Industria
Endeavour Reports Strong Q1-2022 Results
ENDEAVOUR REPORTS STRONG Q1-2022 RESULTS
Production of 357koz at AISC of $848/oz l Operating cash flow of $299m l Net cash position increased by $90m
London, 5 May 2022 – Endeavour Mining plc (LSE:EDV, TSX:EDV, OTCQX:EDVMF) (“Endeavour”, the “Group” or the “Company”) is pleased to announce its operating and financial results for Q1-2022, with highlights provided in Table 1 below.
Table 1: Highlights for Continuing Operations
Management will host a conference call and webcast today, on Thursday 5 May at 8:30 am EDT / 1:30 pm BST. For instructions on how to participate, please refer to the conference call and webcast section at the end of the news release.
Sebastien de Montessus, President and CEO, commented: “We are pleased to have started the year on a strong footing with both production and all-in sustaining costs well positioned to meet full year guidance.
This performance has resulted in robust cash flow generation during the quarter which, in line with our capital allocation framework, was used to further strengthen our balance sheet, to continue our attractive shareholder returns programme, and to reinvest back into our business. Our net cash position has improved by $90 million to reach $167 million by the end of the quarter, and we also returned more than $100 million to shareholders over the period through dividends and buybacks.
We are focused on continuing to enhance our business resilience by improving the quality of our portfolio through our attractive organic growth opportunities and optimisation initiatives. As such, we have recently begun the expansion of Sabodala-Massawa and the DFS for our Lafigué project is nearing completion. In addition, we are continuously working on improving the efficiency of our operations by identifying and pursuing high priority optimisation initiatives, in an effort to remain a low-cost producer despite the industry-wide inflationary pressures.
Endeavour's robust operational and financial performance this quarter demonstrates the strong momentum across our business and we look forward to the remainder of the year.”
UPCOMING CATALYSTS
The key upcoming expected catalysts are summarised in the table below.
Table 2: Key Upcoming Catalysts
OPERATING SUMMARY
Table 3: Group Production and FY-2022 Guidance
Table 4: Group All-In Sustaining Costs and FY-2022 Guidance
SHAREHOLDER RETURNS PROGRAMME
Table 5: Cumulative Shareholder Returns Delivered
CASH FLOW AND LIQUIDITY SUMMARY
The table below presents the cash flow and net debt position for Endeavour for the three month period ending 31 March 2022, with accompanying notes below.
Table 6: Cash Flow and Net Debt Position
NOTES:
1) Operating cash flows decreased by $51.6 million from $355.9 million (or $1.43 per share) in Q4-2021 to $304.3 million (or $1.23 per share) in Q1-2022 mainly due to a working capital outflow and a decrease in gold sales. Operating cash flow before working capital increased by $66.5 million from $303.1 million (or $1.22 per share) in Q4-2021 to $369.6 million (or $1.49 per share) in Q1-2022 largely due to the higher realised gold price. Notable variances are summarised below:
2) Cashflows used in investing activities decreased by $38.5 million from $132.3 million in Q4-2021 to $93.8 million in Q1-2022 due to decreased expenditure on mining interests at Houndé, Ity and Sabodala-Massawa which was partially offset by an increase at Mana:
3) Cash flows used in financing decreased by $21.1 million from $71.2 million in Q4-2021 to $50.1 million in Q1-2022. Financing activities for Q1-2022 primarily consisted of a shareholder dividend payment of $69.3 million (net of shares cancelled), payments for the acquisition of the Company's own shares of $31.1 million, payments of financing and other fees of $6.1 million which includes interest of $5.0 million. Cash flows used by financing activities was partially offset by a drawdown on the revolving credit facility (“RCF”) of $50.0 million and proceeds received from the exercise of warrants of $13.9 million.
4) At quarter-end, Endeavour's liquidity remained strong with $1,046.6 million of cash on hand and $450.0 million undrawn under the RCF.
5) In Q4-2021, Endeavour restructured its debt replacing its corporate loan facility with $500.0 million fixed rate senior notes and a $500.0 million unsecured RCF, which was undrawn at the end of Q4-2021. At the end of Q1-2022, Endeavour had $50.0 million drawn on the RCF.
6) Endeavour ended Q1-2022 with a net cash financial position of $166.6 million. Net cash increased by $90.4 million during Q1-2022 despite completing $31.1 million of shares buyback and payment of $69.3 million in shareholder dividends.
7) Given the net cash position, the Net Debt / Adjusted EBITDA (LTM) leverage ratio stood at (0.11)x at year-end, down from (0.05)x in Q4-2021, and well below the Company's target of less than 0.50x. The net cash position provides the flexibility to continue to supplement shareholder returns while maintaining headroom to fund organic growth.
EARNINGS FROM CONTINUING OPERATIONS
The table below presents the earnings and adjusted earnings for Endeavour for the three month period ending 31 March 2022, with accompanying notes below.
Table 7: Earnings from Continuing Operations
NOTES:
8) Revenue increased by $22.8 million from $663.4 million in Q4-2021 to $686.2 million in Q1-2022 mainly due to the higher realised gold price in Q1-2022 of $1,911 per ounce compared to $1,787 per ounce for Q4-2021, which was offset slightly by lower gold sales from the Sabodala-Massawa, Houndé, and Wahgnion mines.
9) Operating expenses decreased by $9.8 million from $227.3 million in Q4-2021 to $217.5 million in Q1-2022 due in part to decreased levels of production at the Boungou, Houndé, Sabodala-Massawa and Wahgnion mines. Depreciation and depletion decreased by $39.1 million from $191.1 million in Q1-2022 to $152.0 million mainly due to lower levels of production at the Boungou, Houndé, Sabodala-Massawa and Wahgnion mines.
10) Royalties were in line with the prior quarter at $41.0 million in Q1-2022 compared to Q4-2021 with higher realised prices offsetting lower gold sales.
11) Corporate costs were $14.0 million in Q1-2022 compared to $20.3 million in Q4-2021. The decrease in corporate costs is primarily due to the cessation of costs associated with corporate integration and the LSE listing that were previously incurred.
12) The loss on financial instruments was $178.8 million in Q1-2022 compared to a gain of $18.6 million in Q4-2021. The loss in Q1-2022 was mainly due to an unrealised loss on gold forward sales of $79.2 million and an unrealised loss on gold collars of $43.8 million, both of which are detailed below. In addition, the loss included a foreign exchange loss of $19.5 million, an unrealised loss on the revaluation of the conversion option on convertible notes of $18.0 million, a realised loss on gold forward sales of $7.0 million, a loss on change in fair value of the call rights of $4.4 million, a loss on change in the fair value of the early redemption feature of senior notes of $4.0 million, a loss on change in fair value of warrant liabilities of $3.3 million and a loss on other financial instruments of $0.2 million. This was slightly offset by a gain on the fair value of contingent considerations of $0.4 million and a gain in the fair value of receivables of $0.2 million.
As previously disclosed in Endeavour's FY-2021 operating results announcement on 24 January 2022, Endeavour entered into a revenue protection programme for a portion of its production across FY-2022 and FY-2023, to provide greater cash flow visibility during its investment phase. This was structured as an upfront low premium collar with a put price of $1,750 per ounce and a call price of $2,100 per ounce for 75koz of production per quarter, from Q1-2022 until Q4-2023. In Q1-2022, the realised gold price was was within the gold price range of the collar. In addition, the Company entered into a forward sales contract for approximately 520koz of production in FY-2022 and 120koz of production in FY-2023 at an average gold price of $1,831 per ounce and $1,828 per ounce respectively. In Q1-2022, in order to benefit from the high gold price environment, the forward sales contracts were restructured, whereby 165koz, previously expected to settle in Q1-2022, were deferred to settle later in the year, with an overall higher average price of $1,840 per ounce for FY-2022. As such, only 65koz ounces of forward contracts were settled in Q1-2022, resulting in a loss of $7.0 million in Q1-2022. At quarter-end, the forward sales contracts outstanding for FY-2022 amounted to 574koz, with 99koz, 179koz, and 176koz scheduled to be delivered in Q2-2022, Q3-2022, and Q4-2022, respectively, and the remainder in FY-2023.
13) Current income tax expense increased by $36.5 million from $38.2 million in Q4-2021 to $74.7 million in Q1-2022 due largely to increased tax expenses at Mana and Sabodala-Massawa. Tax expenses at Mana were $8.0 million in Q1-2022 compared to a $3.6 million tax recovery in Q4-2021, largely due to an increase in taxable income in Q1-2022, relative to a reduction in tax provisions recognised in Q4-2021. At Sabodala-Massawa, tax expense was $30.8 million compared to $1.6 million incurred in Q4-2021 with the difference largely attributed to the tax expense related to the start-up of mining at the Massawa pits and the inclusion of a full quarter's results in Q1-2022.
14) Deferred income tax recovery decreased by $45.3 million from $34.1 million in Q4-2021 to a deferred income tax expense of $11.2 million in Q1-2022. The decrease is primarily due to decreased recoveries at Boungou and Sabodala-Massawa. The deferred tax expense in Q1-2022 is mainly related to the impact of the changes in foreign exchange rates on the deferred tax liabilities in the quarter.
15) A net comprehensive loss from continuing operations of $35.2 million was recorded for Q1-2022 compared to a net comprehensive loss of $92.4 million in Q4-2021. The difference is largely attributed to the impairment recorded last quarter at Boungou, partially offset by lower group operating costs in Q1-2022.
16) For Q1-2022, adjustments mainly included a loss on financial instruments of $178.8 million largely related to the realised loss on forward sales and the unrealised loss on gold collars, other expenses of $2.0 million, positive non-cash adjustments of $1.2 million, and acquisition and restructuring costs of $0.2 million.
17) Adjusted net earnings attributable to shareholders for continuing operations decreased by $25.6 million to $122.3 million (or $0.49 per share) in Q1-2022 compared to $147.9 million (or $0.59 per share) in Q4-2021 due largely to higher margins driven by lower operating expense and depreciation.
OPERATING ACTIVITIES BY MINE
Boungou Gold Mine, Burkina Faso
Table 8: Boungou Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Houndé Gold Mine, Burkina Faso
Table 9: Houndé Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Ity Gold Mine, Côte d'Ivoire
Table 10: Ity Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Mana Gold Mine, Burkina Faso
Table 11: Mana Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Sabodala-Massawa Gold Mine, Senegal
Table 12: Sabodala-Massawa Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Plant Expansion
Wahgnion Gold Mine, Burkina Faso
Table 13: Wahgnion Performance Indicators
Q1-2022 vs Q4-2021 Insights
2022 Outlook
Karma Gold Mine, Burkina Faso (divested 10 March 2022)
Table 14: Karma Performance Indicators
Karma Sale Insights
Q1-2022 Insights
EXPLORATION ACTIVITIES
Table 15: Consolidated Q1-2022 exploration expenditures and 2022 guidance
Boungou mine
Houndé mine
Ity mine
Mana mine
Sabodala-Massawa mine
Wahgnion mine
Lafigué project, on the Fetekro property
Kalana project
Greenfield exploration projects
CONFERENCE CALL AND LIVE WEBCAST
Management will host a conference call and webcast on Thursday 5 May, at 8:30 am EDT / 1:30 pm BST to discuss the Company's financial results.
The conference call and webcast are scheduled at:
5:30am in Vancouver
8:30am in Toronto and New York
1:30pm in London
8:30pm in Hong Kong and Perth
The webcast can be accessed through the following link:
https://edge.media-server.com/mmc/p/55p7fdw4
Analysts and investors are also invited to participate and ask questions using the dial-in numbers below:
International: +44 (0) 207 192 8338
North American toll-free: +1 877 870 9135
UK toll-free: +44 (0) 800 279 6619
Confirmation Code: 6960096
The conference call and webcast will be available for playback on Endeavour's website.
QUALIFIED PERSONS
Clinton Bennett, Endeavour's VP Metallurgy and Process Improvement - a Fellow of the Australasian Institute of Mining and Metallurgy, is a "Qualified Person" as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") and has reviewed and approved the technical information in this news release.
CONTACT INFORMATION
ABOUT ENDEAVOUR MINING CORPORATION
Endeavour Mining is one of the world's senior gold producers and the largest in West Africa, with operating assets across Senegal, Cote d'Ivoire and Burkina Faso and a strong portfolio of advanced development projects and exploration assets in the highly prospective Birimian Greenstone Belt across West Africa.
A member of the World Gold Council, Endeavour is committed to the principles of responsible mining and delivering sustainable value to its employees, stakeholders and the communities where it operates. Endeavour is admitted to listing and to trading on the London Stock Exchange and the Toronto Stock Exchange, under the symbol EDV.
For more information, please visit www.endeavourmining.com.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This document contains "forward-looking statements" within the meaning of applicable securities laws. All statements, other than statements of historical fact, are “forward-looking statements”, including but not limited to, statements with respect to Endeavour's plans and operating performance, the estimation of mineral reserves and resources, the timing and amount of estimated future production, costs of future production, future capital expenditures, the success of exploration activities, the expectation that an exploration permit will be received, the anticipated timing for the payment of a shareholder dividend and statements with respect to future dividends payable to the Company's shareholders, the completion of studies, mine life and any potential extensions, the future price of gold and the share buyback programme. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "expects", "expected", "budgeted", "forecasts", "anticipates", believes”, “plan”, “target”, “opportunities”, “objective”, “assume”, “intention”, “goal”, “continue”, “estimate”, “potential”, “strategy”, “future”, “aim”, “may”, “will”, “can”, “could”, “would” and similar expressions .
Forward-looking statements, while based on management's reasonable estimates, projections and assumptions at the date the statements are made, are subject to risks and uncertainties that may cause actual results to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to the successful integration of acquisitions or completion of divestitures; risks related to international operations; risks related to general economic conditions and the impact of credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; Endeavour's financial results, cash flows and future prospects being consistent with Endeavour expectations in amounts sufficient to permit sustained dividend payments; the completion of studies on the timelines currently expected, and the results of those studies being consistent with Endeavour's current expectations; actual results of current exploration activities; production and cost of sales forecasts for Endeavour meeting expectations; unanticipated reclamation expenses; changes in project parameters as plans continue to be refined; fluctuations in prices of metals including gold; fluctuations in foreign currency exchange rates; increases in market prices of mining consumables; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; extreme weather events, natural disasters, supply disruptions, power disruptions, accidents, pit wall slides, labour disputes, title disputes, claims and limitations on insurance coverage and other risks of the mining industry; delays in the completion of development or construction activities; changes in national and local government legislation, regulation of mining operations, tax rules and regulations and changes in the administration of laws, policies and practices in the jurisdictions in which Endeavour operates; disputes, litigation, regulatory proceedings and audits; adverse political and economic developments in countries in which Endeavour operates, including but not limited to acts of war, terrorism, sabotage, civil disturbances, non-renewal of key licenses by government authorities, or the expropriation or nationalization of any of Endeavour's property; risks associated with illegal and artisanal mining; environmental hazards; and risks associated with new diseases, epidemics and pandemics, including the effects and potential effects of the global Covid-19 pandemic.
Although Endeavour has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Please refer to Endeavour's most recent Annual Information Form filed under its profile at www.sedar.com for further information respecting the risks affecting Endeavour and its business.
The declaration and payment of future dividends and the amount of any such dividends will be subject to the determination of the Board of Directors, in its sole and absolute discretion, taking into account, among other things, economic conditions, business performance, financial condition, growth plans, expected capital requirements, compliance with the Company's constating documents, all applicable laws, including the rules and policies of any applicable stock exchange, as well as any contractual restrictions on such dividends, including any agreements entered into with lenders to the Company, and any other factors that the Board of Directors deems appropriate at the relevant time. There can be no assurance that any dividends will be paid at the intended rate or at all in the future.
NON-GAAP MEASURES
Some of the indicators used by Endeavour in this press release represent non-IFRS financial measures, including “all-in margin”, “all-in sustaining cost”, “net cash / net debt”, “EBITDA”, “adjusted EBITDA”, “net cash / net debt to adjusted EBITDA ratio”, “cash flow from continuing operations”, “total cash cost per ounce”, “sustaining and non-sustaining capital”, “net earnings”, “adjusted net earnings”, “operating cash flow per share”, and “return on capital employed”. These measures are presented as they can provide useful information to assist investors with their evaluation of the pro forma performance. Since the non-IFRS performance measures listed herein do not have any standardized definition prescribed by IFRS, they may not be comparable to similar measures presented by other companies. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Please refer to the non-GAAP measures section in this press release and in the Company's most recently filed Management Report for a reconciliation of the non-IFRS financial measures used in this press release.
Corporate Office: 5 Young St, Kensington, London W8 5EH, UK
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Cash and cash equivalents at the beginning of the 2021 year includes cash included as assets held for sale of $69.7 million.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
COMMITMENTS AND CONTINGENCIES (NOTE 19)
SUBSEQUENT EVENTS (NOTE 20)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
1 DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Endeavour Mining plc (the "Company"), together with its subsidiaries (collectively, "Endeavour" or the "Group"), is a publicly listed gold mining company that operates six mines in West Africa in addition to having project development and exploration assets. Endeavour is focused on effectively managing its existing assets to maximise cash flows as well as pursuing organic and strategic growth opportunities that benefit from its management and operational expertise.
Endeavour's corporate office is in London, England, and its shares are listed on the London Stock Exchange ("LSE") (symbol EDV), and on the Toronto Stock Exchange (“TSX”) (symbol EDV) and quoted in the United States on the OTCQX International (symbol EDVMF). The Company is incorporated in the United Kingdom and its registered office is located at 5 Young Street, London, United Kingdom, W8 5EH.
Prior to its listing on the London Stock Exchange on 14 June 2021, Endeavour Mining Corporation ("EMC") was the parent company of the Group for which consolidated financial statements were produced. On 11 June 2021, the shareholders of EMC transferred all of their shares in EMC to Endeavour Mining plc in exchange for ordinary shares of equal value in Endeavour Mining plc (the "Reorganisation"). This resulted in Endeavour Mining plc, which was incorporated on 21 March 2021, becoming the new parent company for the Group. As a result of the Reorganisation, there was no change in the legal ownership of any of the assets of EMC or Endeavour Mining plc, nor any change in the ownership of existing shares or securities of EMC or Endeavour Mining plc. The financial information as at 31 March 2022 and for the three months ended 31 March 2022 (and comparative information) is presented as a continuation of EMC.
2 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
2.1. STATEMENT OF COMPLIANCE
These condensed interim consolidated financial statements ("interim financial statements") have been prepared in accordance with UK adopted International Accounting Standard (“IAS”) 34, Interim Financial Reporting. In addition to preparing interim financial statements in accordance with UK adopted International Accounting Standard 34, “Interim Financial Reporting”, the Company has also applied International Accounting Standard 34, “Interim Financial Reporting” as issued by the IASB. These interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006, and do not include all of the information required for full annual financial statements prepared using IFRS, and are also in accordance with the requirements of the Disclosure Guidance and Transparency Rules ("DTR") in the United Kingdom as applicable to interim financial reporting. These interim financial statements represent a 'condensed set of financial statements' as referred to in the DTR. The annual consolidated financial statements of the Group for the year ended 31 December 2021 ("annual financial statements) were prepared in accordance with UK adopted international accounting standards and International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”).
These interim financial statements for the three months ended 31 March 2022 were authorised for issue in accordance with a resolution of the Board on 4 May 2022. The interim financial statements are unaudited and do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. These interim financial statements should be read in conjunction with the annual financial statements of the Company for the year ended 31 December 2021, which include information necessary or useful to understanding the Company's operations, financial performance, and financial statement presentation. In particular, the Company's significant accounting policies were presented as Note 2 to the annual financial statements and have been consistently applied in the preparation of these interim financial statements.
None of the new standards or amendments to standards and interpretations applicable during the period has had a material impact on the financial position or performance of the Group. The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.
2.2. BASIS OF PREPARATION
These interim financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value at the end of each reporting period. The Company's accounting policies have been applied consistently to all periods in the preparation of these interim financial statements. In preparing the Company's interim financial statements for the three months ended 31 March 2022, the Company applied the critical judgments and estimates as disclosed in note 3 of its annual financial statements for the year ended 31 December 2021.
These interim financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company, which is defined as having the power over the entity, rights to variable returns from its involvement with the entity, and the ability to use its power to affect the amount of returns. All intercompany transactions and balances are eliminated on consolidation.
The Company's subsidiaries at 31 March 2022 are consistent with the subsidiaries as at 31 December 2021 as disclosed in note 22 to the annual financial statements except for the disposal of the Karma mine in the first quarter of the year. The Company's material subsidiaries at 31 March 2022 are as follows:
2.3. GOING CONCERN
The Board of Directors have performed an assessment of whether the Company and Group would be able to continue as a going concern until at least May 2023. In their assessment, the Group has taken into account its financial position, expected future trading performance, its debt and other available credit facilities, future debt servicing requirements, its working capital and capital expenditure commitments and forecasts.
At 31 March 2022, the Group's net cash position was $166.6 million, calculated as the difference between the current and non-current portion of long-term debt with a principal outstanding of $880.0 million and cash of $1,046.6 million. At 31 March 2022, the Group had undrawn credit facilities of $450.0 million. The Group had current assets of $1,544.9 million and current liabilities of $1,077.0 million representing a total working capital balance (current assets less current liabilities) of $467.9 million as at 31 March 2022. Cash generated from operating activities for the three months ended 31 March 2022 was $304.3 million.
Based on a detailed cash flow forecast prepared by management, in which it included any reasonable possible change in the key assumptions on which the cash flow forecast is based, the Board of Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence until at least May 2023 and that at this point in time there are no material uncertainties regarding going concern. Key assumptions underpinning this forecast include consensus analyst gold prices and production volumes in line with annual guidance.
The Board of Directors is satisfied that the going concern basis of accounting is an appropriate assumption to adopt in the preparation of the interim financial statements as at and for the period ended 31 March 2022.
3 CORPORATE COSTS
The following table summarises the significant components of corporate costs:
4 ACQUISITIONS AND DIVESTITURES
In the three months ended 31 March 2022, the Group incurred $0.2 million (for the three months ended 31 March 2021 - $12.2 million) of acquisition and restructuring related costs relating to advisory, legal, valuation and other professional fees, primarily with respect to the disposal of discontinued operations and in the prior period related to the acquisition of Teranga Gold Corporation ("Teranga"). These costs are expensed as acquisition and restructuring costs within the condensed interim consolidated statement of comprehensive (loss)/earnings.
a. ACQUISITION OF TERANGA
On 10 February 2021, the Group completed the acquisition of Teranga. Teranga was a Canadian-based gold mining company listed on the TSX and in the United States on the OTCQX market with two operating mines in West Africa: the Sabodala-Massawa Gold Complex ("Sabodala-Massawa") in Senegal and the Wahgnion Gold Mine ("Wahgnion") in Burkina Faso. In addition, Teranga had a number of early to advanced stage exploration properties in Burkina Faso, Côte d'Ivoire and Senegal. The acquisition of Teranga supports the Group's growth strategy and enhances the Group's production profile.
As disclosed in note 5 of the annual financial statements, the Company finalised the fair values of certain assets acquired and liabilities assumed in the acquisition, in particular as it relates to the valuation of mining interests and liabilities with respect to certain income tax positions which were revised. These adjustments to the allocation of the purchase consideration has been recognised retrospectively and comparative information has been restated:
Q1-2021 figures have been restated for the retrospective adjustments associated to finalising the SEMAFO purchase price allocation in Q2-2021, as well as to reclassify the results from the Karma mine from continuing operations to discontinued operations.
b. DIVESTITURE OF KARMA
On 10 March 2022, the Group completed the sale of its 90% interest in the Karma mine cash-generating unit ("CGU") to Néré Mining SA ("Néré"). The consideration upon sale of the Karma mine included (i) a deferred cash payment of $5.0 million to be paid six months after closing of the transaction; (ii) a contingent payment of up to $10.0 million payable twelve months after closing, based on a sliding scale, linked to the average gold price; and (iii) a 2.5% net smelter royalty ("NSR") on all ounces produced by the Karma mine in excess of 160koz of recovered gold from 1 January 2022.
The fair value of the various aspects of the consideration at the closing date were as follows (all of which, except for the cash, are classified as Level 3 fair value measurements):
The results of operations have been restated for the comparative periods to reclassify the earnings/(loss) relating to Karma as earnings/(loss) from discontinued operations.
At 31 March 2022, the fair value of the deferred cash payment, contingent consideration and NSR were unchanged.
The Group recognised a gain on disposal of $17.8 million, net of tax, calculated as follows:
The earnings and loss for the CGU was as follows:
Up to the disposal date of 10 March 2022.
c. DIVESTITURE OF THE AGBAOU CGU
On 1 March 2021, the Group completed the sale of its 85% interest in the Agbaou mine CGU to Allied Gold Corp Limited ("Allied"). The consideration upon sale of the Agbaou mine included (i) a cash payment of $16.4 million (net of working capital adjustments of $3.6 million upon closing), of which $10.5 was received in the year ended 31 December 2021 (Note 11); (ii) $40.0 million in Allied shares of which Endeavour has the option to sell the shares back to Allied at the issue price which expires on 31 December 2022 or earlier if Allied conducts an IPO before then; (iii) contingent consideration of up to $20.0 million comprised of $5.0 million payments for each quarter in 2021 where the average gold price exceeds $1,900 per ounce; and (iv) a NSR on ounces produced in excess of the Agbaou reserves estimated as at 31 December 2019. The NSR royalty is based on a sliding scale, linked to the average spot gold price as follows: 2.5% if the gold price is at least $1,400 per ounce, 2% if the gold price is at least $1,200 per ounce and less than $1,400 per ounce, 1% if the gold price is at least $1,000 per ounce and less than $1,200 per ounce, and 0% if the gold price is below $1,000 per ounce.
The fair value of the various aspects of the consideration at the closing date were as follows (all of which, except for the cash, are classified as Level 3 fair value measurements):
The fair value of the various aspects of the consideration at 31 March 2022 is included in note 8 and note 11.
The Group recognised a loss on disposal of $13.6 million, net of tax, in the period ended 31 March 2021
The earnings and loss for the CGU was as follows:
5 SHARE CAPITAL
SHARE CAPITAL
a. ISSUED SHARE CAPITAL AS AT 31 MARCH 2022
248.6 million ordinary voting shares of $0.01 par value
b. SHARE-BASED COMPENSATION
The following table summarises the share-based compensation expense:
c. OPTIONS
Upon acquisition of Teranga, all outstanding Teranga stock options, whether previously vested or unvested, became fully vested and were exchanged for replacement options to purchase common shares of Endeavour at a ratio of 0.47 Endeavour share options for each Teranga share option at an adjusted exercise price, with an expiry date of the earlier of (i) the original expiry date of each Teranga stock option, and (ii) the second year anniversary of the closing date of the acquisition transaction. The fair values at the acquisition date were calculated using the Black-Scholes valuation model using a volatility of 42.64% - 60.05%, a dividend yield of 2.6% and a risk free rate of 0.1%. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time to the date of their expiry.
As at 31 March 2022, the weighted average remaining contractual term of outstanding stock options exercisable was 0.83 years. The share options are exercisable at prices ranging from C$6.60 to C$31.92.
d. SHARE UNIT PLANS
A summary of the changes in share unit plans is presented below:
e. DEFERRED SHARE UNITS
The Group established a deferred share unit plan (“DSU”) for the purposes of strengthening the alignment of interests between Non-Executive Directors of the Company and shareholders by linking a portion of the annual Director compensation to the future value of the Company's common shares. Upon establishing the DSU plan for Non-Executive Directors, the Company no longer grants options to Non-Executive Directors.
The DSU plan allows each Non-Executive Director to choose to receive, in the form of DSUs, all or a percentage of their Director's fees, which would otherwise be payable in cash. Compensation for serving on committees must be paid in the form of DSUs. The plan also provides for discretionary grants of additional DSUs by the Board. Each DSU vests upon award but is distributed only when the Director has ceased to be a member of the Board. Vested units are settled in cash based on the common share price at the date of settlement.
The fair value of the DSUs is determined based on multiplying the five day volume weighted average share price of the Company by the number of DSUs at the end of the reporting period.
The total fair value of DSUs at 31 March 2022 was $4.5 million (31 December 2021 – $3.7 million). The total DSU share-based compensation recognised in the was an expense of $0.8 million for the three months ended 31 March 2022 (for the three months ended 31 March 2021 – income of $0.2 million).
f. PERFORMANCE SHARE UNITS
The Group's long-term incentive plan (“LTI Plan”) includes a portion of performance-linked share unit awards (“PSUs”), intended to increase the pay mix in favour of long-term equity-based compensation with three-year cliff-vesting to serve as an employee retention mechanism.
The fair value of the PSUs is determined based on Total Shareholder Return (“TSR”) relative to peer companies for 50% of the value of the PSUs, while the remaining 50% of the value of the PSUs granted is based on achieving certain operational performance measures. The vesting conditions related to the achievement of operational performance measures noted above are determined at the grant date and the number of units that are expected to vest is reassessed at each subsequent reporting period based on the estimated probability of reaching the operational targets. The key operational targets are determined annually and include:
The fair value related to the TSR portion is determined using a multi-asset Monte Carlo simulation model using a dividend yield of 3.0% (2021 – 2.5%), as well as historical TSR levels and historical volatility of the constituents of the S&P TSX Global Gold Index (2020 – same).
g. BASIC AND DILUTED EARNINGS PER SHARE
Diluted net earnings per share was calculated based on the following:
At 31 March 2022, a total of 2,584,816 PSUs (3,454,635 at 31 March 2021) could potentially dilute basic earnings per share in the future, but were not included in diluted earnings per share as all vesting conditions have not been satisfied at the end of the reporting period. The potentially dilutive impact of the convertible senior notes are anti-dilutive for the period and were not included in the diluted earnings per share.
h. DIVIDENDS
During the period ended 31 March 2022, the Company announced its dividend for the second half of the 2021 fiscal year of $0.28 per share totalling $69.3 million. The dividend was paid during the period ended 31 March 2022 to all shareholders on record on close of business 9 February 2022.
During the year ended 31 December 2021, the Group announced its dividend for the first half of the 2021 fiscal year of $0.28 per share totalling $69.9 million. The dividend was paid during the three months ended 30 September 2021 to shareholders on record at the close of business on 10 September 2021.
In February 2021, the Group paid a dividend of $60.0 million ($0.37 per share) to shareholders on record on the close of business of 22 January 2021.
i. OTHER RESERVES
A summary of reserves is presented below:
NATURE AND PURPOSE OF OTHER RESERVES
CAPITAL REDEMPTION RESERVE
The capital redemption reserve represents the cumulative amount of shares cancelled, following the share buyback by the Company.
SHARE BASED PAYMENT RESERVE
Share-based payment reserve represents the cumulative share-based payment expense for the Company's share option schemes.
MERGER RESERVE
The merger reserve contains the difference between the share capital of the Company and the net assets of EMC as at the date or reorganisation as described in note 5 to the annual financial statements, and less amounts cancelled and transferred to retained earnings on cancellation of the deferred shares.
6 FINANCIAL INSTRUMENTS AND RELATED RISKS
a. FINANCIAL ASSETS AND LIABILITIES
The Group's financial instruments are classified as follows:
The fair value of these financial instruments approximates their carrying value, unless otherwise noted below, except for the convertible senior notes, which have a fair value of approximately $382.5 million (31 December 2021 – $398.6 million), and the senior notes which have a fair value of approximately $462.2 million.
As noted above, the Group has certain financial assets and liabilities that are held at fair value. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques to measure fair value:
Classification of financial assets and liabilities
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
As at each of 31 March 2022 and 31 December 2021, the levels in the fair value hierarchy into which the Group's financial assets and liabilities measured and recognised in the condensed interim consolidated statement of financial position at fair value are categorised as follows:
There were no transfers between level 1 and 2 during the period. The fair value of level 3 financial assets were determined using Monte Carlo or discounted cash flow valuation models, taking into account assumptions with respect to gold prices and discount rates as well as estimates with respect to production and operating results at the disposed mine.
b. (LOSS)/GAIN ON FINANCIAL INSTRUMENTS
Financial instrument risk exposure
The Group's activities expose it to a variety of risks that may include credit risk, liquidity risk, currency risk, interest rate risk and other price risks, including equity price risk. The Group examines the various financial instrument risks to which it is exposed and assesses any impact and likelihood of those risks. There has been no significant changes to the financial instrument risk exposure as disclosed in note 8 of its annual financial statements for the year ended 31 December 2021.
7 LONG-TERM DEBT
The Group incurred the following finance costs in the period:
a. SENIOR NOTES
On 14 October 2021, the Company completed an offering of $500.0 million fixed rate senior notes (the "Senior Notes") due in 2026. The Senior Notes are listed on the Global Exchange Market ("GEM") which is the exchange-regulated market of The Irish Stock Exchange plc trading as Euronext Dublin of Euronext Dublin and to trading on the GEM of Euronext Dublin. The proceeds of the Notes of $494.6 million were used to repay all amounts outstanding under the Company's existing revolving credit facilities and to pay fees and expenses in connection with the offering of the Notes.
The Notes bear interest at a coupon rate of 5% per annum payable semi-annually in arrears on 14 April and 14 October each year. The Notes mature on 14 October 2026, unless redeemed earlier or repurchased in accordance with the terms of the Notes.
The key terms of the Senior Notes include:
For accounting purposes, the Company measures the Senior Notes at amortised cost, accreting to maturity over the term of the Senior Notes. The conversion option on the Senior Notes is an embedded derivative and is accounted for as a financial instrument measured at fair value through profit or loss. The Notes include an optional redemption from October 2023 through to maturity at a redemption price ranging from 102.5% to 100% of the principal. Prior to October 2023, the Company may redeem up to 40% of the Notes from proceeds of an equity offering at a redemption price of 105% of the principal plus any accrued and unpaid interest. This early redemption feature is an embedded derivative to the Notes and is accounted for as a financial instrument at fair value through profit and loss, with changes in fair value at each subsequent reporting period being recognised in earnings (Note 6). The fair value of the prepayment feature has been calculated using a valuation model taking into account the market value of the debt, interest rate volatility, risk-free interest rates, and the credit spread. The fair value of the embedded derivative at 31 March 2022 was $0.5 million (31 December 2021 - $4.6 million) (Note 11).
Covenants on the Senior Notes include certain restrictions on indebtedness, restricted payments, liens, or distributions from certain companies in the Group. In addition, should the rating of the Senior Notes be downgraded as a result of a change of control (defined as the sale or transfer of 50% or more of the common shares or the transfer of all or substantially all the assets of the Group), the Group is obligated to repurchase the notes at an equivalent price of 101% of the principal amount plus the accrued interest to repurchase date, if requested to do so by any creditor.
b. REVOLVING CREDIT FACILITIES
Concurrent with the completion of the offering of the Notes above, the Company entered into a new $500.0 million unsecured revolving credit facility agreement (the "new RCF") with a syndicate of international banks. The new RCF replaces the bridge facility and the previous RCF, which were both repaid and cancelled upon completion of the Notes offering and new RCF. During the three months ended 31 March 2022 the Company drew down $50.0 million on the new RCF and the amount remains outstanding as at 31 March 2022.
The key terms of the new RCF include:
Covenants on the new RCF include:
Previously, on 24 December 2020, the Company had entered into a $430.0 million revolving credit facility agreement (the "old RCF"), which replaced a previous similar RCF, as well as a new $370.0 million facility agreement ("Bridge Facility"), both with a syndicate of international banks and which became effective on 10 February 2021.
The key terms of the previous RCF included:
The key terms of the Bridge Facility included:
c. CONVERTIBLE SENIOR NOTES
On 8 February 2018, the Company completed a private placement of convertible senior notes with a total principal amount of $330.0 million due in February 2023 (the “Convertible Notes”). The initial conversion rate was 41.84 of the Company's common shares (“Shares”) per $1,000 Note, or an initial conversion price of approximately $23.90 (CAD$29.47) per share.
The conversion rate of the Convertible Notes has been subsequently adjusted as a result of the dividends declared and paid by the Company, and the new conversion rate at 31 March 2022 is 43.56 of the Company's common shares per $1,000 note, and equates to a conversion price of approximately $22.96 (CAD$29.09) per share.
The Convertible Notes bear interest at a coupon rate of 3% payable semi-annually in arrears on 15 February and 15 August of each year. Convertible Notes mature on 15 February 2023, unless redeemed earlier, repurchased or converted in accordance with the terms of the Convertible Notes. The note holders can convert their Convertible Notes at any time prior to the maturity date. Also, the Convertible Notes are redeemable in whole or in part, at the option of the Company, at a redemption price equal to the principal amount of the Convertible Notes being redeemed, plus any accrued and unpaid interest, if the share price exceeds 130% of the conversion price on each of at least 20 of the trading days during the 30 days prior to the redemption notice. The Company may, subject to certain conditions, elect to satisfy the principal amount and conversion option due at maturity or upon conversion or redemption through the payment or delivery of any combination of Shares and cash.
The key terms of the Convertible Notes include:
For accounting purposes, the Company measures the Notes at amortised cost, accreting to maturity over the term of the Notes. The conversion option on the Convertible Notes is an embedded derivative and is accounted for as a financial liability measured at fair value through profit or loss.
The unrealised gain/loss on the convertible note option for the three months ended 31 March 2022 was an unrealised loss of $18.0 million (three months ended 31 March 2021 – unrealised gain of $28.4 million).
The liability component for the Notes at 31 March 2022 has an effective interest rate of 6.2% (31 December 2021: 6.2%) and was as follows:
d. CONVERSION OPTION
The conversion option related to the Convertible Notes is recorded at fair value, using a convertible bond valuation model, taking account of the observed market price of the Notes. The following assumptions were used in the determination of fair value of the conversion option and fixed income component of the Convertible Notes, which was then calibrated to the total fair value of the Convertible Notes: volatility of 37% (31 December 2021 – 38%), term of the conversion option 0.83 years (31 December 2021 – 0.99 years), a dividend yield of 2.5% (31 December 2021 – 2.5%), credit spread of 0.86% (31 December 2021 – 0.86%), and a share price of CAD$31.01 (31 December 2021 – CAD$27.73).
8 TRADE AND OTHER RECEIVABLES
a. VAT RECEIVABLE
VAT receivable relates to net VAT amounts paid to vendors for goods and services purchased, primarily in Burkina Faso. These balances are expected to be collected in the next twelve months. In the three months ended 31 March 2022, the Group collected $13.4 million of outstanding VAT receivables (in the three months ended 31 March 2021: $10.6 million), through the sale of its VAT receivables to third parties or reimbursement from the tax authorities.
b. OTHER RECEIVABLES
Other receivables at 31 March 2022 include a receivable of $11.6 million (31 December 2021 – $11.7 million) related to the sale of equipment at Ity to third parties, an amount of $5.9 million (31 December 2021 – $5.9 million) receivable from Allied related to the sale of the Agbaou mine, an amount of $5.0 (31 December 2021 - $ nil) receivable from Néré for the sale of the Karma mine, and other receivables from third parties. All these amounts are non-interest bearing and are expected to be repaid in the next 12 months.
9 INVENTORIES
The cost of inventories recognised as expense in the period ended 31 March 2022 was $369.5 million and was included in operating expenses (period ended 31 March 2021 - $369.0 million).
10 MINING INTERESTS
Disposals for the year ended 31 December 2021 mainly relate to mining equipment with a net book value of $28.3 million sold to the mining contractor at Ity for which we recognised a loss of $2.4 million.
The Group's right-of-use assets consist of buildings, plant and equipment and its various segments which are right-of-use assets under IFRS 16, Leases . These have been included within the property, plant and equipment category above.
11 OTHER FINANCIAL ASSETS
Other financial assets are comprised of:
a. LONG-TERM RECEIVABLE
The long-term receivable at 31 March 2022 is the fair value of the NSRs receivable from Allied for the sale of the Agbaou mine to the value of $6.0 million (2021 - $5.9 million) of which $2.7 million is included in current financial assets, and from Néré for the sale of the Karma mine to the value of $10.0 million (2021 - $ nil) which is included in non-current financial assets.
b. CONTINGENT CONSIDERATION
The contingent consideration of $5.0 million is receivable from Néré for the sale of the Karma mine and is classified as a current financial asset.
c. DERIVATIVE FINANCIAL ASSETS
Derivative financial assets and liabilities include the gold collar and forward contracts (note 13), which are liabilities as at 31 March 2022, as well as the embedded derivative on Senior Notes described below.
EMBEDDED DERIVATIVE ON SENIOR NOTES
Derivative financial assets include the early redemption feature on the Senior Notes which is accounted for as a financial instrument at fair value through profit and loss (Note 7). During the three months ended 31 March 2022, a loss of $4.1 million (for the three months ended 31 March 2021 - $nil) was recognised in gains/losses on other financial instruments due to the revaluation of the embedded derivative to a fair value of $0.5 million at 31 March 2022 (31 December 2021 - $4.6 million).
d. OTHER FINANCIAL ASSETS
Other financial assets at 31 March 2022 and 31 December 2021 include $40.0 million related to the shares of Allied received as consideration upon the sale of the Agbaou mine and is classified as a non-current financial asset.
12 TRADE AND OTHER PAYABLES
Trade and other payables consist of the following:
13 OTHER FINANCIAL LIABILITIES
a. SHARE WARRANT LIABILITIES
Upon acquisition of Teranga, all outstanding Teranga share warrants were exchanged for replacement Endeavour warrants at a ratio of 0.47 Endeavour warrants for each Teranga warrant at an exercise price adjusted at a ratio of 0.47.
In the period ended 31 March 2022, all outstanding warrants were exercised for cash proceeds of $13.9 million. Upon exercise, the associated share warrant liability was reclassified to share capital.
A reconciliation of the change in fair value of share warrant liabilities is presented below:
Fair values of share warrants were calculated using the Black-Scholes option pricing model with the following assumptions:
b. PSU LIABILITIES AND REPURCHASED SHARES
Prior to the Company listing on the LSE, the Group established an Employee Benefits Trust (the “EBT”) in connection with the Group's employee share incentive plans, which may hold the Company's own shares in trust to settle future employee share incentive obligations. During the year ended 31 December 2021, the EBT acquired 0.6 million outstanding common shares from certain employees of the Group which remain held in the EBT at 31 March 2022.
In exchange for the shares, a subsidiary of the Company is obligated to repay the employees cash for the fair value of the underlying shares of the Company now held in the EBT ("EGC tracker shares"). Subsequently, additional EGC tracker shares have been issued to certain employees of the Group upon vesting of their PSUs. At 31 March 2022, there were 0.7 million EGC tracker shares outstanding with a fair value of $16.6 million and is included in current other financial liabilities. Subsequent changes in the fair value of the underlying shares will be recognised in earnings/(loss) in the period.
In addition to the above, certain PSUs were reclassified to liabilities during the year ended 31 December 2021 as management determined that the PSUs will be settled in cash upon vesting. As a result, these PSUs are recognised at fair value at 31 March 2022, and $5.8 million is included in current other financial liabilities at 31 March 2022 (31 December 2021 - $5.8 million) as they are expected to be settled in the next 12 months. The remaining $2.6 million (31 December 2021 - $12.1 million) is classified as non-current other liabilities.
c. DERIVATIVE FINANCIAL LIABILITIES
GOLD COLLAR
In the year ended 31 December 2021, the Group implemented a deferred premium collar strategy ("Collar") (Note 11) using written call options and bought put options with a floor price of $1,750 and a ceiling price of $2,100 per ounce. The Collar covers a total of 600,008 ounces of which 300,004 will be settled quarterly in 2022 with the remaining ounces to be settled on a quarterly basis in 2023. The programme represents an estimated 20% of Endeavour's total expected gold production for the period of the Collar. The Group paid a premium of $10.0 million upon entering into the Collar. As at 31 March 2022, $27.6 million (31 December 2021 - $16.1 million asset) is included in derivative financial liabilities related to the Collar of which $21.0 million (31 December 2021 - $11.8 million asset) has been classified as a non-current derivative financial liability. The Collar was not designated as a hedge by the Group and recorded at its fair value at the end of each reporting period. The Group recognise a loss on change in fair value of the collar of $43.8 million for the three months ended 31 March 2022 (2021 - $ nil).
FORWARD CONTRACTS
The Group enters into forward sales contracts to manage the risk of changes in the market price of gold within a period. During the year ended 31 December 2021, the Group bought 120,000 ounces at an average gold price of $1,860 per ounce of which 90,000 ounces are still outstanding at 31 March 2022 and which will be evenly settled on a quarterly basis in 2022. During the three months ended 31 March 2022, the Group entered into forward contracts for approximately 363,627 ounces of production in 2022 and 120,000 ounces of production in 2023 at average gold prices of $1,826 per ounce and $1,829 per ounce, respectively. At inception, the 2022 additional forward sales were weighted towards the first quarter, with forward sales contracts for 200,000 ounces at an average price of $1,817 per ounce, and the remaining 200,000 ounces, at an average gold price of $1,827 per ounce, being equally weighted through the rest of 2022. The settlement of the 2023 forward sales are equally weighted through the year.
During the three months ended 31 March 2022, the Group renegotiated the settlement dates of certain of the forward contracts. As a result, forward contracts for 65,000 ounces were settled in the three months ended 31 March 2022 with a realised loss of $7.0 million. The remaining forward contracts are outstanding as at 31 March 2022 and an unrealised loss of $79.2 million was recognised.
Below is a summary of the 573,627 ounces outstanding as at 31 March 2022:
At 31 March 2022, the contracts were classified as a derivative financial liability and had a fair value of $74.9million (31 December 2021 - $4.3 million asset) of which $59.4 million has been recognised in the current portion of other financial liabilities (2021 - $4.3 million as current financial assets).
d. CALL-RIGHTS
Upon acquisition of Teranga, the Group acquired all previously issued and outstanding Teranga call-rights and were exchanged for replacement Endeavour call-rights at a ratio of 0.47 Endeavour call-rights for each Teranga call-right at an adjusted exercise price of C$14.90.
The call-rights are required to be settled in cash at the difference between Endeavour's five-day volume weighted average trading price on the exercise date and the exercise price of C$14.90. The call-rights expire on 4 March 2024. The call-rights were recorded as derivative financial liabilities as their value changes in line with Endeavour's share price. Changes in the fair value of call-rights are recognised as gains/(losses) on financial instruments.
A reconciliation of the change in fair value of the call-rights liability is as follows:
The fair value of the call-rights were calculated using the Black-Scholes option pricing model with the following assumptions:
Represents five-day volume weighted average trading price of the Company's common shares on the TSX.
e. CONTINGENT CONSIDERATION
As part of the acquisition of Teranga, Endeavour recognised contingent consideration related to Teranga's acquisition of Massawa (Jersey) Limited. The contingent consideration is linked to future gold prices and is payable to Barrick Gold Corporation ("Barrick") in cash three years following the completion of the Massawa Acquisition by Teranga on 4 March 2020.
The Group has classified the contingent consideration payable to Barrick as a derivative financial liability as the amount due is dependent on future gold prices over periods of time in future. As at 31 March 2022, the Group estimated the fair value of the contingent consideration using a Monte Carlo simulation model based on the gold forward curve, expected volatility of 19.89% (31 December 2021 - 17.44%), Endeavour's credit spread of 2.82% (31 December 2021 - 2.19%) and risk-free rate of 2.55% (31 December 2021 - 0.94%).
In the three months ended 31 March 2022, the Group recognised a gain on change in fair value of $0.4 million (in the three months ended 31 March 2021 - a gain of $1.0 million)
14 NON-CONTROLLING INTERESTS
The composition of the non-controlling interests (“NCI”) is as follows:
Exploration, Corporate and Kalana segments are included in the "other" category.
For further details refer to note 4.
During the year ended 31 December 2021, the Boungou, Houndé, Ity, Mana and Sabodala-Massawa mines declared dividends to their shareholders. Dividends to minority shareholders to the value of $29.9 million were paid during 2021 and are included in cash flows from financing activities.
For summarised information related to these subsidiaries, refer to Note 17, Segmented Information.
15 SUPPLEMENTARY CASH FLOW INFORMATION
a. NON-CASH ITEMS
Below is a reconciliation of non-cash items adjusted for in the operating cash flows in the consolidated statement of cash flows for the three months ended 31 March 2022:
b. CHANGES IN WORKING CAPITAL
Below is a reconciliation of changes in working capital included in operating cash flows in the consolidated statement of cash flows for the three months ended 31 March 2022:
16 INCOME TAXES
The Group operates in numerous countries, and accordingly it is subject to, and pays annual income taxes under the various income tax regimes in the countries in which it operates. Some subsidiaries of the Group are not subject to corporate taxation in the Cayman Islands. However, the taxable earnings of the corporate entities in Barbados, Burkina Faso, Canada, Côte d'Ivoire, Mali, Senegal, Monaco, France, Luxembourg and the United Kingdom are subject to tax under the tax law of the respective jurisdiction. Significant judgement is required in the interpretation or application of certain tax rules when determining the provision for income taxes due to the complexity of the legislation. From time to time the Group is subject to a review of its income tax filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Group's business conducted within the country involved. Management evaluates each of the assessments and recognises a provision based on its best estimate of the ultimate resolution of the assessment, through either negotiation or through a legal or arbitrative process. In the event that management's estimate of the future resolution of these matters change over time, the Group will recognise the effects of the changes in its interim financial statements in the period that such changes occur.
Tax expense for the three months ended 31 March 2022 was $85.9 million (for the three months ended 31 March 2021 - $65.1 million).
17 SEGMENTED INFORMATION
The Group operates in four principal countries, Burkina Faso (Houndé, Wahgnion, Mana and Boungou mines), Côte d'Ivoire (Ity mine, Lafigué project), Senegal (Sabodala-Massawa mine) and Mali (Kalana Project). The following table provides the Group's results by operating segment in the way information is provided to and used by the Company's chief operating decision maker, which is the CEO, to make decisions about the allocation of resources to the segments and assess their performance. The Group considers each of its operational mines a separate segment. Discontinued operations are not included in the segmented information below. Exploration and Corporate are aggregated and presented together as part of the "other" segment on the basis of them sharing similar economic characteristics.
Segment revenue reported represents revenue generated from external customers. There were no inter-segment sales during the periods ended 31 March 2022 or 31 March 2021. The Group is not economically dependent on a limited number of customers for the sale of gold because gold can be sold through numerous commodity market traders worldwide.
The Company's assets and liabilities, including geographic location of those assets and liabilities, are detailed below:
18 CAPITAL MANAGEMENT
The Group's objectives of capital management are to safeguard the entity's ability to support the Group's normal operating requirements on an ongoing basis, continue the development and exploration of its mining interests and support any expansionary plans.
In the management of capital, the Group includes the components of equity, finance obligations, and long-term debt, net of cash and cash equivalents and restricted cash.
Capital, as defined above, is summarised in the following table:
The Group manages its capital structure and adjusts it considering changes in its economic environment and the risk characteristics of the Group's assets. To effectively manage the entity's capital requirements, the Group has in place a planning, budgeting and forecasting process to help determine the funds required to ensure the Group has the appropriate liquidity to meet its operating and growth objectives. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The Group is not subject to any externally imposed capital requirements with the exception of complying with covenants under the RCF and Senior Notes. As at 31 March 2022 and 31 December 2021, the Group was in compliance with these covenants.
19 COMMITMENTS AND CONTINGENCIES
The Group has commitments in place at all seven of its mines and other key projects for drill and blasting services, load and haul services, supply of explosives and supply of hydrocarbon services. At 31 March 2022, the Group has approximately $103.7 million in commitments relating to on-going capital projects at its various mines.
The Group is, from time to time, involved in various claims, legal proceedings, tax assessments and complaints arising in the ordinary course of business from third parties. The Group cannot reasonably predict the likelihood or outcome of these actions. The Group does not believe that adverse decisions in any other pending or threatened proceedings related to any matter, or any amount which may be required to be paid by reason thereof, will have a material effect on the financial condition or future results of operations. The Group has recognised tax provisions with respect to current assessments received from the tax authorities in the various jurisdictions in which the Group operates, and from uncertain tax positions identified upon the acquisition of SEMAFO and Teranga as well as through review of the Group's historical tax positions. For those amounts recognised related to current tax assessments received, the provision is based on management's best estimate of the outcome of those assessments, based on the validity of the issues in the assessment, management's support for their position, and the expectation with respect to any negotiations to settle the assessment. Management re-evaluates the outstanding tax assessments regularly to update their estimates related to the outcome for those assessments taking into account the criteria above. Management evaluates its uncertain tax positions regularly to update for changes to the tax legislation, the results of any tax audits undertaken, the correction of the uncertain tax position through subsequent tax filings, or the expiry of the period for which the position can be re-assessed. Management considers the material elements of any other claims to be without merit or foundation and will strongly defend its position in relation to these matters and following the appropriate process to support its position. Accordingly, no provision or further disclosure has been made as the likelihood of a material outflow of economic benefits in respect of such claims is considered remote. In forming this assessment, management has considered the professional advice received, the mining conventions and tax laws in place in the various jurisdictions, and the facts and circumstances of each individual claim.
The Group has received a notice of claim from a former service provider. The Group is taking legal advice on the merits of the claim and the probable outcome but intends to vigorously defend against the claims. The Group does not believe that the outcome of the claim will have a material impact to the Group's financial position.
The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Group believes its operations are materially in compliance with all applicable laws and regulations. The Group has made, and expects to make in the future, expenditures to comply with such laws and regulations.
The Group assumed a gold stream when it acquired the Sabodala-Massawa mine on 10 February 2021 ("Sabodala stream").
20 SUBSEQUENT EVENTS
Share buyback programme
Subsequent to 31 March 2022 and up to 4 May 2022, the Group has repurchased a total of 168,100 shares at an average price of $23.24 for total cash outflows of $3.9 million.
Attachment
2321 Rosecrans Avenue. Suite 2200
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