Endeavour Mining (LSE: EDV) is a gold miner listed on the FTSE 100. The shares have performed well since they were promoted to the blue-chip index in March last year. In fact, they’re up 17% over the last six months alone, easily outperforming the wider market.
Linked to this is the recent rise in the price of gold, which has reached $1,930 per ounce as of today. However, I’m still bullish on the precious metal and want to increase my exposure to it.
Does this gold stock fit the bill?
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The company
Endeavour Mining is the largest gold producer in West Africa, operating in Senegal, Ivory Coast, and Burkina Faso. It has six operating assets and further development projects in the works.
The company produced 1.5 million ounces (Moz) of gold in 2021, compared to 908,000oz in 2020. This saw its revenue nearly double to $2.79bn from $1.42bn in 2020.
Last year, it produced 1.4Moz of gold, down slightly over the previous year due to the disposal of its Karma mine in Burkina Faso. This gold was produced at an all-in sustaining cost (AISC) of $928 per ounce.
AISC is a measure of the cost of sustaining current mining operations, and this low cost gives Endeavour a competitive advantage over many other gold miners.
2022 marked the tenth consecutive year of achieving or beating its own guidance. It had net cash of $121m at the end of December.
The dividend
Endeavour recently declared an interim dividend of $0.41 per share, contributing to a full-year payout of $0.81 per share. Including share buybacks, the company has spent over $600m on shareholder returns since 2020.
With the stock at 1,865p today, this payout represents a dividend yield of 3.5%. That doesn’t seem enticing to me when I can instead invest in BlackRock World Mining Trust, which offers me far more diversification and a higher dividend yield.
Still, there is significant scope for dividend growth and share price appreciation for Endeavour Mining were gold prices to continue rising. So, what are the chances of that happening?
Well, I think investor interest in the safe-haven asset could continue to increase this year, as concerns regarding the global economy persist.
Plus, interest rate hikes may slow later this year. If that happens but above-average inflation persists, I think that could actually trigger a bull market for gold. That would likely be a catalyst for the stock to rise substantially.
Will I buy the shares?
Nevertheless, there are specific risks with this mining stock. The main one is that the company operates exclusively in West Africa, which hasn’t always been politically stable. Recently there has been an increase in local terrorist groups operating in the region, which increases risks.
And then there is always a scenario where the gold price plunges, which would hit the miner’s profits. I don’t personally expect that to happen, but it can never be ruled out.
Even though I do like Endeavour’s prospects, I won’t be buying the stock. I’m instead considering an exchange-traded fund (ETF) that tracks the price of physical gold bullion. Yes, this wouldn’t pay me any income. But I think it’s less risky than me picking individual gold mining stocks.
