With two awful wars and a possible peak in interest rates in the headlines, I’m wondering if Endeavour Mining (LSE:EDV) shares could be a good buy.
The company is a prominent gold producer with a strong presence in West Africa, operating mines in Côte d’Ivoire, Burkina Faso, and Senegal.
With the yellow metal on a significant upswing prompted in part by rising tensions in the Middle East, Endeavour looks well placed to benefit.
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What’s going on with this stock?
Last week, Endeavour bucked the wider trend by jumping 6.3% while the FTSE 100 sank by 2.6%.
Trading at a price of £17.60, it’s still a long way from its 52-week high of £22.42.
It has a price-to-book (P/B) ratio of 1.53, suggesting to me that it’s fairly valued. At the same time, it doesn’t look overleveraged, with debt standing at a reasonable 27% of equity.
There’s no company-specific news that justifies the price spike from last week. The last major update came in June when Endeavour closed the sale of its 90% interests in its Boungou and Wahgnion non-core mines in Burkina Faso.
It’s clear to me that the recent price action was a reaction to the surge in gold prices.
Freeloading pet rock
Gold prices are back within striking distance of the $2,000 mark, having jumped 8% since Hamas attacked Israel on 7 October. If the tragic events in the Middle East spiral out of control, gold could see a massive upswing due to jittery investors looking for a safe haven.
However, I think it’s more likely gold will settle back down again. From the perspective of global supply chains, this is not another Russia-Ukraine. Israel and Palestine do not export commodities to Western economies on any meaningful scale.
Raised interest rates are also a massive drag on gold prices. That’s because the yellow metal is a non-yielding asset. In other words, it sits in portfolios without ever once paying out a single rent, interest, or dividend payment. When money-market funds are paying close to 5% interest, keeping a freeloading pet rock looks a lot less appealing.
In short, while it has a place in a diversified portfolio, overall I don’t think the wind will continue blowing in gold’s sails. By extension, I reckon Endeavour’s stock price could also take a tumble.
Why I won’t be buying
If I were bullish on gold, I’d buy shares in a straightforward fund, like Wisdom Tree Physical Gold ETC. Such an investment takes out many of the risks that go hand in hand with owning shares in a mining company.
What kinds of risks come with mining for gold in West Africa? Well, just think about how Niger has been rocked by unrest and coups this year. Now, consider that Endeavour is operating in similarly unpredictable jurisdictions that share a border with that country – like Côte d’Ivoire, Burkina Faso, and Mali.
I’m steering clear of gold, and I’m giving Endeavour stock an even wider berth.
