- Miner finds more redirected payments
- Costs and exploration spending drive 2023 cash profits down
Despite the record-high gold price, London’s largest gold miner has seen its shares slide 7 per cent year to date. Endeavour Mining (EDV) is missing the appreciation seen elsewhere in the market because of the ongoing saga involving former chief executive Sébastien de Montessus and payments made to third parties in 2020 and 2021.
The company has accused de Montessus of redirecting $21mn (£16.7mn) in total to a mystery entity that has since been dissolved, revealing more details last week after firing him in January. That was in reaction to the initial revelation that de Montessus asked a debtor to send $5.9mn to a third party instead of Endeavour itself in 2021.
Last week, the company said de Montessus had given “implausible and untrue” explanations of why he had directed payments from debtors to the third party. De Montessus said in January that the $5.9mn had gone to a security company looking after Endeavour workers in a conflict zone.
“De Montessus attended two interviews during the investigation, [where] he continued to attempt to conceal his motives and actions relating to the events being investigated by providing untrue and misleading explanations for his conduct,” the company said.
Endeavour said it did not identify any bribery or corrupt behaviour but could not find the beneficial owner of the UAE-based entity.
De Montessus said in a statement that he did not mislead the company’s investigators and $15mn in newly discovered payments from 2020 had been properly accounted for.
“There are material errors in the information presented by the Endeavour board,” he said. “The description of the $15mn advance is wrong – as planned the advances were offset against future invoices and Endeavour suffered no loss.”
The company also published details of a “personal investment agreement” between de Montessus and the main shareholder in the buyer of an Endeavour mine, worth $500,000. The former chief executive said the “supposed…investment was never made”.
Endeavour has said it could chase de Montessus for “recovery of amounts lost by the group”. Two class action lawsuits are in the works in Ontario over the situation, with law firms looking for investors who bought in between 2021 and 3 January 2024, when the $5.9mn payment was revealed.
The fiasco started when the former CEO asked Allied Gold, a separate business that had bought a mine from Endeavour, to send its final payment to the ‘security contractor’.
The company said it had written off the $5.9mn owed by Allied as a receivable at the end of September 2023, “based on further deliberate false representations by de Montessus”. It claims he said the final divestment cash had not been paid.
The mining itself
Last week, the company also reported sales of $2.1bn for 2023 and cash profits of $773mn, the latter figure down a quarter on 2022 because of higher operating and exploration costs. The net cash position has also been reversed to $555mn in net debt, as the company borrowed to fund growth projects and maintain the dividend. This will climb in the first half of 2024, as the spending continues.
Impairments of $123mn knocked the bottom line, with pre-tax profits coming in at half of the previous year’s figure of $507mn. The company’s all-in sustaining cost outlook of around $1,000 an ounce (oz) should see earnings climb in 2024 given the higher gold price, however.
The clawback of $10mn in bonus money paid to de Montessus did not help the bottom line much, given the cost of the lawyer-led investigation and the write-down of the original $5.9mn redirected payment.
But investors did see something to like in the 2023 results. The company’s shares are up 11 per cent in the past week, although analysts largely maintained existing estimates in the wake of the announcement.
The company has passed its spending peak, with the capex bill of $787mn last year the highest investors will see for some years. The cash went to the new Lafigué mine and to process refractory ore at the Sabodala-Massawa mine in Senegal, with first gold expected by the end of the June quarter, ramped up another 100,000oz a year of output. At the mid-range of guidance, overall production will climb 12 per cent in 2024.
Chief executive Ian Cockerill, a mining veteran who has taken the top job permanently, was buoyant when speaking last week.
“We’re going to enter into a cash flow generative phase where we will focus on strengthening our balance sheet, deleveraging it and increasing our shareholder returns,” he said. A new dividend policy will come later in the year.
Further out, investors have another mine build to look forward to: the Tanda-Iguela project in Côte d’Ivoire, which Cockerill said would be “bigger” than the 200,000-oz-per-year Lafigué, likely also with a larger bill than the $448mn spent on Lafigué. A preliminary feasibility study should land by the end of this year, while Cockerill also flagged a two-stage approach where a cheaper initial mine is built and pays for the second stage.
But the de Montessus situation leaves some risk for investors. Management is keen to get back on with gold mining, but chasing the former chief executive as it has threatened will keep the scandal front of mind.
