as far as possible against the

unexpected in H2 by both setting itself up to operate under Level 2 COVID-19 restrictions (see

COVID-19, below) and also preparing multiple different levels in its pits, from which to produce as

well as de-watering and resupplying ahead of the traditional Q3 rains.

As a result, Edison has left its forecasts and assumptions relatively unchanged for H220, with the

exception of:

◼ Selected costs, which have been revised downwards in the light of Endeavour’s robust cost

control in Q220.

◼ The gold price, which has risen from c US$1,760/oz at the time of our last note (see Maiden

fully consolidated valuation (EDV+SFO), published on 29 June 2020) to over US$1,900/oz at

the time of writing.

◼ Royalty rates to reflect the new gold price.

◼ Estimates of sustaining and non-sustaining capital expenditure, which have been revised in line

with Endeavour’s updated guidance in the wake of its Q2 results (see both Endeavour’s news

release and its management discussion and analysis).

◼ We have shifted some of the advisory fees relating to the SEMAFO acquisition that we had

expected in Q220 into Q320.

In the light of these changes, our updated forecasts for Endeavour (on both a pre-acquisition and a

pro forma basis) for the remainder of the year are as follows in Exhibit 5, overleaf. Readers wishing

to compare the updated forecasts with our prior forecasts may do so by comparing the numbers in

Exhibit 5 with those in Exhibit 1 of our last note.

Endeavour Mining | 21 August 2020 7

Exhibit 5: Endeavour Mining FY20 earnings forecasts, by quarter

US$000s (unless otherwise indicated) Pre-acquisition basis Pro forma (EDV+SFO) basis Reported FY20e Q120 Q220 Q320e Q420e Est Q120 Est Q220 Q320e Q420e FY20e

Houndé production (koz) 55.9 57.4 56.2 81.3 55.9 57.4 56.2 81.3 250.8 250.8

Agbaou production (koz) 27.5 24.4 26.6 35.5 27.5 24.4 26.6 35.5 114.0 114.0

Karma production (koz) 27.6 20.3 20.2 32.2 27.6 20.3 20.2 32.2 100.2 100.2

Ity production (koz) 61.0 46.8 53.7 74.3 61.0 46.8 53.7 74.3 235.8 235.8

Boungou production (koz) 32.0 31.1 19.3 52.1 132.0 71.4

Mana production (koz) 49.9 47.5 52.1 52.5 202.0 104.6

Total gold produced (koz) 171.9 149.0 156.7 223.3 253.8 227.5 228.1 328.0 1,034.9 876.9

Total gold sold (koz) 174.6 149.8 156.7 223.3 251.4 217.5 228.1 328.0 1,025.0 880.4

Gold price (US$/oz) *1,581 *1,689 1,912 1,930 *1,644 *1,697 *1,879 *1,906 *1,772 *1,791

Mine level cash costs (US$/oz) 661 675 608 518 661 697 621 496 601 591

Mine level AISC (US$/oz) 870 939 853 759 867 979 911 789 870 857

Revenue

– Gold revenue 269,902 253,084 291,977 423,250 393,113 369,167 428,482 625,239 1,816,000 1,576,707

Cost of sales

– Operating expenses 114,403 103,308 95,196 115,692 160,064 153,925 141,643 162,507 618,139 521,861

– Royalties 17,452 17,771 20,156 29,604 23,956 24,236 27,860 41,859 117,911 104,942

Gross profit 138,047 132,005 176,626 277,954 209,093 191,006 258,979 420,873 1,079,950 949,904

Depreciation (52,529) (43,760) (38,222) (47,503) (84,061) (75,796) (70,257) (79,539) (309,653) (246,085)

Expenses

– Corporate costs (5,231) (5,049) (6,277) (8,369) (9,954) (9,772) (11,000) (14,667) (45,393) (35,947)

– Impairments 0 0 0 0 0 0 0 0 0 0

– Acquisition etc costs (4,330) (2,589) (7,411) 0 (4,330) (2,589) (7,411) 0 (14,330) (14,330)

– Share based compensation (1,623) (4,942) (5,333) (5,333) (3,197) (6,516) (6,907) (6,907) (23,527) (20,379)

– Exploration costs (1,333) (1,796) (2,750) (2,750) (1,333) (1,796) (2,750) (2,750) (8,629) (8,629)

Total expenses (12,517) (14,376) (21,771) (16,452) (18,814) (20,673) (28,068) (24,324) (91,879) (79,285)

Earnings from operations 73.001 73,869 116,633 213,999 106,218 94,537 160,654 317,010 678,419 624,534

Interest income 0 452 452 452 452 1,808 904

Interest expense (11,662) (11,982) (10,398) (7,463) (14,458) (14,778) (13,194) (10,259) (52,689) (47,097)

Net interest (11,662) (11,982) (10,398) (7,463) (14,006) (14,326) (12,742) (9,807) (50,881) (46,193)

Loss on financial instruments (3,492) (71,931) (3,492) (71,931) 0 0 (75,423) (75,423)

Other expenses 1,935 (1,791) 0 0 (231) (1,791) 0 0 (2,022) 144

Profit before tax 59,782 (11,835) 106,235 206,536 88,489 6,489 147,911 307,203 550,093 503,062

Current income tax 23,699 2,313 30,381 48,873 27,040 7,142 39,297 68,388 141,866 133,696

Deferred income tax 620 8,468 0 0 9,323 8,468 0 0 17,791 9,088

Total tax 24,319 10,781 30,381 48,873 36,363 15,610 39,297 68,388 159,657 142,784

Effective tax rate (%) 40.7 (91.1) 28.6 23.7 41.1 240.6 26.6 22.3 29.0 28.4

Profit after tax 35,463 (22,616) 75,854 157,662 52,126 (9,121) 108,615 238,816 390,436 360,277

Net profit from discontinued ops. 0 0 0 0 0 0 0 0 0 0

Total net and comprehensive income 35,463 (22,616) 75,854 157,662 52,126 (9,121) 108,615 238,816 390,436 360,277

Minority interest 9,465 14,613 13,892 22,442 12,062 17,639 21,461 35,640 86,802 81,179

Minority interest (%) 26.7 (64.6) 18.3 14.2 23.1 (193.4) 19.8 14.9 22.2 22.5

Profit attributable to shareholders 25,998 (37,229) 61,962 135,221 40,064 (26,760) 87,153 203,176 303,633 279,098

Basic EPS from continuing ops (US$) 0.235 (0.335) 0.558 1.218 0.253 (0.169) 0.537 1.251 1.892 2.043

Diluted EPS from continuing ops (US$) 0.235 (0.335) 0.538 1.175 0.243 (0.162) 0.517 1.204 1.821 1.997

Basic EPS (US$) 0.235 (0.335) 0.558 1.218 0.253 (0.169) 0.537 1.251 1.892 2.043

Diluted EPS (US$) 0.235 (0.335) 0.538 1.175 0.243 (0.162) 0.517 1.204 1.821 1.997

Norm. basic EPS from continuing ops (US$) 0.306 0.336 0.625 1.218 0.302 0.301 0.582 1.251 2.451 2.700

Norm. diluted EPS from continuing ops (US$) 0.306 0.336 0.603 1.175 0.291 0.290 0.561 1.204 2.359 2.640

Adj net earnings attributable (US$000s) 33,517 52,793 72,372 139,795 54,310 64,483 98,774 209,068 426,635 394,151

Adj net EPS from continuing ops (US$) 0.303 0.476 0.652 1.259 0.343 0.407 0.608 1.287 2.658 2.885

Source: Endeavour Mining, Edison Investment Research. Note: Company reported basis. *Includes adjustment for Karma stream.

Items included in the reconciliation between adjusted net earnings attributable and total net and

comprehensive earnings are losses from discontinued operations, deferred income tax effects,

gains/losses on financial instruments, other expenses, share-based compensation and acquisition

costs (all shown independently in the table above), plus the tax impact of adjusting items, non-cash

Endeavour Mining | 21 August 2020 8

and other adjustments and the minority interest attributable to the adjusting items (not shown

independently).

Notwithstanding the detailed appearance of our forecasts, readers are nevertheless cautioned that

forecasting on a quarterly basis is prone to large variations between actual and forecast numbers

(eg as demonstrated by difference between Q220a and Q220e in Exhibit 1). To this end, it is worth

noting that the top end of Endeavour’s (pro forma) production guidance is 60.1koz gold (5.8%)

above our forecast for the year, which is worth c US$99.6m in additional revenue to the company

(net of royalties) and therefore has the ability to increase our (pro forma) estimate of Endeavour’s

FY20 profit before tax by c 5.9% (all other things being equal). As such, the exhibit above should be

regarded as indicative, rather than prescriptive, particularly with respect to individual quarters.

Within that context, a comparison between Edison’s FY20 adjusted net EPS from continuing

operations estimates and consensus estimates, by quarter, is as follows:

Exhibit 6: Edison adjusted net EPS from continuing operations estimates vs consensus, FY20, by quarter (US$)

(US$/share) Pre-SFO acquisition Post-SFO acquisition

Q1a Q2a Q3e Q4e FY20e

Edison forecast* 0.343 0.476 0.608 1.287 2.658

Mean consensus forecast 0.343 0.476 0.580 1.010 2.180

High consensus forecast 0.343 0.476 0.940 1.460 3.220

Low consensus forecast 0.343 0.476 0.290 0.720 1.270

Source: Refinitiv, Edison Investment Research. Note: *As per Exhibit 5 on a pro forma basis. Consensus priced 20 August 2020.

Longer-term refinements

In addition to our short-term performance adjustments, we have also refined our longer-term

financial model of Endeavour to reflect, in particular:

◼ Longer-term adjustments to the Houndé mine to reflect updated scheduling regarding the

incorporation of ore from Kari Pump into the mine plan – among other things, increasing the life

of the operation by three years.

◼ Refinements to the Ity mine plan to reflect both recent exploration success and the expansion

of the plant from a throughput rate of 4Mtpa to one of 5Mtpa, forecasts in relation to which have

hitherto been based solely on an assumed acceleration by Edison of the 4Mtpa scenario (see

our note Forecasts up; valuation up, published on 11 November 2019).

A brief summary of the effects of these refinements over the life of each mine’s operations is as

follows:

Exhibit 7: Effect of refinements to long-term Ity and Houndé life of mine plans

Houndé Ity

Gold produced (koz) +451.9 +225.9

Revenue (US$m) +684.6 +322.2

Cash costs (US$m) +332.7 +80.0

Waste stripping (US$m) +148.9 +116.1

Source: Edison Investment Research, Endeavour Mining.

Absolute Endeavour valuation (pro forma)

Endeavour is a multi-asset company that has shown a willingness and desire to trade assets to

maintain production, reduce costs and maximise returns to shareholders (eg the sale of Youga in

FY16, Nzema in FY17 and Tabakoto in FY18 and the acquisition of SEMAFO in FY20). Rather than

our customary method of discounting maximum potential dividends over the life of operations back

to FY20, therefore, we have opted to discount potential cash flows back over three years from FY20

and then to apply an ex-growth terminal multiple of 10x (consistent with using a standardised

Endeavour Mining | 21 August 2020 9

discount rate of 10%) to forecast cash flows in that year (ie FY22). In the normal course of events,

exploration expenditure would be excluded from such a calculation on the basis that it is an

investment. In the case of Endeavour, however, we have included it in our estimate of FY22 cash

flows on the grounds that it may be a critical component of ongoing business performance in its

ability to continually expand and extend the lives of the company’s assets. Note that, in the

aftermath of the acquisition, the combined entity’s immediate strategic imperatives will be the

continuation of exploration at Ity and Houndé plus investigating the potential to extend the mine

lives of Mana and Boungou.

In the aftermath of Q220 results, and given the longer-term refinements summarised above, our

estimate of Endeavour’s cash flow in FY22 is US$5.17 per share (cf US$5.39 per share previously

– the decline being almost exclusively attributable to our assumption of higher long-term royalty

rates). On this basis, our terminal valuation of the company at end-FY22 is US$51.74/share (cf

US$53.89/share previously), which (in conjunction with forecast intervening cash flows) discounts

back to a value of US$43.34/share at the start of FY20 (cf US$44.90/share previously).

Exhibit 8: Endeavour forecast valuation and cash flow per share, FY20–22e (US$/share)

Source: Edison Investment Research

Relative Endeavour valuation

Endeavour’s valuation on a series of commonly used measures, relative to a selection of gold

mining majors (the ranks of which it has now joined since its takeover of SEMAFO has been

completed), is as follows:

Exhibit 9: Endeavour valuation relative to peers

Company Ticker Price/cash flow (x) EV/EBITDA (x)

Year 1 Year 2 Year 3 Year 1 Year 2 Year 3

Endeavour (Edison)* EDV 5.4 5.2 5.0 4.9 **4.3 **3.7

Endeavour (consensus) EDV 5.8 4.6 4.9 6.4 4.3 5.0

Majors

Barrick ABX 11.2 9.8 10.1 10.2 8.9 9.8

Newmont NEM 12.8 9.6 10.4 10.2 7.6 8.4

Newcrest NCM AU 10.6 11.8 13.6 9.0 10.2 11.2

Kinross K 6.7 5.8 5.7 6.1 5.2 5.3

Agnico-Eagle AEM 17.3 11.6 12.0 14.5 9.9 10.4

Eldorado ELD 4.7 5.1 5.0 4.2 4.6 4.8

Average 10.5 8.9 9.5 9.0 7.7 8.3

Source: Edison Investment Research, Refinitiv. Note: *Pro forma basis. **Forecast EV. Consensus and peers priced at 20 August 2020.

Of note is the fact that Endeavour’s valuation is materially cheaper than the averages of the majors

on all six measures shown in Exhibit 9, regardless of whether Edison or consensus forecasts are

25.00

30.00

35.00

40.00

45.00

50.00

55.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2020 2021 2022

Cash-flow per share (US$, LHS) Valuation (US$/share, RHS)

Endeavour Mining | 21 August 2020 10

used. On an individual basis, it is cheaper than the majors on 32 out of 36 (88.9%) valuation

measures, again, regardless of whether Edison or consensus forecasts are used.

Financials

Endeavour had US$472.6m net debt on its balance sheet at end-Q220 (cf US$476.6m at end-

Q120), giving it a gearing (net debt/equity) ratio of 66.4% and a leverage (net debt/[net

debt+equity]) ratio of 39.9%. Note that this net debt figure of US$472.6m excludes the US$92.7m

value of the conversion option inherent in its convertible bond. The notes are convertible at a rate of

41.84 common shares per US$1,000 nominal (or an equivalent conversion price of US$23.90 per

share – ie below Endeavour’s current share price) and mature on 15 February 2023. Among other

things, the rise in the value of the conversion option (ostensibly as a result of Endeavour’s share

price increasing) gave rise to an albeit unrealised loss of US$63.9m for the three-month period to

end-June 2020 (see Risks and sensitivities – Gains or losses on financial instruments, below).

On a pro forma basis however (and including the 3 July US$100m cash investment from its major

shareholder, La Mancha), the enlarged group’s net debt was US$309m (cf US$515.3m at end-

Q419). Relative to our estimate of the enlarged Endeavour’s pro forma balance sheet as at 31

December 2019, this level of net debt equated to a gearing (net debt/equity) ratio of 20.4% and a

leverage (net debt/[net debt + equity]) ratio of 16.9%. Perhaps more significantly, an underlying

reduction in net debt of US$116m in six months would suggest the elimination of net debt at

Endeavour in 16 months’ time (on a pro rata basis). Given the much stronger performance that we

expect from the enlarged Endeavour’s six mines in H220 however, coupled with a stronger gold

price environment and an absence of capex commitments, we believe that the company could in

fact be net debt free as early as the beginning of the next financial year, at which point it would be

in a position to make a dividend distribution to shareholders.

Post balance sheet events – Fetekro

On 18 August, Endeavour announced both an upgraded mineral resource estimate (of 2.5Moz) at,

and an initial preliminary economic assessment (PEA) on, its Lafigué deposit at Fetekro in central

Côte d’Ivoire (albeit the PEA was based on the previous resource estimate of 1.2Moz).

Updated Lafigué mineral resource estimate

The Lafigué deposit is hosted by a deformed Birimian volcanic complex and intruded into by

granodioritic bodies and quartz-porphyry dykes. The mineralisation is mainly controlled by an ENE-

trending brittle-ductile thrust fault, with shear bands located at the edges of the granodioritic

intrusive or at a basalt/gabbro interface. Mineralisation at Lafigué has been recognised over 2km

along an ENE axis and, to date, the down dip extension has been demonstrated over 1km. A

summary of the updated resource, relative to its size as at 31 August 2019 (see Endeavour’s

announcement: Endeavour increases indicated resources at Fetekro by 141% to 1.2Moz, dated 3

September 2019) is as follows:

Endeavour Mining | 21 August 2020 11

Exhibit 10: Lafigué updated mineral resource estimate (31 July 2020)

Updated Previous Change (units) Change (%)

Category Mt g/t koz Mt g/t koz Mt g/t koz % % %

Measured 0.0 0.00 0 0.0 0.00 0 0.0 N/A 0 N/A N/A N/A

Indicated 32.0 2.40 2,471 14.6 2.54 1,190 17.4 2.29 1,281 119.2 (5.5) 107.6

Inferred 0.8 2.52 66 0.9 2.17 60 (0.1) (1.87) 6 (11.1) 16.1 10.1

Total 32.8 2.41 2,537 15.5 2.51 1,250 17.3 2.31 1,287 111.6 (4.1) 102.9

Source: Endeavour Mining, Edison Investment Research. Note: Resources were constrained by pit shell and based on a cut-off of 0.5/gt Au.

Resources were constrained by a pit shell at a gold price of US$1,500/oz, but are relatively

invariant to changes in this gold price (eg ±<4% for a ±13.3%, or US$200/oz, change in the gold

price for resources in the indicated category) consistent with their being contained within relatively

discreet geological units. Otherwise, the deposit is characterised by relatively straightforward

metallurgy (see below) and high gold recoveries as well as being located close to existing

infrastructure.

Mineralisation remains open at depth as well as along strike and Endeavour expects to initiate a

10,000m drilling campaign in Q4 to test Target 2, to the east, and Targets 1 & 4, to the south, of

Lafigué. In addition, the strong gold in-soil anomalies (>500ppb) located in the central area and

Target 12 will be investigated via reverse circulation reconnaissance drilling. The western targets

identified in the 2018–19 campaign will also be further explored in a dedicated exploration

programme in FY21.

Preliminary economic assessment (PEA)

An initial PEA based on the previously announced 1.2Moz resource (see Exhibit 10) has now been

completed by Endeavour in conjunction with consultants Lycopodium (cost estimates and project

implementation), Snowden (mining) and Knight Piésold (infrastructure, water management and

tailings).

Metallurgical test-work demonstrated that the gold is free milling with very high gravity/leach

extractions, while a mineralogical investigation indicated that much of the gold occurs as free

grains. The test-work also showed that there were few deleterious elements for gold leaching with

low levels of base metals and arsenic. Leaching was reported to be rapid, for all grind sizes

following gravity gold recovery, with the bulk of the gold dissolution occurring within four to eight

hours. Put together, these results suggested a conventional gravity/carbon-in-leach processing

route, which was duly adopted for the purposes of the PEA. A summary of the results of the initial

PEA is provided in the table below:

Endeavour Mining | 21 August 2020 12

Exhibit 11: Fetekro project preliminary economic assessment results

Measure Value

Operation type

Mine type Open pit

Mill type 1.5Mtpa gravity/CIL plant

Life of mine production

Mine life (years) 8

Stripping ratio (waste/ore) 7.35

Tonnes processed (Mt) 13.14

Grade processed (g/t) 2.38

Gold contained, processed (Moz) 1.00

Average metallurgical recovery (%) 95

Gold production (Moz) 0.95

Average annual production (koz pa) 119

Operating costs

Cash costs (US$/oz) 592

AISC (US$/oz) 697

Capital cost

Initial capital expenditure (US$m) 268

Capital intensity (US$/total ounce produced) 282

Capital intensity (US$/average annual oz of production) 2,252

Economics*

Pre-tax internal rate of return (%) 37

Post-tax net present value at 5% discount rate (US$m) 272

Payback period (years) 1.80

Source: Endeavour Mining, Edison Investment Research. Note: *Based on a US$1,500/oz gold price.

Operating costs were estimated to be US$2.82/t for open pit mining and re-handling, US$16.37/t for

processing and US$4.88/t (processed) for general & administrative costs. Capital costs include a

15km all-weather unsealed road plus 9km of on-site roads, an overhead power line and grid

connection, a full back-up power station on-site, costs for water harvesting and storage,

accommodation for 220 employees and security personnel, tailings and fuel storage. In addition, no

major village relocation is required.

At present, Fetekro’s post-tax NPV5 of US$272m equates to a value of US$1.68 per share (post-

acquisition basis). An updated PEA, based on the updated 2.5Moz resource (see Exhibit 10) is

currently underway and expected to be published in Q4. In due course, Endeavour believes that

Fetekro has the potential to be its highest grade operation, with >2.0Moz at grades above 3.50g/t

(based on a cut-off of 1.5g/t).

Endeavour Mining | 21 August 2020 13

Exhibit 12: Financial summary

US$'000s 2018 2019 2020e 2021e 2022e

December

IFRS IFRS IFRS IFRS IFRS

PROFIT & LOSS

Revenue 1,048,636 1,362,121 1,816,000 2,033,958 1,931,101

Cost of Sales

(669,719) (884,869) (827,929) (1,021,299) (890,918)

Gross Profit

378,917 477,252 988,072 1,012,658 1,040,184

EBITDA 378,917 618,443 1,002,402 1,026,988 1,040,184

Operating Profit (before amort. and except.) 106,090 281,400 692,749 670,241 783,075

Intangible Amortisation

0 0 0 0 0

Exceptionals

8,035 (199,159) (89,753) (14,330) 0

Other

(3,171) (9,392) (2,022) 0 0

Operating Profit

110,954 72,849 600,974 655,911 783,075

Net Interest

(27,110) (51,607) (50,881) (1,989) 5,138

Profit Before Tax (norm) 75,809 220,401 639,846 668,253 788,213

Profit Before Tax (FRS 3) 83,844 21,242 550,093 653,923 788,213

Tax

(73,637) (97,253) (159,657) (156,818) (151,237)

Profit After Tax (norm)

2,172 123,148 480,189 511,434 636,976

Profit After Tax (FRS 3)

10,207 (76,011) 390,436 497,104 636,976

Net loss from discontinued operations

(154,795) (4,394) 0 0 0

Minority interests

8,460 33,126 86,802 88,521 104,788

Net profit

(144,588) (80,405) 390,436 497,104 636,976

Net attrib. to shareholders contg. businesses (norm) (16,292) 90,022 393,386 422,914 532,188

Net attrib.to shareholders contg. businesses

(8,257) (109,137) 303,633 408,584 532,188

Average Number of Shares Outstanding (m)

155.3 157.4 160.4 162.2 162.2

EPS - normalised ($) (0.10) 0.57 2.45 2.61 3.28

EPS - normalised and fully diluted ($) (0.10) 0.57 2.36 2.51 3.16

EPS - (IFRS) ($) (0.99) (0.72) 1.89 2.52 3.28

Dividend per share (p)

0.0 0.0 0.0 58.1 154.6

Gross Margin (%)

36.1 35.0 54.4 49.8 53.9

EBITDA Margin (%)

36.1 45.4 55.2 50.5 53.9

Operating Margin (before GW and except.) (%)

10.1 20.7 38.1 33.0 40.6

BALANCE SHEET

Fixed Assets 1,594,202 2,330,033 2,372,920 2,207,633 1,997,454

Intangible Assets

4,186 5,498 5,498 5,498 5,498

Tangible Assets

1,543,842 2,254,476 2,297,363 2,132,076 1,921,897

Investments

46,174 70,059 70,059 70,059 70,059

Current Assets 327,841 652,871 1,181,778 1,834,497 2,345,543

Stocks

126,353 266,451 349,231 391,146 371,366

Debtors

74,757 83,836 110,017 187,138 178,684

Cash

124,022 288,186 783,555 1,317,239 1,856,518

Other

2,709 14,398 (61,025) (61,025) (61,025)

Current Liabilities (248,420) (354,931) (412,762) (494,244) (458,257)

Creditors

(224,386) (312,427) (370,258) (451,740) (415,753)

Short term borrowings

(24,034) (42,504) (42,504) (42,504) (42,504)

Long Term Liabilities (729,290) (963,736) (963,736) (963,736) (963,736)

Long term borrowings

(618,595) (770,902) (770,902) (770,902) (770,902)

Other long term liabilities

(110,695) (192,834) (192,834) (192,834) (192,834)

Net Assets 944,333 1,664,237 2,178,200 2,584,150 2,921,004

CASH FLOW

Operating Cash Flow 394,984 628,617 940,656 998,631 1,032,431

Net Interest

(26,734) (35,413) (50,881) (1,989) 5,138

Tax

(36,140) (109,494) (141,866) (156,818) (151,237)

Capex

(689,469) (401,227) (352,540) (191,460) (46,930)

Acquisitions/disposals

33,179 3,654 0 0 0

Financing

(7,820) 2,402 100,000 0 0

Dividends

(1,956) (6,154) 0 (114,681) (300,122)

Net Cash Flow

(333,956) 82,385 495,369 533,683 539,280

Opening net debt/(cash) 218,140 518,607 525,220 29,851 (503,833)

HP finance leases initiated

0 0 0 0 0

Other

33,489 (88,998) 0 0 0

Closing net debt/(cash) 518,607 525,220 29,851 (503,833) (1,043,112)

Source: Company sources, Edison Investment Research. Note: Presented on pro forma basis (except FY18 balance sheet). EPS normalised from 2018 to reflect continuing business only. *Excludes restricted cash.

Endeavour Mining | 21 August 2020 14

Appendix

Risks and sensitivities

Gains or losses on financial instruments

Gains/losses on financial instruments are usually of a non-cash nature and invariably excluded from

analysts’ forecasts. In the recent past, they have arisen from two sources at Endeavour: 1) its gold

revenue protection programme (which has now been discontinued); and 2) unrealised gains/losses

on its convertible senior bond derivative, which is a notional accounting entry, ironically, reflecting

rises in Endeavour’s share price (see Exhibit 14). As such, they are both of an ‘exceptional’ nature

and ignored by most (if not all) investors. A discussion of each of these items is conducted here for

no other reason than to make readers aware of the potential for gains/losses in the future – despite

the fact that they will almost certainly be of a non-cash nature relating to the derivative notionally

assumed to be embedded in the convertible – and the magnitude of these, albeit paper, losses.

During the year ended 31 December 2019, Endeavour put in place a gold revenue protection

programme in order to maximise cash flow certainty during its debt reimbursement phase. Similar

to the strategy it put in place during its recent construction phases, this comprises a deferred

premium collar strategy using written (sold) call options and bought put options to (effectively)

create a synthetic short position. The programme began on 1 July 2019 and ended on 30 June

2020 and covered a total of 360,000oz, with a floor price of US$1,358/oz and a ceiling price of

US$1,500/oz. As at 31 March, 120,000oz remained outstanding under the collar derivative liability,

implying (among other things) that contracts over this number of ounces were exercised in Q220,

which we estimated at the time of our last note could have resulted in a net loss of US$33.6m, but

which, in fact, only gave rise to a US$10.171m loss (see Exhibit 13).

Exhibit 13: Gain/loss on gold revenue protection programme (US$000s)

US$000s (unless otherwise indicated) Q220e Q220 Q120 Q419 Q319 Q219

Realised gain/(loss) on gold revenue protection strategy programme (4,426) (1,633)

Unrealised gain/(loss) on gold price protection strategy 7,229 (6,505)

Reported Gain/(loss) on gold revenue protection programme (10,171) (10,985) 2,803 (8,138)

Gold price at end of period (US$/oz) 1,764 1,780 1,608 1,514 1,485 1,409

Gold price change during period (%) +9.7 +10.7 +6.2 +2.0 +5.4

Maximum gold price during period (US$/oz) 1,768 1,780 1,683 1,517 1,546

Gold price difference relative to US$1,500/oz (US$/oz) *268 *280 *183 *17 *46

Estimated ounces in programme exercised (oz) 120,000 120,000 90,000 75,000 75,000

Estimated potential realised gain/(loss) (32,160) (33,600) (16,470) (1,275) (3,450)

Source: Endeavour Mining, Edison Investment Research. Note: *Based on maximum gold price during period.

In Q2 however, this loss was overshadowed by the US$63.9m (unrealised) loss on the convertible

senior note derivative referred to in the ‘Financials’ section of this note (above) and which is

similarly analysed below with respect to Endeavour’s share price:

Exhibit 14: Endeavour gain/(loss) on financial instruments, Q319–Q220 (US$000s)

Item Q220 Q120 Q419 Q319 Q219

Gain/(loss) on other financial instruments 535 55 (982) (1,307)

Change in value of receivable relating to sales of Tabakoto and Nzema (175) (132) 35 (22,389)

Realised gain on forward contract 0 6,686 0 0

Gain/(loss) on gold revenue protection programme (10,171) (10,985) 2,803 (8,138)

Unrealised gain/(loss) on convertible senior bond derivative (63,893) 2,675 3,930 (14,168)

Gain/(loss) on foreign exchange 1,773 (1,751) (3,592) (3,526)

Total gain/(loss) on financial instruments (71,931) (3,492) 2,194 (49,528)

EDV share price at period end (US$) 24.12 14.11 18.90 19.12 24.12

Share price change in period (US$) +10.01 -4.79 -0.22 -5.00

(Profit)/loss per US$1 of share price movement (US$m) 6.4 0.6 17.9 (2.8)

Source: Endeavour Mining. Note: Totals may not add up owing to rounding.

Endeavour Mining | 21 August 2020 15

At first glance, a US$10 appreciation in Endeavour’s shares giving rise to a US$63.4m loss on its

convertible would suggest a loss of US$6.4m per US$1 by which Endeavour’s shares appreciate.

In fact, as at end-Q220, Endeavour’s share price was very slightly above its conversion price of

US$23.90 – hence the Q2 loss is likely to have been close to its maximum possible, given that both

the intrinsic value of the presumed embedded option will have been increasing rapidly at the same

time as its option value. Beyond this level, while the intrinsic value of the embedded option will

continue to increase, the option value should moderate. Given the number of shares into which the

bond is convertible, we estimate that for each US$1 appreciation in the price of its shares beyond

US$23.90, Endeavour should record a loss of no more than US$13.8m. As before however, given

the inherent uncertainties surrounding gains (or losses) from financial instruments, they have been

excluded from our forecasts in Exhibits 5 and 12 and are anyway excluded from the calculation of

adjusted net earnings and analysts’ forecasts.

COVID-19

National and regional response

Since the onset of the pandemic, governments in West Africa have acted decisively to implement

appropriate response measures, using (where appropriate) their recent experience in dealing with

Ebola in the region as a precedent. Out of three states of alert, West Africa is currently at a ‘Level 1’

state of readiness (ie that the virus remains predominantly outside West Africa), with the potential to

escalate this to ‘Level 2’. In practice, this means that both Burkina Faso and the Ivory Coast have

closed their borders and commercial flights both into and out of the countries have been

suspended. Within this framework however, ‘key industries’ are allowed to remain operating and, in

both countries, ministers are reported to be very keen that gold mining should continue. For their

own protection therefore, mines have been isolated from the rest of the country.

Whether as a direct result of these measures or not, of all of the (populated) continents in the world,

Africa to date appears to have been the least affected by COVID-19, albeit this may, in part, reflect

Africa’s relatively youthful population dynamic (the median age in Africa being just 19.7).

Company response

Endeavour has been supporting the national response in close collaboration with the health

authorities in its host countries. In addition, it has mobilised and dispatched an expert medical

response team to the region to provide it with an on-hand unit to respond rapidly to any infections

that might arise at its mines.

In early March 2020, Endeavour put in place a business continuity plan to mitigate the risks and

potential impact of the global COVID-19 pandemic, which has three levels of response:

◼ Level 1 involves a range of preventative measures including temperature checks, restricted

access to sites, social distancing, increased hygiene standards and mandatory quarantine

periods for employees arriving in-country, while otherwise continuing operations as normal.

◼ Level 2 is designed to be initiated should COVID-19 become more prevalent in the countries in

which the group operates and involves comprehensive restrictions on movement into and out of

the mines. Under these circumstances, Endeavour’s mines would be isolated, but mining

operations and the shipment of gold would continue.

◼ Level 3 involves the full or partial suspension of mining and processing operations.

To date, the group is operating under Level 1 restrictions only. In addition, the group has also taken

a number of pro-active steps, including:

Endeavour Mining | 21 August 2020 16

◼ Assessing its supply chains with a focus on ensuring continuity of supply in a range of

scenarios. In this case, Endeavour’s shift to national suppliers located within host countries

over the past 12 months has mitigated the impact of closed borders.

◼ To ensure that it has access to substantial liquidity and financial flexibility to operate under

various stress-test scenarios, Endeavour drew down the entirety of its available revolving credit

facility (RCF) in Q120, albeit it has now commenced repaying the RCF and expects to continue

to reduce the drawn amount throughout Q320 and Q420.

◼ It has assessed its ability to curtail its operations to selectively mine higher-grade ore at low

stripping ratios should mining activity need to be reduced in response to an increase in COVID-

19 prevention measures.

At the current time, each of the company’s operations are continuing to manage and respond to

COVID-19 within the framework of the company’s incident management and response plan, which

was activated at the outbreak of pandemic and has been validated by an epidemiologist special

advisor to the company. As part of the response, a business continuity programme has been put in

place to protect employees while ensuring the safe operation of the company and its mines. Since

early March, access to all mine sites has been strictly controlled with health screening in place for

visitors, employees and contractors, and all non-essential travel has been cancelled. Endeavour

has also asked any employee or contractor who is feeling unwell to stay at home and office workers

are required to work from home. Subsequently, it further augmented its preventive measures by

introducing a mandatory 14-day quarantine period for any employees or contractors arriving in

West Africa.

Consequently, Endeavour states that it has not witnessed any impact to production or operations at

any of its mines or exploration activities as a result of COVID-19. In the meantime, suppliers have

confirmed that placed and forecast orders are intact and the company has stated a readiness to

charter its own planes, if necessary, in order to keep its operations supplied.

From a financial perspective, Endeavour calculates its cash-burn rate to be of the order of

c US$70m per month (for its four pre-acquisition mines), with the potential to reduce to US$25–30m

per month (including paying all salaries) in the event that its mines are put on care and

maintenance. As such, its (pre-acquisition) cash balance of US$352m equates to approximately five

months’ worth of costs at current rates of operation or approximately one year’s worth at reduced

rates.

Endeavour Mining | 21 August 2020 17

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