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INTEGRATED MANAGEMENT DISCUSSION & ANALYSIS AND FINANCIALS For the three months and six months ended June 30, 2020 (Expressed in Thousands of United States Dollars) (unaudited)
Q1
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MANAGEMENT DISCUSSION & ANALYSIS
SECTION 1
TableofContents
1.BUSINESSOVERVIEW.............................................................................................................................................. 3
1.1.OPERATIONSDESCRIPTION......................................................................................................................... 3
2.HIGHLIGHTSFORTHETHREEMONTHSENDEDJUNE20,2020.............................................................................. 4
2.1.CORPORATEHIGHLIGHTS............................................................................................................................ 4
2.2.OPERATIONALANDFINANCIALHIGHLIGHTS.............................................................................................. 4
3.OPERATIONALREVIEWSUMMARY......................................................................................................................... 6
4.BUSINESSREVIEW................................................................................................................................................... 7
4.1.ENVIRONMENT,SOCIALANDGOVERNANCE.............................................................................................. 7
4.2.COVID-19RESPONSE................................................................................................................................... 8
4.3.OPERATIONSREVIEW.................................................................................................................................. 10
4.4.PROJECTSUPDATE...................................................................................................................................... 18
5.OUTLOOK................................................................................................................................................................ 19
5.12020OUTLOOK........................................................................................................................................... 19
6.RESULTSFORTHEPERIOD...................................................................................................................................... 22
6.1.STATEMENTOFCOMPREHENSIVE(LOSS)/EARNINGS................................................................................ 22
6.2.CASHFLOW................................................................................................................................................. 24
6.3.ACCOUNTINGPOLICIESANDCRITICALJUDGEMENTS................................................................................ 27
7.NON-GAAPMEASURES........................................................................................................................................... 28
7.1.ALL-INSUSTAININGMARGINANDADJUSTEDEBITDA................................................................................ 28
7.2.CASHANDALL-INSUSTAININGCOSTPEROUNCEOFGOLDSOLD............................................................. 29
7.3.ADJUSTEDNETEARNINGSANDADJUSTEDNETEARNINGSPERSHARE..................................................... 30
7.4.OPERATINGCASHFLOW............................................................................................................................. 31
7.5.NETDEBT/ADJUSTEDEBITDARATIO........................................................................................................... 31
7.6.RETURNONCAPITALEMPLOYED................................................................................................................ 32
8.QUARTERLYANDANNUALFINANCIALANDOPERATINGRESULTS........................................................................ 33
9.RISKFACTORS......................................................................................................................................................... 35
9.1.BUSINESSRISKS........................................................................................................................................... 35
9.2FINANCIALRISKS.......................................................................................................................................... 36
10.CONTROLSANDPROCEDURES.............................................................................................................................. 39
10.1.DISCLOSURECONTROLSANDPROCEDURES............................................................................................. 39
10.2.INTERNALCONTROLSOVERFINANCIALREPORTING................................................................................ 39
10.3.LIMITATIONSOFCONTROLSANDPROCEDURES...................................................................................... 39
CAUTIONARYNOTEREGARDINGFORWARD-LOOKINGSTATEMENTS....................................................................... 39
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This Management Discussion and Analysis (“MD&A”) should be read in conjunction with Endeavour Mining Corporation’s(“Endeavour”,the“Company”,the“Corporation”,orthe“Group”)condensedinterimconsolidatedfinancialstatementsforthethreeandsixmonthsendedJune30,2020whichhasbeenpreparedinaccordancewithInternationalAccountingStandard34-Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) or(“GAAP”)aswellastheauditedconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018andnotestheretowhichhavebeenpreparedinaccordancewithIFRS.ThisMD&Acontains“forward-lookingstatements”thataresubjecttoriskfactorssetout inacautionarynotecontainedherein.Thereader iscautionednottoplaceunduerelianceonforward-looking statements.All figuresare inUnitedStatesDollars,unlessotherwise indicated. Tabular amountsare in thousandsofUnitedStatesDollars,exceptpershareamountsandwhereotherwiseindicated.ThisMD&AispreparedasofAugust05,2020.AdditionalinformationrelatingtotheCorporation,includingtheCorporation’sAnnualInformationForm,isavailableonSEDARatwww.sedar.com.
1. BUSINESSOVERVIEW
1.1. OPERATIONSDESCRIPTION
EndeavourMining isamulti-assetTSX-listed intermediategoldproducer, focusedondevelopingandoperatingaportfolioofhighquality,low-cost,long-lifeminesinWestAfrica.TheCompany’sassetsincludetwomines(ItyandAgbaou)inCôted’Ivoire,twomines(HoundéandKarma)inBurkinaFaso,twopotentialdevelopmentprojects(FetekroandKalana)andastrongportfolioofexplorationassetsonthehighlyprospectiveBirimianGreenstoneBeltacrossBurkinaFaso,Côted’Ivoire,MaliandGuinea.
As a leading producer, Endeavour is committed to principles of responsible mining and delivering sustainable value to itsemployees, stakeholders, and the communities where it operates. The Company adopts an active portfolio managementapproachtofocusonhighqualityassetswithaninvestmentcriteriabasedoncapitalefficiencyandreturnoncapitalemployed.
Figure1:EndeavourMining’sPrincipalPropertiesinWestAfricaasofJune30,2020
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2. HIGHLIGHTSFORTHETHREEMONTHSENDEDJUNE30,2020
2.1. CORPORATEHIGHLIGHTS
• OnMay1,2020,Endeavourannouncedthat it filed the jointmanagement informationcircular for theextraordinarygeneralandspecialmeetingsofEndeavourandSEMAFOheldonMay28,2020.Thepurposeofthemeetingswastoseek approval for the previously announced proposed acquisition by Endeavour of all the issued and outstandingsecuritiesofSEMAFObywayofaPlanofArrangementundertheBusinessCorporationsAct(Quebec),amongstothermatters.
• On May 27, 2020, Endeavour announced that it published an enhanced 2019 Sustainability Report which detailsprogress towards implementing theWorldGoldCouncil’s environment, social and governance reporting framework,theResponsibleGoldMiningPrinciples,aswellastheCorporation’sperformanceagainstkeyindicatorsin2019.
• OnMay28,2020,Endeavourannouncedthatitsshareholdersvotedoverwhelminglyinfavourofthespecialresolutionin supportof theplanofarrangementpursuant towhichEndeavour indirectlyacquiredallof theSEMAFOcommonsharesonthebasisof0.1422ofanEndeavourcommonshareforeachoutstandingSEMAFOshare.
• OnJune26,2020,Endeavourannounced InvestmentCanadaclearance for theSEMAFOtransactionmeaningthatallrequiredregulatoryapprovalsfortheacquisitionofSEMAFOwerereceived.EndeavourclosedtheacquisitiononJuly2,2020.Furthermore,the$100.0millionLaManchainvestmentisexpectedtocloseonoraboutJuly3,2020.
2.2. OPERATIONALANDFINANCIALHIGHLIGHTS
• Q2-2020productionwas148,998ouncesatanall-insustainingcost1(“AISC”)of$939perounce;wellpositionedtomeetfullyear2020guidance.
• Revenuewas$253.1millioninQ2-2020whichgenerated$88.2millioninearningsfrommineoperations,anincreaseoverQ2-2019of$33.2millionand$35.2million,respectively.
• OperatingCashFlowbeforenon-cashworkingcapitalamountedto$85.4millionQ2-2020,or$0.77pershare,anincreaseof$28.0millioncomparedtoQ2-2019.
• Basiclosspersharewas$0.34inQ2-2020comparedtoabasicearningspershareof$0.01inQ2-2019.
• AdjustedNetEarnings1of$52.8millionor$0.48pershareinQ2-2020,a$44.3millionincreasecomparedtoQ2-2019.
• Netdebt1was$472.6inQ2-2020,markingareductionof$187.3comparedtoQ2-2019,followingnearlyfouryearsofintensivegrowth-capitalinvestment.
• HealthyNetDebt/AdjustedEBITDA1(LTM)of1.00xatquarter-end,areductionof64%from2.75xattheendofQ2-2019.
• Cashof$351.8millionatquarter-end,providingsignificantheadroomtooperatewithintheCOVID-19environment.
1 Throughout thisMD&A, cash costs, all-in sustaining costs, adjusted EBITDA, adjusted earnings attributable to shareholders, all-in sustainingmargin, all-inmargin, sustaining and non-sustaining capital expenditures, growth projects, free cash flow, net debt and net debt/adjusted EBITDAare non-GAAP financialperformancemeasureswithnostandardmeaningunderIFRS,furtherdiscussedinthesectionNon-GAAPMeasures.
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Table1:QuarterlyHighlights
THREEMONTHSENDED SIXMONTHSENDED
($'000s) UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Operatingdata
Goldproduced oz 148,998 171,893 171,299 320,891 292,090
Goldsold oz 149,828 174,554 170,749 324,382 291,624
Realizedgoldprice1 $/oz 1,689 1,546 1,285 1,612 1,271
All-insustainingcosts2 $/oz 939 899 790 918 826
Cashcostpergoldouncesold2 $/oz 675 661 632 667 644
All-insustainingmargin2 $/oz 750 647 494 694 445
Cashflowdata
Operatingcashflowbeforenon-cashworkingcapital $ 85,353 119,292 57,322 204,645 105,314
Operatingcashflowbeforenon-cashworkingcapitalpershare $/share 0.77 1.08 0.52 1.85 0.96
OperatingCashFlow $ 57,416 125,955 62,209 183,371 85,125
OperatingCashFlowpershare $/share 0.52 1.14 0.57 1.66 0.78
Profitandlossdata
Revenues1 $ 253,084 269,902 219,371 522,986 370,681
Earningsfrommineoperations $ 88,245 85,518 53,051 173,763 70,877
Netcomprehensive(loss)/earningsattributabletoshareholders $ (37,229) 25,998 711 (11,231) (13,956)
Basic(loss)/earningspershareattributabletoshareholders $/share (0.34) 0.24 0.01 (0.10) (0.13)
AdjustedEBITDA2 $ 120,218 129,860 93,819 250,078 134,755
Adjustednetearningsattributabletoshareholders2 $ 52,793 33,517 8,519 86,310 3,609
Adjustednetearningspershareattributabletoshareholders2 $/share 0.48 0.30 0.08 0.78 0.03
BalanceSheetData
Cash $ 351,817 357,343 77,677 351,817 77,677
NetDebt2 $ 472,646 472,654 659,964 472,646 659,964
NetDebt/AdjustedEBITDA(LTM)ratio2 : 1.00 1.06 2.75 1.00 2.751RevenueandrealizedgoldpricearenetofgoldstreamsalestoFranco-NevadaandSandstorm.2Thisisanon-GAAPmeasure.Refertothenon-GAAPmeasuresectionoftheMD&A.
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3. OPERATIONALREVIEWSUMMARY
• Endeavour remains on track to achieve its Group production and AISC1 guidance, despite the COVID-19 pandemic, as itexpectsahighergradeprofileinH2-2020.
• Endeavour expects a stronger cash flow generation in the secondhalf of the year, due to higher production, lower non-sustaining spend (already 70% of FY-2020 guidance completed in H1), lower exploration spend (already 85% of FY-2020guidancecompletedinH1),thebenefitofhighergoldpricesanditsgoldcollarprogram(withacapof$1,500perounceforhalfitsproduction)havingbeencompletedattheendofJune2020.
• H1-2020 production amounted to 320,891 ounces, an increase over H1-2019 mainly due to the start-up of the Ity CILoperationinlateQ1-2019whileAISC1increasedinlinewithguidance.
Table2:GroupProduction
THREEMONTHSENDED SIXMONTHSENDED
(Allamountsinkoz,ona100%basis)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Agbaou 24 27 35 52 66
ItyHeapLeach — — — — 3
ItyCIL 47 61 58 108 66
Karma 20 28 21 48 43
Houndé 57 56 58 113 114
ENDEAVOURPRODUCTION 149 172 171 321 292
Table3:GroupAll-InSustainingCosts1
THREEMONTHSENDED SIXMONTHSENDED
(AllamountsinUS$/oz)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Agbaou 955 951 788 953 786
ItyHeapLeach — — — — 1,086
ItyCIL 784 651 585 707 585
Karma 952 866 1,047 904 999
Houndé 965 1,077 836 1,020 808
CorporateG&A 34 30 30 32 38
ENDEAVOURAISC1 939 889 790 918 8261Thisisanon-GAAPmeasure.Refertothenon-GAAPmeasuresectionoftheMD&A.
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4. BUSINESSREVIEW
4.1. ENVIRONMENT,SOCIALANDGOVERNANCE
Endeavouriscommittedtobeingaresponsiblegoldminer,creatinglong-termvalueandsharingthebenefitsofitsoperationsamongall itsstakeholders,includingemployees,membersofthecommunitieswhereitoperates,shareholders,andotherkeystakeholders. As the largest goldminer inWest Africa and a trusted government partner, Endeavour’s operations have thepotential toprovideasignificantpositive impactontheeconomiesandsocialdevelopmentof its localcommunitiesandhostcountries,whileminimizing its impact on the environment. In early 2019, Endeavour becameamemberof theWorldGoldCouncilandmadethedecisiontoadopttheResponsibleGoldMiningPrinciples(“RGMPs”)as its frameworkforfurthering itscommitmenttoresponsiblemining.
Environment, social and governance (“ESG”) policies, systems and practices are embedded throughout the business and theCompanyreportsannuallyonitsESGperformanceviaitsSustainabilityReport.
HealthandSafety
Endeavourputsthehighestpriorityonsafeandhealthyworkpracticesandsystems.TheCompany’sultimateaimistoachieve“zeroharm”performance.ThefollowingtableshowsthesafetystatisticsforthetrailingtwelvemonthsendedJune30,2020.Regrettably,a fatalaccidentoccurredat theKarmamine inBurkinaFasoonFebruary28,2020.A full investigationhasbeencarriedoutandthekeyfindingshavebeenincorporatedintotheGroup’ssafetyprocedures.Duringthequarter,therewerenolost time injuries (“LTIs”) reported for theGroup. TheGroup’s lost time injury frequency rate (“LTIFR”) continues tobewellbelowtheindustrybenchmark.
Table4:LTIFRStatisticsfortheTrailingTwelveMonthsendedJune30,2020
IncidentCategory Agbaou Karma Ity HoundéNon
Operations3Total
Fatality 0 1 0 0 0 1
LostTimeInjury 0 0 4 0 0 4
TotalPeopleHours 3,128,784 3,115,317 5,183,516 4,878,353 3,184,775 19,490,745
LTIFR1 0 0 0.77 0 0 0.21
AIFR2 4.47 4.49 4.05 1.84 5.06 3.441LTIFR=NumberofLTIsinthePeriodx1,000,000/Totalpeoplehoursworkedfortheperiod2AllInjuryFrequencyRate(“AIFR”)=Numberof(LTI+RestrictedWorkInjury+MedicalTreatedInjury+FirstAidInjury)intheperiodx1,000,000/Totalpeoplehoursworkedfortheperiod3“NonOperations”includesCorporate,KalanaandExploration
Duringthequarter,theCorporationcontinueditsmalariapreventionprogramsacrossitssites.Actionsincludeindoorresidualspraying, regular fogging, awareness campaigns andapplicationof larvicide in stagnantwateron site. TheHoundéminehasseenparticularlyencouraging results fromtheirpreventionprogram,withonly24cases inH1-2020comparedto136 for thesame period last year. At Ity, a pilot community malaria program commenced during the quarter. Alongside communityeducation and the establishment of hygiene and mosquito control committees, community members are being trained toconductindoorsprayinginthelocalcommunitiessurroundingthemine.Approximately3,000housesineightvillageshavebeensprayedinthefirstphase.
NewESGReportingFrameworkAdopted–TheResponsibleGoldMiningPrinciples
TheRGMPswerelaunchedbytheWorldGoldCouncil,theindustrybodyresponsibleforstimulatingandsustainingdemandforgold, to reflect the commitment of the world’s leading gold producers to responsible mining. The RGMPs provide acomprehensive reporting framework that sets out clear expectations as towhat constitutes responsible goldmining to helpprovideconfidencetoinvestors,supplychainparticipantsandultimately,consumers.MembercompanieswillhaveuptothreeyearstofullycomplywiththeRGMPsandwillberequiredtoobtainexternalassuranceontheirperformanceandconformancetotheRGMPs.
The RGMPs consist of ten umbrella principles and 51 detailed principles, which cover key ESG themes, issues and actions.Endeavour has adopted the RGMPs as its primary ESG reporting framework and is targeting full conformance within theCouncil’sthree-yeartimeframe.Aspartofitsimplementationstrategy,Endeavourconductedagapanalysisin2019toidentifythosepolicies,standardsandactivitieswhichalreadyconformtotheRGMPs,aswellasthoseareasthatwillrequireadditionalworkinordertoachieveconformance.
Duringthequarter,EndeavourcommencedimplementingtheRGMPsandreceiveditsfirstexternalassuranceonPrinciple1.7,whichrelatestoaccountabilitiesandreporting.
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RespondingtoClimateChange
BeingresponsiblestewardsoftheenvironmentiscriticaltotheGroup’s long-termsuccess.Endeavourrecognizestheneedtomonitor its energy consumption and efficiency and, where possible, to reduce its carbon footprint. The Group has beenreportingonitsScope1andScope2greenhousegasemissionssince2017.Thisyear,theGroupalsostartedreportingitsScope3emissions.EndeavourhasalsocommencedworkondevelopingonanEmissionsReductionTargetinformedbyclimatescienceanditsspecificoperatingcontextandwillcontinuetoworktoidentifypathwaystoachievement.Duringthequarter,aGroupgreenhousegasemissionsreductionplanwasapproved.Theplancommitsto:
• Establishingasystemtopromotecontinuousimprovement;
• Proactivelymanagingpowergenerationcostsandutilitycontracts;
• Achievingsustainableimprovementsinenergyefficiency;and
• Protectingtheoperations’energysecurityovertheiranticipatedlifeofmine.
Endeavour acknowledges the risks and impacts climate change poses to its business. During the quarter, the Corporationengagedconsultants toassess itscurrentpracticesanddisclosures in relation to theFinancialServicesBoard’sTaskForceonClimate-related Financial Disclosure (“TCFD”) in preparation for augmenting its climate-related disclosure with the TCFDrecommendationsin2021.
LinkingESGPerformancetoCompensationPlans
Thisyear,Endeavourhasaugmenteditsshortandlong-termcompensationplanstoincludeclearlymeasurableESGtargetsinordertoensurefullalignmentacrossthebusiness.For2020,EndeavourhasexpandeditsGrouptargets,whichaffectsannualemployeebonuses,toincludea20%weightingforESG-relatedshort-termtargets.AlongsideasafetytargetofaLTIFRwhichis10%belowthe industrybenchmark, theplanalso includesadiversity targetofachievinga25% increase in femaleemployeerepresentationto10%in2020.
Thelong-termincentiveawardsforexecutiveshavealsobeenaugmentedtoincludea12.5%ESGweightingforthesuccessfulexternalassuranceonall10umbrellaprinciplesand51principlesoftheRGMPs.FulldetailsofthecompensationplanwillbeavailableintheCorporation’smanagementinformationcircularrelatingtoitsAnnualGeneralMeeting,whichwillbepublishedinQ3-2020.
2019SustainabilityReportPublished
During the quarter, Endeavour published an enhanced 2019 Sustainability Report, prepared in accordance with the GlobalReportingInitiativeSustainabilityReportStandards:CoreOption,whichdetailedtheCorporation’sperformanceagainstkeyESGindicatorsin2019.Thefullreportisavailableatwww.endeavourmining.com.
In addition to the Corporation’s update on the implementation of the RGMPs, themain highlights from the Report are asfollows:
• ContinuedstrongsafetyrecordwithreductionsinGroupAIFRandGroupLTIFRby30%and44%,respectively,comparedto2018.
• Distributionof$627.0millionineconomicvaluetohostcountries,including$100.0millionintaxesandroyalties,representing71%ofrevenue.
• In-countryprocurementrepresented67%ofGroupspend,supporting1,144localbusinesses.
• Zerosignificantenvironmentalincidentsinboth2019and2018.
• 22%reductioningreenhousegasemissionintensity(CO2-equivalentperozgoldproduced)over2018.
• WestAfricanGeneralManagersrepresentationincreasedto75%,from25%in2018.
• Therepresentationofwomenintechnicalorsupervisoryrolesincreasedto11%,from5%in2018.
• 95%ofsiteworkforcearenationals,remainingatsimilarlevelsto2018.
4.2. COVID-19RESPONSE
Sincetheoutbreakof theglobalCOVID-19pandemic,Endeavourhas focusedonthewell-beingof itsemployees,contractorsandlocalcommunities,whileensuringbusinesscontinuity.Inaddition,hostgovernmentsinCoted’Ivoire,BurkinaFasoandMalihavetakenstrictandpro-activemeasurestominimizeoverallexposureintheircountries.
Protectingthewell-beingofemployees,contractors,andlocalcommunities
• Endeavourhas implementeda rangeof preventativemeasures across all its sites, including social distancing, healthscreening,augmentedhygieneandrestrictedaccesstosites.
• Endeavour operates in close coordination with the national health authorities and is using the epidemiologicalsurveillancesystemitdevelopedtoassisthostcountries(Coted’Ivoire,BurkinaFasoandMali)withthemonitoringandtrackingofthepandemicinthesecountries.
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• Endeavour’s donations of keymedical equipment and supplies to regional, community and on-sitemedical centerscontinuedduringthequarteracrossallthreecountriesofitsoperations.
• Arangeofcommunityprogramswereimplementedduringthequarterincludingmicro-creditprograms,whichhelptosupportpeopleinhostcommunitieswhoselivelihoodshavebeenimpactedbythepandemic,ande-learningprogramsinBurkinaFasotofacilitateaccesstodistancelearningforstudents.
Businesscontinuityresponseplan
• InearlyMarch2020,EndeavourputinplaceabusinesscontinuityplantomitigatetherisksandpotentialimpactoftheglobalCOVID-19pandemic,whichhasthreelevelsofresponse:
– Level 1,which theGroup is currently operatingunder, involves a rangeof preventativemeasures includingtemperaturechecks,restrictedaccesstosites,socialdistancing, increasedhygienestandardsandmandatoryquarantineperiodsforemployeesarrivingin-country,whileotherwisecontinuingoperationsasnormal.
– Level 2 is designed to be initiated should COVID-19 becomemore prevalent in the countries in which theGroupoperatesandinvolvescomprehensiverestrictionsonmovementintoandoutofthemines.Underthesecircumstances,Endeavour’smineswouldbeisolated,butminingoperationsandtheshipmentofgoldwouldcontinue.
– Level3involvesthefullorpartialsuspensionofminingandprocessingoperations.
• Inaddition,theGrouphasalsotakenanumberofproactivesteps,including:
– Assessingthesupplychainwithafocusonensuringcontinuityofsupplyinarangeofscenarios.Endeavour’sshifttonationalsupplierslocatedwithinhostcountriesoverthepast12monthshasmitigatedtheimpactofclosedborders.
– Toensure that Endeavourwouldhave substantial liquidity and financial flexibility to operateunder variousstress-test scenarios, Endeavour drew down the entirety of its available Revolving Credit Facility (“RCF”) inQ1-2020. Endeavour has now commenced repaying the RCF and expects to continue to reduce the drawnamountduringQ3-2020andQ4-2020.
– EndeavourassesseditsabilitytocurtailitsoperationstoselectivelyminehighergradeorewithlowstripratiosshouldminingactivityneedtobereducedinresponsetoanincreaseinCOVID-19preventionmeasures.
• EachofEndeavour’soperationsarecontinuingtooperateatnormal levelswithgoldshipmentsandsalescontinuing,albeitwithincreasedhealthandsafetymeasuresanddecreasedefficiencies.
• Employeesinarolethatenabledthemtoworkfromhomewereaskedtodoso.TheCompany’scloud-basedstrategyensuredthatemployeescouldaccessalltherelevantapplications,systemsandcollaborationtoolsthattheyneededtoperform their duties. In addition, the cyber security responsewas updated and is constantly tracked in light of theincreasedcybersecurityriskgenerallyobservedduringthepandemic.
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4.3. OPERATIONSREVIEW
ThefollowingtablessummarizeoperatingresultsforthethreemonthsendedJune30,2020,March31,2020,andJune30,2019andthesixmonthsendedJune30,2020andJune30,2019.
ItyGoldMine,Côted’Ivoire
Table5:ItyCILKeyPerformanceIndicators
THREEMONTHSENDED SIXMONTHSENDED
UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
OperatingDataTonnesoremined kt 1,650 1,909 1,409 3,559 2,523Tonnesofwastemined kt 3,725 3,317 2,460 7,042 4,701Openpitstripratio1 w:o 2.26 1.74 1.75 1.98 1.86Tonnesmilled kt 1,180 1,410 934 2,590 1,191Averagegoldgrademilled g/t 1.59 1.63 2.03 1.61 2.03Recoveryrate % 77 84 90 81 90Goldproduced oz 46,790 61,005 57,503 107,795 66,287Goldsold oz 46,146 63,514 61,989 109,660 61,989FinancialData($'000)Revenues $ 79,419 100,723 82,208 180,142 82,208Miningcosts $ (16,779) (12,381) (13,996) (29,160) (13,996)Processingcost $ (14,116) (16,858) (12,809) (30,974) (12,809)
GeneralandAdministrativeexpenses $ (3,502) (4,315) (5,152) (7,817) (5,152)Capitalizedwaste $ 4,793 1,427 — 6,220 —Inventoryadjustmentsandother $ 122 (3,323) (1,309) (3,201) (1,309)TotalCashCost2 $ (29,482) (35,450) (33,265) (64,932) (33,265)Royalties $ (4,453) (4,763) (3,028) (9,216) (3,028)Sustainingcapital2 $ (2,253) (1,123) — (3,376) —TotalAll-inSustainingCosts2 $ (36,188) (41,336) (36,293) (77,524) (36,293)Non-sustainingcapital2 $ (10,746) (10,947) — (21,693) —All-InMargin2 $ 32,485 48,440 45,915 80,925 45,915
addback:Sustainingandnon-sustainingcapital2 $ 12,999 12,070 — 25,069 —Depreciation/depletion $ (8,466) (10,679) (10,498) (19,145) (10,498)
Non-cashoperatingexpense $ (220) 220 3,143 — 3,143Earningsfrommineoperations $ 36,798 50,051 38,560 86,849 38,560UnitcostanalysisRealizedgoldprice $/oz 1,721 1,586 1,326 1,643 1,326
Openpitminingcostpertonnemined $/t 3.12 2.37 3.62 2.75 3.62Processingcostpertonnemilled $/t 11.96 11.95 13.72 11.96 13.72G&Acostpertonnemilled $/t 2.97 3.06 5.52 3.02 5.52Cashcostperouncesold2 $/oz 639 558 537 592 537MineAll-InSustainingCosts2 $/oz 784 651 585 707 585
1Openpitstripratioincludescapitalwaste.2Non-GAAPmeasure.RefertotheNon-GAAPMeasuressectionforfurtherdetails.
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ItyCILQ22020vsQ12020Insights
• Despite the COVID-19 pandemic, Ity continued to operate at near-normal levels under the Level 1 ResponseEnvironment,asdescribedinSection4.2above.ThemineplanprioritizedbothwasteextractionandthecompletionoftheTSFraiseinQ2-2020whichprovidestheCompanywithincreasedoperationalflexibilityshouldtheminebeforcedto operate under a Level 2 or 3 Response Environmentwhichwould restrict the number of employees on site andreduceminingactivity.
• Productiondecreased as themineplanprioritizedbothwaste extraction and the TSF raisewhich resulted in a sub-optimalprocessedoreblendleadingtoshort-termvariancesinmillthroughput,recoveriesandprocessedgrade.
– Totaltonnesminedremainedflat,howevertonnesoforemineddecreasedby16%asagreaterfocuswasplacedonwasteextraction.MorewastewasextractedattheItypitasaresultofacceleratingthepreviouslyplannedcutback.Inaddition,pre-strippingcommencedattheCollineSudPit,followingachangeinthemineplantoprovidegreateroperationalflexibility.Inadditiontotheoperatingdatapresentedinthetableabove,0.9MtofwastewereminedoutsideofexistingpitstoacceleratetheplannedTSFraise.
– Theprocessedgradedecreasedslightlyasahigherproportionofthemillfeedwassupplementedbythelowergradeoxidestockpilesasminingfocusedonwasteextraction.
– Tonnesmilled decreased due to lowermill availability driven by longermaintenance shutdowns related toCOVID-19 (more time required to get technicians and spare parts on site), however throughput remainedwithin5%ofthenominalplantcapacitythroughput.
– Recoveryratesreduced,asexpected,duetogreaterquantitiesof transitionalandfreshoreprocessedfromDaapleuwithassociatedlowerrecoveries.
• AISC increaseddue to lowerouncesof gold sold,higher royalty rates, ahigher strip ratio, lower recovery rates andhigherunitminingcosts.
– Mining unit costs increased from $2.37 to $3.12 per tonne mined due to the higher drill and blast andequipmentmaintenancecostsassociatedwithmininganincreasedproportionoffreshmaterial.
– Processingunitcostsremainedbroadlyflat,despitegreaterdowntimeandlowermillthroughput.– Sustainingcapitalincreasedfrom$1.1millionto$2.3millionforthequarterduetothechange-outonheavy
miningequipment.
• Non-sustainingcapitalremainedflat.Q2-2020includesacceleratedwastecapitalizationforthenewCollineSudpitaswellastheTSFraisewhichwascompletedwithinthesameperiod.
H12020vsH12019Insights
• ProductionincreasedastheItyCILplantoperatedforthefullsixmonthperiodinH1-2020comparedtohalftheperiodinH1-2019astheplanthaditsfirstgoldpourinMarch2019withcommercialproductiondeclaredonApril8th2019.AISCincreasedasguidedduetominingatdeeperelevationsandincreasedsustainingcapitalrelatedtothecomponentchange-outassociatedwithheavyminingequipment.
H22020Outlook
• Ityisexpectedtoachievethebottomendofitsfullyear2020productionguidancerangeofbetween235,000-255,000ouncesandthetopendofitsAISCguidanceof$630-$675perounce.
• PlantfeedinH2-2020isexpectedtobesourcedprimarilyfromtheDaapleupit,whilecontinuingtobesupplementedbyorefromtheItypitandlowergradehistoricheapdumps.Asinitiallyguided,theproportionoffreshoreisexpectedtoremainhighfortheremainderoftheyearasthepitsbecomedeeperwhilstprocessedgradesandrecoveryratesareexpectedtoremainstable.
• Sustainingcapital spend forFY-2020 isexpected toamount toapproximately$8.0million (ofwhich$3.4millionhasbeenincurredinH1-2020),anincreasecomparedtotheinitialFY-2020guidanceof$4.0millionduetoincreasedwasteextractionfollowingthechangeinthemineplan.
• Non-sustainingcapitalspendforFY-2020isexpectedtoamounttoapproximately$35.0million(ofwhich$21.7millionhas been incurred in H1-2020), an increase compared to the initial FY-2020 guidance of $26.0 million as theinfrastructureandriverdiversionworkfortheLePlaquehighgradedeposit,whichwasoriginallyplannedfor2021,isnowexpectedtobebroughtforwardgiventhehighconfidenceinobtainingaminingpermitinthecomingmonthsandtheexpectedpositiveimpactofthisdeposit.
ExplorationActivities
• Anexplorationprogramofupto$14.0milliontotalingapproximately100,000metershasbeenplannedfor2020,withtheaimofgrowingtheLePlaque,Bakatouo,andDaapleudeposits,andtestingothertargetssuchasFloleuandSamuel.
• InH1-2020,$12.0millionwasspent,comprisedofnearly85,000metersdrilled,witheightrigsactiveoverthegreaterItyarea.ThemajorityofdrillingwasfocusedontheLePlaqueareaandonnear-milltargetssuchasVerseWestandLeachpadandDaapleuSW.
• As announcedon July 7, 2020, drilling has resulted in a 43% increase in Le Plaque’s Indicated resource estimate to689,000ounces.Inaddition,severalothernearbytargetshavealsobeenidentified.Atleast15,000metersofdrillingareplannedfortheremainderof2020.Followingtherecentresourceaddition,theupdatedLePlaquereserveestimateisexpectedtobepublishedinQ3-2020andintegratedintotheItymineplan.
11
HoundéGoldMine,BurkinaFaso
Table6:HoundéKeyPerformanceIndicators
THREEMONTHSENDED SIXMONTHSENDED
UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
OperatingData:
Tonnesoremined kt 1,072 900 917 1,972 1,686
Tonnesofwastemined kt 10,437 10,411 8,225 20,848 16,857
Openpitstripratio1 w:o 9.73 11.57 8.97 10.57 10.00
Tonnesmilled kt 1,035 1,066 1,043 2,101 2,076
Averagegoldgrademilled g/t 1.91 1.76 1.88 1.83 1.84
Recoveryrate % 92 91 93 91 93
Goldproduced oz 57,444 55,860 58,232 113,304 113,592
Goldsold oz 57,431 56,671 54,255 114,102 113,830
FinancialData($'000)
Revenues $ 100,190 88,836 71,013 189,026 148,516
Miningcosts $ (24,718) (25,445) (19,563) (50,163) (38,538)
Processingcost $ (14,808) (13,311) (13,502) (28,119) (26,229)
GeneralandAdministrativeexpenses $ (4,740) (3,401) (6,577) (8,141) (13,060)
Capitalizedwaste $ 9,783 11,845 5,928 21,628 9,199
Inventoryadjustmentsandother $ (1,786) (11,827) 26 (13,613) (3,066)
TotalCashCost2 $ (36,269) (42,138) (33,687) (78,408) (71,695)
Royalties $ (8,025) (7,105) (4,470) (15,130) (9,743)
Sustainingcapital2 $ (11,117) (11,774) (7,223) (22,891) (10,494)
TotalAll-InSustainingCosts2 $ (55,411) (61,016) (45,381) (116,429) (91,932)
Non-sustainingcapital2 $ (5,750) (1,815) (3,191) (7,565) (9,295)
All-InMargin2 $ 39,029 26,005 22,441 65,032 47,289
addback:Sustainingandnon-sustainingcapital2 $ 16,867 13,589 10,414 30,456 19,789
Depreciation/depletion $ (13,726) (16,403) (16,243) (30,129) (31,920)
Non-cashoperatingexpense $ (35) 35 — — —
Earningsfrommineoperations $ 42,135 23,225 16,612 65,358 35,158
Unitcostanalysis
Realizedgoldprice $/oz 1,745 1,568 1,309 1,657 1,305
Openpitminingcostpertonnemined $/t 2.15 2.25 2.14 2.20 2.08
Processingcostpertonnemilled $/t 14.31 12.49 12.95 13.39 12.63
G&Acostpertonnemilled $/t 4.58 3.19 6.31 3.88 6.29
Cashcostperouncesold2 $/oz 632 744 621 687 630
MineAll-InSustainingCosts2 $/oz 965 1,077 836 1,020 8081Stripratioincludescapitalwaste.2Non-GAAPmeasure.RefertotheNon-GAAPMeasuressectionforfurtherdetails.
12
Q22020vsQ12020Insights
• Despite the COVID-19 pandemic, Houndé continued to operate at near-normal levels under the Level 1 ResponseEnvironment,asdescribeinSection4.2above.GiventheflexibilityavailablewithintheHoundémineplan,notablyduetotheslightlyearlierthanexpectedreceiptoftheminingpermitforthehighgradeKariPumpdeposit,aportionoftheinitially scheduledwastecapitalizationactivitywasdelayed to later in theyear.As such,Houndé’sperformancewasbetterthaninitiallyanticipated.
• Productionincreasedslightlyashigherprocessedgradesandaslightlybetterrecoveryratemorethanoffsettheslightlylowerthroughput.
– Tonnesoforemined increasedduetothe loweroverallstripratioasscheduledwastecapitalizationactivitywasdelayedto later in theyear.OrewasmainlysourcedfromtheVindalooCentralandBouérépits,whichhavealowerstripratio,andsupplementedbyorefromtheVindalooMainandVindalooNorthpitswhichhaveaslightlyhigherstripratio.
– Tonnes milled reduced slightly, however continued to perform well above nameplate, as the ore blendcontinuedtobemainlyfresh.
– ProcessedgradesincreasedasthestrongwastecapitalizationatVindalooCentralduringthepreviousquarterprovidedaccess tohighgradeore. Inaddition, less lowgradestockpileswereusedtosupplementmill feedgiventheincreasedminingactivity.
– Recoveryratesincreasedslightlybasedontheoreblendcharacteristics.
• AISCdecreasedmainlyduetoslightlyhighersalesvolumesandlowerminingunitcostswhichmorethanoffsethigherroyaltiesandhigherprocessingandG&Aunitcosts.
– Mining unit costs decreased slightly from $2.25 to $2.15 per tonne due to lower production drilling andblastingactivitiesrequiredfortheoxidizedoreminedattheVindalooCentralpit.
– Processingunitcostsincreasedfrom$12.49to$14.31pertonnedrivenbyincreasedreagentcosts.– Sustainingcapitaldecreasedslightlyfrom$11.8millionto$11.1millionduetothechangeinthemineplan.
• Non-sustaining capital increased from $1.8 million to $5.8 million with the Q2-2020 spend mainly comprised ofcompensationandresettlementfortheKariPumparea,aswellasaTSFraise.
H12020vsH12019Insights
• Production remained steady as increased tonnes milled offset the lower recovery rate while processed gradesremainedflat.AISCincreasedasexpectedduetohighersustainingwastecapitalization,higherroyaltycostsandashifttominingandprocessingahigherproportionofharderfreshore.
H22020Outlook
• WiththerecentreceiptoftheKariPumpminingpermit,Houndéisexpectedtoachievethetopendofitsfullyear2020productionguidancerangeof230,000-250,000ouncesandthebottomendofitsAISCguidancerangeof$865—$895perounce.
• HighergradematerialisplannedtobeprocessedinthesecondhalfoftheyearwithmillfeedfromVindalooMainandCentralsupplementedbyKariPump,whichwillberampedupinQ4-2020.
• The overall expected capital spend for FY-2020 is expected to remain unchanged at $59.0 million (of which $30.5millionwasincurredinH1-2020).Sustainingandnon-sustainingcapitalspendsforFY-2020areexpectedtoamounttoapproximately$49.0millionand$10.0million,respectively.
Exploration
• Anexplorationprogramof$11.0milliontotalingapproximately94,000metershasbeeninitiallyplannedfor2020,withtheaimofdelineatingadditionalresourcesintheKariareaandattheVindalooSouthandVindalooNorthtargets. Inaddition,othertargetssuchasDohounandSia/Sianikouiareexpectedtobetested.
• InH1-2020,over73,000metersweredrilledwithupto11rigsactive.Ofthemeterscompleted,over44,000metersweredrilledforgeotechnicalandmetallurgicalpurposesatKariWest,KariCentreandKariGap,andsterilizationandgrade control at Kari Pump. The majority of remaining drill meters focused on the Kari area along with smallreconnaissance drill campaigns at Sianikoui, Mambo and Marzipan which provided positive initial results. A newmineralizedareawasdiscovered,namedKariGap,whichistheextensionoftheKariCenterMainarea.
• An updated resource estimate, incorporating 554,000 additional Indicated ounces for the entire Kari area, waspublishedinearlyQ3-2020.AreserveestimateupdateisexpectedtobereleasedinQ3-2020,whichwillincludemaidenreserves for KariWest andwill be followed by the publication of an updatedmine plan for Houndé. In addition, asecondreserveestimateupdateisexpectedtobepublishedinQ4-2020toincludeKariCenterMainandKariGap.
13
AgbaouGoldMine,Côted’Ivoire
Table7:AgbaouKeyPerformanceIndicators
THREEMONTHSENDED SIXMONTHSENDED
UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
OperatingData
Tonnesoremined kt 659 757 564 1,416 1,015
Tonnesofwastemined kt 4,589 5,676 5,992 10,265 11,758
Openpitstripratio1 w:o 6.97 7.50 10.60 7.25 11.58
Tonnesmilled kt 675 732 644 1,407 1,365
Averagegoldgrademilled g/t 1.14 1.31 1.75 1.23 1.58
Recoveryrate % 94 94 94 94 94
Goldproduced oz 24,437 27,460 34,558 51,897 66,391
Goldsold oz 25,067 27,423 34,411 52,490 68,122
FinancialData($'000)
Revenues $ 43,503 43,581 45,108 87,084 89,156
Miningcosts $ (14,502) (17,129) (15,786) (31,631) (31,455)
Processingcost $ (5,989) (5,196) (5,152) (11,185) (10,439)
GeneralandAdministrativeexpenses $ (2,329) (2,231) (3,089) (4,560) (6,176)
Capitalizedwaste $ 1,292 5,570 2,225 6,862 9,259
Inventoryadjustmentsandother $ 1,448 674 (1,090) 2,122 (1,516)
TotalCashCost2 $ (20,080) (18,312) (22,892) (38,392) (40,327)
Royalties $ (2,464) (2,333) (1,711) (4,797) (3,415)
Sustainingcapital2 $ (1,386) (5,436) (2,513) (6,822) (9,816)
TotalAll-inSustainingCosts2 $ (23,930) (26,080) (27,116) (50,011) (53,558)
Non-sustainingcapital2 $ (316) (134) (2,602) (450) (5,126)
All-InMargin2 $ 19,257 17,367 15,391 36,624 30,473
addback:Sustainingandnon-sustainingcapital2 $ 1,702 5,570 5,115 7,272 14,942
Depreciation/depletion $ (8,295) (9,601) (12,207) (17,896) (20,793)
Non-cashoperatingexpense $ — — — — —
Earningsfrommineoperations $ 12,664 13,336 8,298 26,000 24,622
Unitcostanalysis
Realizedgoldprice $/oz 1,735 1,589 1,311 1,659 1,309
Openpitminingcostpertonnemined $/t 2.76 2.66 2.41 2.71 2.46
Processingcostpertonnemilled $/t 8.88 7.10 8.00 7.95 7.65
G&Acostpertonnemilled $/t 3.45 3.05 4.79 3.24 4.53
Cashcostperouncesold2 $/oz 801 668 665 731 592
MineAll-InSustainingCosts2 $/oz 955 951 788 953 7861Stripratioincludescapitalwaste2Non-GAAPmeasure.RefertotheNon-GAAPMeasuressectionforfurtherdetails.
14
Q22020vsQ12020Insights
• Despite the COVID-19 pandemic, Agbaou continued to operate at near-normal levels under the Level 1 ResponseEnvironment,asdescribeinSection4.2above,withnomaterialchangestoitsmineplanrequired.
• Productiondecreasedduetoloweraverageprocessedgradesandthroughputwhilerecoveryratesremainedflat.
– Totaltonnesmineddecreasedduetobothfewertonnesoforeminesandaloweroverallstripratio.MiningwasfocusedonthedeeperelevationoftheNorthandSouthpits.Tonnesoforemineddecreasedmainlydueto the impact of higher rainfall and lower equipment productivity asmining focused on the freshmaterialzones.
– Tonnesmilleddecreasedduetotheplannedhigherproportionoffreshoreintheblend.
– ProcessedgradesdecreasedasaresultofhighertonnagefromthelowergradeSouthpitandtheuseoflowgradestockpilestosupplementtheplantfeed.
– Recoveryratesremainedflat.
• The AISC remained flat as lower sustaining capital spend offset higher unit mining, processing and G&A costs andincreasedroyalties.
– Mining unit costs increased from $2.66 to $2.76 per tonnemined due tominingmore freshmaterial at adeeperelevationintheNorthandSouthpits.
– Processingunitcostsincreasedfrom$7.10to$8.88pertonnemainlyduetolowertonnesmilledandagreaterproportionoffreshoreintheblend.
– Sustaining capital costs decreased from $5.4 million to $1.4 million primarily due to the lower capitalizedwaste.
• Non-sustainingcapitalremainedlow,marginallyincreasingfrom$0.1millionto$0.3million.
H12020vsH12019Insights
• Asguided,productiondecreasedduetolowergradeswhichwereslightlyoffsetbyhigherplantthroughput.• AISCincreasedasaresultoflowerouncessoldandhigherroyalties,unitminingcostsandprocessingcosts,whichwere
offsetbylowersustainingcapitalandG&Aunitcosts.
H22020Outlook
• Agbaou isexpected toachieve thebottomhalfof its full year2020productionguidance rangeof115,000—125,000ouncesandthemiddleofitsAISCguidancerangeof$940—$990perounce.
• MiningisexpectedtocontinueprincipallyintheNorthandSouthpitswithcontributionsfromtheWestpitceasinginthesecondhalfoftheyear.Throughputandrecoveryratesareexpectedtodecreaseslightlyinthesecondhalfoftheyear as greater volumes of harder fresh ore are expected to be processed. The average grade milled is howeverexpectedtoincreasethroughoutthesecondhalfoftheyear.
• Sustainingandnon-sustainingcapitalspendsforFY-2020remainunchangedcomparedtotheinitialguidance,andareexpectedtoamounttoapproximately$17.0millionand$1.0million,respectively.
ExplorationActivities
• Anexplorationprogramof up to $2.0millionhas beenplanned for 2020with the aimof continuing to test targetslocatedalongextensionsofknowndepositsandonparalleltrends.
• MinimalworkwasdoneinH1-2020astheCôted'IvoireexplorationeffortswereconcentratedonItyandFetekro.
15
KarmaGoldMine,BurkinaFaso
Table8:KarmaKeyPerformanceIndicators
THREEMONTHSENDED SIXMONTHSENDED
UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
OperatingData:
Tonnesoremined kt 1,288 1,229 1,057 2,517 1,891
Tonnesofwastemined kt 3,513 3,724 4,599 7,237 8,539
Openpitstripratio1 w:o 2.73 3.03 4.35 2.87 4.52
Tonnesoforestacked kt 1,238 1,114 1,047 2,352 2,142
Averagegoldgradestacked g/t 0.81 1.02 0.86 0.91 0.77
Recoveryrate % 80 82 83 81 82
Goldproduced: oz 20,327 27,568 21,006 47,895 43,119
Goldsold: oz 21,184 26,946 20,093 48,130 43,469
FinancialData($'000)
Revenues2 $ 29,973 36,762 21,042 66,735 45,315
Miningcosts $ (11,427) (11,738) (11,954) (23,165) (23,239)
Processingcost $ (8,120) (6,841) (7,455) (14,961) (15,512)
GeneralandAdministrativeexpenses $ (2,679) (2,790) (2,978) (5,469) (6,108)
Capitalizedwaste $ 1,823 504 6,556 2,327 9,664
Inventoryadjustmentsandother $ 5,091 1,409 (2,294) 6,500 (2,820)
TotalCashCost3 $ (15,312) (19,455) (18,125) (34,768) (38,014)
Royalties $ (2,828) (3,251) (1,822) (6,079) (3,634)
Sustainingcapital3 $ (2,028) (639) (1,087) (2,667) (1,758)
TotalAll-InSustainingCosts3 $ (20,168) (23,346) (21,034) (43,514) (43,407)
Non-sustainingcapital3 $ (3,838) (2,074) (8,681) (5,912) (11,512)
All-InMargin3 $ 5,967 11,343 (8,674) 17,309 (9,604)
addback:Sustainingandnon-sustainingcapital3 $ 5,866 2,713 9,769 8,579 13,270
Depreciation/depletion $ (11,318) (13,668) (11,564) (24,986) (22,518)
Non-cashoperatingincome/(expense) $ 17 696 1,507 713 (3,014)
Earnings/(loss)frommineoperations $ 532 1,084 (8,961) 1,615 (21,866)
Unitcostanalysis
Realizedgoldprice2 $/oz 1,415 1,364 1,047 1,387 1,042
Openpitminingcostpertonnemined $/t 2.38 2.37 2.11 2.37 2.23
Processingcostpertonnesstacked $/t 6.56 6.14 7.12 6.36 7.24
G&Acostpertonnestacked $/t 2.16 2.50 2.84 2.33 2.85
Cashcostperouncesold3 $/oz 723 722 902 722 875
MineAll-InSustainingCosts3 $/oz 952 866 1,047 904 9991Stripratioincludescapitalwaste.2RevenueandrealizedgoldpricearenetofgoldstreamsalestoFranco/NevadaandSandstorm.3Non-GAAPmeasure.RefertotheNon-GAAPMeasuressectionforfurtherdetails.
16
Q22020vsQ12020Insights
• Despite the COVID-19 pandemic, Karma continued to operate at near-normal levels under the Level 1 ResponseEnvironment,asdescribeinSection4.2above,withnomaterialchangestoitsmineplanrequired.
• Production decreased despite higher stacker throughput rates due to lower grades stacked, a slight decrease inrecoveryrateandincreasedgoldinthecircuit.
– Totaltonnesminedremainedrelativelyflat.Asguided,ahigherproportionoforeminedwassourcedfromthelowergradeGG1pit.Inaddition,awastestrippingcampaigncommencedattheKaoNorthpit.
– Ore tonnes stacked increased due to the benefit of the recently completed conveyor and stacking systemupgrades.
– ThestackedgradedecreasedduetolowergradeoresourcedfromtheGG1pit.
– Recoveryratesdecreasedslightlyasaportionoftheorestackedwastransitionalmaterial.Inaddition,goldincircuitincreasedduetogoldlockedintheheapwhichisexpectedtoberecoveredintheupcomingquarters.
• TheAISC increased, albeit outperforming guidance,mainly due to increased sustaining capital spend, higher royaltyrates,andincreasedunitprocessingcostwhichwerepartiallyoffsetbylowerunitG&Acosts.
– Miningunitcostsremainedflat.
– Processing unit costs increased from $6.14 to $6.56 per tonne due to higher use of cyanide and cementassociatedwiththelowgradeGG1materialsstacked.
– Sustainingcapitalcosts increasedfrom$0.6millionto$2.0milliondueto increasedcapitalizedwasteattheKaoNorthpit.
• Non-sustainingcapitalspendincreasedfrom$2.1millionto$3.8millionduetosecurityupgradesandvariousprocessplantupgrades.
• AminingcontactwasawardedtoSFTPMiningBFS.A.R.L(“SFTP”),alocalcontractor,inlateQ2-2020.Assuch,KarmasuccessfullytransitionedfromownerminingtocontractminingonJune8,2020.Asapartofthetransition,theminingfleetatKarmaandassociatedsparepartsweresoldtoSFTPfor$12.8million.
H12020vsH12019Insights
• Asguided,productionincreasedduetothehigherthroughputrateandgradestacked.• AISCdecreasedasaresultofhigherouncessold,lowerunitprocessingandG&Acostsandalowerstripratio.
H22020Outlook
• Karma is expected to achieve thebottomendof its full year 2020production guidance rangeof 100,000 - 110,000ouncesandthemiddleofitsAISCguidancerangeof$980-$1,050perounce.
• MiningactivityisexpectedtocontinueattheKaoNorthpitandGG1throughouttheremainderoftheyear.ProcessedgradesareexpectedtoincreaseinthelatterportionoftheyearasproductionfromGG1increases.Tonnesstackedareexpectedtoremainfairlystableoutsideoftherainyseason.Recoveryratesareexpectedtodeclineslightlythroughouttheyearastheproportionoftransitionaloreincreases,whilegold-in-circuitisexpectedtoberecovered.
• Sustainingcapital spend forFY-2020 isexpected toamount toapproximately$9.0million (ofwhich$2.7millionhasbeen incurred inH1-2020), adecrease compared to the initial FY-2020guidanceof$13.0milliondue to lessminingmaintenancerequiredfollowingthetransfertocontractmining.
• Non-sustainingcapitalspendforFY-2020isexpectedtoamounttoapproximately$9.0million(ofwhichall$5.9millionhasbeen incurred inH1-2020), an increase compared to the initial FY-2020guidanceof$5.0milliondue toprocessplantupgrades.
ExplorationActivities
• An exploration program of up to $2.0million has been planned for 2020with the aim of in-fill drilling and testingextensionsofknowndeposits.
• Minimal work has been done in H1-2020 as the Burkina Faso exploration efforts were focused on the numerousHoundéexplorationtargets.
17
4.4. PROJECTSUPDATE
• Whilethemainfocusfor2020iscashflowgeneration,EndeavouriscontinuingtobuildoptionalitywithinitsportfoliobyadvancingstudiesandconductingexplorationonboththeFetekroandKalanaprojects.
• Studies are underway with the aim of publishing a Preliminary Economic Assessment (“PEA”) on Fetekro and aPreliminaryFeasibilityStudy(“PFS”)onKalanaduringH2-2020.
• At Fetekro, an exploration program of up to $6.0 million had been budgeted for 2020, which has already beenexceededwith approximately$8.0million spent inH1-2020. Theprogrammainly focusedon the Lafiguédeposit, inadditiontoinitialdrillingontheIguelatarget.AnupdatedLafiguédepositresourceestimateisplannedtobepublishedinQ3-2020.
• AtKalana,anexplorationbudgetofupto$2.0millionhasbeenplannedfor2020tofollow-uponnearbytargets,withtheprogramexpectedtobeconductedinH2-2020.
• OncethesestudiesonFetekroandKalanaarepublished,EndeavourwillbebetterpositionedtodecidewhichprojecttoprioritizeandadvancetoFeasibilitystage.
Explorationactivities
• TheH1-2020Groupexploration spendwas $36.0million, comprising of 234,866meters drilled.Details by asset areprovidedintheminesectionsabove.
• ThemainareasoffocusinH1-2020wereHoundéandItynear-mineexploration,aimedatextendingtheirminelivestobeyond10years,andFetekrowiththeaimaddingoptionalitytoEndeavour’sprojectpipeline.
• H1-2020greenfieldexplorationspend includesa5,000-meterdrillingcampaignontheTanda/Bondoukouproperty inCôted’Ivoirewhichhasyieldedpositiveresults.
18
5.OUTLOOK
5.1. 2020OUTLOOK:PRODUCTIONANDAISC1GUIDANCEMAINTAINEDDESPITECOVID-19
• As presented in the tables below, Endeavour is maintaining its FY-2020 production and AISC1 guidance. The CompanyexpectstomitigatetheimpactoftheCOVID-19pandemicduetothehighergradeprofileexpectedinH2-2020.
• EndeavourisalsomaintainingSEMAFO'sproductionandAISC1guidanceonManaandBoungouandthereforeexpectsthefullyearProFormaGroupproductiontoamountto995,000—1,095,000ouncesin2020atanAISC1of$865—915perounce.TheGroupconsolidatedamountswillbebasedonproductionandAISC1commencingJuly1,2020,fortheSEMAFOacquiredassets.
• ProFormaGroupproductionisexpectedtobehigherandAISC1lowerduringthesecondhalfoftheyear,notablyduetotheminingofthehigher-gradeKariPumpdepositatHoundéandtherestartofminingactivitiesattheBoungoumine.Moredetailsontheupdatedindividualmineguidanceandoutlookhavebeenprovidedintheabovesections.
• Endeavour expects stronger cash flow generation in the second half of the year due to higher production, lower non-sustainingspend,lowerexplorationspend,thebenefitofhighergoldpricesandtheexpiryofitsgoldcollarprogram(withacapof$1,500perounceforhalfitsproduction)attheendofJune2020.
Table9:GuidanceSummary
ENDEAVOUR SEMAFO PROFORMAProduction,Koz 680 — 740 315 — 355 995 — 1,095AISC,$/oz1 845 — 895 895 — 960 865 — 915
Table10:DetailedProductionGuidance
(Allamountsinkoz,ona100%basis) H1-2020 REVISED2020GUIDANCE
Agbaou 52 115 — 125ItyCIL 108 235 — 255Karma 48 100 — 110Houndé 113 230 — 250Mana 97 185 — 205Boungou 61 130 — 150PROFORMAPRODUCTION2 479 995 — 1,095
Table11:DetailedAISC1Guidance
(AllamountsinUS$/oz) H1-2020 REVISED2020GUIDANCEAgbaou 953 940 — 990ItyCIL 707 630 — 675Karma 904 980 — 1,050Houndé 1,020 865 — 895Mana 1,137 1,050 — 1,120Boungou 635 680 — 725CorporateG&A 36 30Sustainingexploration — 5
PROFORMAAISC2 942 865 — 915
1Thisisanon-GAAPmeasure.Refertothenon-GAAPmeasuresectionoftheMD&AforEndeavourandrefertothenon-IFRSmeasuresnoteinthispressreleaseforSEMAFO.2EndeavourbelievesthatoperatingandfinancialfiguresforSEMAFOarerepresentativeoftheperiodendedJune30,2020astheTransactionclosedonJuly1,2020. Figures presentedanddisclosed relating to SEMAFOoperations represent classifications and calculations performedusing consistent historical SEMAFOmethodologies. Potential variances to existing Endeavour classifications and calculationmethodologiesmay result in adjustments affecting results. Potentialdifferencesmay include, but not limited to, classification of corporate costs and operating expenses, classification ofmining, processing, and siteG&A costs,classificationofcapitalizedwasteassustainingandnon-sustaining,valuationofstockpilesandgold incircuit.AccountingtreatmentsandclassificationswillbealignedwithEndeavourmethodologiesandpolicies.ProformainformationhasnotbeenadjustedandiscomprisedofthesimpleweightedaverageofinformationprovidedforeachofEndeavourandSEMAFO.
19
• Theroyaltycost,incorporatedintotheAISC1calculationforEndeavour,hasbeenguidedonagoldpriceofUS$1,350perounce.Aportionofthehigherroyaltiesduetothehighergoldpriceisexpectedtobenettedagainstlowerexpectedfuelcosts.
• Asdetailedinthetablebelow,theFY-2020minesustainingcapitalexpenditure1guidanceforEndeavour'sminesisexpectedtoremainunchangedat$83.0millionasanincreaseatItyisexpectedtobeoffsetbyadecreaseatKarma.WhilethenominalamountforH2-2020ishigherthanthatofH1-2020,duetohigherexpectedproduction,itisexpectedtoremainsimilaronaperouncebasis.
• EndeavourisalsomaintainingSEMAFO'ssustainingcapitalexpenditure1guidanceonManaandBoungou,andthereforeexpectstheFY-2020ProFormaGroupamounttostandat$163.0million.Moredetailsonindividualminecapitalexpenditureshavebeenprovidedintheabovesections.
Table12:MineCapitalSustainingExpenditure1Guidance
(AllamountsinUS$m)H2-2020GUIDANCE
H1-2020ACTUAL
2020FULL-YEARGUIDANCE
Agbaou 10 7 17Ity 5 3 8Karma 6 3 9Houndé 26 23 49ENDEAVOURMINES 47 36 83Mana 41 29 70Boungou 9 1 10PROFORMA2 98 65 163
• As detailed in the table below, the FY-2020 non-sustainingmine capital expenditure1 guidance for Endeavour'smines isexpectedtoincreasefrom$42.0million(asperinitialguidance)to$55.0million.TheincreasesareatItywheretheaimistocommence the infrastructurework for the Le Plaque high grade deposit whichwas originally planned for 2021, and atKarmadue to thecapitalalready incurred inH1-2020.TheFY-2020non-sustainingminecapitalexpenditure1wasmainlyH1-2020weighted,withonly35%oftheremainingcapitalspendtobeincurredinthesecondhalfoftheyear.
• EndeavourismaintainingSEMAFO'snon-sustainingcapitalexpenditure1guidanceonManaandBoungou,andthereforeexpectstheFY-2020ProFormaGroupamounttostandat$60.0million.Moredetailsonindividualminecapitalexpenditureshavebeenprovidedintheabovesections.
Table13:MineCapitalNon-SustainingExpenditure1Guidance
(AllamountsinUS$m)H2-2020GUIDANCE
H1-2020ACTUAL
2020FULL-YEARGUIDANCE
Agbaou 1 0 1Ity 13 22 35Karma 3 6 9Houndé 2 8 10ENDEAVOUR 19 36 55Mana 2 0 2Boungou 2 1 3PROFORMA2 23 37 60
1Thisisanon-GAAPmeasure.Refertothenon-GAAPmeasuresectionoftheMD&AforEndeavourandrefertothenon-IFRSmeasuresnoteinthispressreleaseforSEMAFO.2EndeavourbelievesthatoperatingandfinancialfiguresforSEMAFOarerepresentativeoftheperiodendedJune30,2020astheTransactionclosedonJuly1,2020. Figures presentedanddisclosed relating to SEMAFOoperations represent classifications and calculations performedusing consistent historical SEMAFOmethodologies. Potential variances to existing Endeavour classifications and calculationmethodologiesmay result in adjustments affecting results. Potentialdifferencesmay include, but not limited to, classification of corporate costs and operating expenses, classification ofmining, processing, and siteG&A costs,classificationofcapitalizedwasteassustainingandnon-sustaining,valuationofstockpilesandgold incircuit.AccountingtreatmentsandclassificationswillbealignedwithEndeavourmethodologiesandpolicies.ProformainformationhasnotbeenadjustedandiscomprisedofthesimpleweightedaverageofinformationprovidedforeachofEndeavourandSEMAFO.
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• FY-2020growthcapitalspendisexpectedtoamounttoapproximately$12.0million,aslightincreaseof$2.0millionfromtheinitialFY-2020guidanceof$10.0million,mainlyduetostudiesinprogressonKalanaandFetekro.
• Roughly85%ofEndeavour'sFY-2020explorationexpenditureguidanceamountwasincurredinH1-2020aheadoftherainyseason.As shown in the tablebelow, thePro FormaFY-2020exploration spend is expected to amount to$45.0 - $50.0million,inclusiveoftheSEMAFOassets.
Table14:ExplorationGuidance
(AllamountsinUS$m)H2-2020GUIDANCE
H1-2020ACTUAL
FULL-YEAR2020GUIDANCE
Endeavourassets 4-9 36 40-45SEMAFOassets 5 n.a 5PROFORMA1 9-14 36 45-50
1EndeavourbelievesthatoperatingandfinancialfiguresforSEMAFOarerepresentativeoftheperiodendedJune30astheTransactionclosedonJuly1,2020.Figures presented and disclosed relating to SEMAFO operations represent classifications and calculations performed using consistent historical SEMAFOmethodologies. Potential variances to existing Endeavour classifications and calculationmethodologiesmay result in adjustments affecting results. Potentialdifferencesmay include, but not limited to, classification of corporate costs and operating expenses, classification ofmining, processing, and siteG&A costs,classificationofcapitalizedwasteassustainingandnon-sustaining,valuationofstockpilesandgold incircuit.AccountingtreatmentsandclassificationswillbealignedwithEndeavourmethodologiesandpolicies.ProformainformationhasnotbeenadjustedandiscomprisedofthesimpleweightedaverageofinformationprovidedforeachofEndeavourandSemafo.
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6. RESULTSFORTHEPERIOD
6.1. STATEMENTOFCOMPREHENSIVE(LOSS)/EARNINGS
Table15:StatementofComprehensive(Loss)/Earnings
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Revenue 253,084 269,902 219,371 522,986 370,681
Operatingexpenses (103,308) (114,403) (103,318) (217,711) (191,681)
Depreciationanddepletion (43,760) (52,529) (51,970) (96,289) (88,102)
Royalties (17,771) (17,452) (11,032) (35,223) (20,021)
Earningsfrommineoperations 88,245 85,518 53,051 173,763 70,877
Corporatecosts (5,049) (5,231) (5,143) (10,280) (11,204)
Acquisitionandrestructuringcosts (2,589) (4,330) — (6,919) —
Share-basedcompensation (4,942) (1,623) (4,385) (6,565) (6,985)
Explorationcosts (1,796) (1,333) (1,674) (3,129) (6,035)
Earningsfromoperations 73,869 73,001 41,849 146,870 46,653
Lossonfinancialinstruments (71,931) (3,492) (11,757) (75,423) (10,634)
Financecosts (11,982) (11,662) (12,386) (23,644) (17,305)
Other(expenses)/income (1,791) 1,935 4,574 144 4,377
(Loss)/Earningsbeforetaxes (11,835) 59,782 22,280 47,947 23,091
Currentincometaxexpense (2,313) (23,699) (13,845) (26,012) (27,323)
Deferredincometaxexpense (8,468) (620) (1,531) (9,088) (307)
Netandcomprehensive(loss)/earnings (22,616) 35,463 6,904 12,847 (4,539)
ReviewofresultsforthethreeandsixmonthsendedJune30,2020:
• RevenuesforQ2-2020were$253.1millionand$523.0millionH1-2020,comparedto$219.4millionand$370.7millioninthesameperiodof2019.TheincreaseinQ2-2020andH1-2020isdrivenbyahigherrealizedgoldprice.RevenueforH1-2020benefitedfromincreasedproductionmainlyduetothecommencementofcommercialproductionoftheItyCILprocessingfacilityonApril8,2019.
• OperatingexpensesforQ2-2020were$103.3millionand$217.7millionforH1-2020,comparedto$103.3millionand$191.7million in the sameperiod in 2019. Theupward trend inH1-2020 compared toH1-2019 is due to a full sixmonthsof costs recognized at Ity CIL processing facility in 2020 compared to threemonths in 2019 as commercialproductionbeganonApril8,2019.
• DepreciationanddepletioninQ2-2020were$43.8millionand$96.3millionH1-2020,comparedto$52.0millionand$88.1million in the comparative period for 2019. Depreciation and depletion increased in H1-2020 by $8.2millioncomparedtoH1-2019mainlyduetoahigherdepreciationchargefromincreasedunitsofproductionatItyCILassetsinH1-2020comparedtoH1-2019.
• Corporate costswere $5.0million for Q2-2020 and $10.3million for H1-2020, compared to $5.1million and $11.2millioninthecomparativeperiodsfor2019.Theslightdecreaseoverthecomparativeperiodisduetotherealizationofcorporatesavingsinitiatives.
• Acquisitionandrestructuringcostof$2.6millionforQ2-2020and$6.9millionforH1-2020andismadeupofadvisoryfeesrelatedtotheproposedSEMAFOacquisitioninQ2-2020andpreviousengagementwiththeboardofCentaminplcinQ1-2020.
• Sharebasedcompensationwas$4.9millioninQ2-2020and$6.6millioninH1-2020,comparedto$4.4millionand$7.0millioninthesameperiodsfor2019.TheslightdecreaseinH1-2020isduetoadjustmenttothefairvalueofthePSUsintoearningsoverthetermsofthepreviouslygrantedPSUs.
• Thelossonfinancialinstrumentswas$71.9millioninQ2-2020and$75.4millionH1-2020,comparedtoalossof$11.8millionandalossof$10.6millioninthesameperiodsin2019.ThelossinH1-2020ismainlyduetothenetimpactoflossesonthegoldrevenueprotectionprogramof$21.2million,realizedlossesonconvertibleseniorbondderivativeof
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$61.2 million due to the increase in Endeavour share price, offset by a realized gain on a forward contract of$6.7million.
• Financecostswere$12.0millionforQ2-2020and$23.6millionH1-2020,comparedto$12.4millionand$17.3millioninthesameperiodin2019.FinancecostsareprimarilyassociatedtointerestexpenseontheRCFandconvertibledebt.
• Current income tax expensewas$2.3million inQ2-2020and$26.0millionH1-2020 compared to $13.8million and$27.3millioninthesameperiodof2019.IncometaxexpenseforH1-2020includedan$6.7millioncurrentincometaxaccrual for Agbaou 2020 performance to date. At Ity, $14.5 million of income tax has been accrued for2020performancetodate.A$13.1millionincometaxaccrualfor2020performancewasrecognizedatHoundéwhichwasoffsetbya$4.1millionincometaxaccrualrecoveryrelatingto2019asaresultofthefinalizationofprioryeartaxreturns.AtKarma,a$4.3millionincometaxrecoveryrelatingto2019offsetthetotalgroupincometaxexpense.
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6.2. CASHFLOW
ThefollowingtablereconcilestheAISCmargin,andall-inmargintothequarterlychangeincash.
Table16:FreeCashFlow1
THREEMONTHSENDED SIXMONTHSENDED
($'000sexceptgoldproducedandouncessold) UnitJune30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Goldproduced oz 148,998 171,893 171,299 320,891 292,090
Goldouncessold oz 149,828 174,554 170,749 324,382 291,624
Realizedgoldprice $/oz 1,689 1,546 1,285 1,612 1,271
Revenue $ 253,084 269,902 219,371 522,986 370,681
Totalcashcosts $ (101,143) (115,355) (107,967) (216,498) (187,675)
Royalties $ (17,771) (17,452) (11,032) (35,223) (20,021)
Corporatecosts $ (5,049) (5,231) (5,143) (10,280) (11,204)
Sustainingcapital1 $ (16,784) (18,972) (10,823) (35,756) (22,068)
All-inSustainingMargin1 $ 112,337 112,892 84,406 225,229 129,713
Less:Non-sustainingcapital1 $ (22,109) (17,720) (17,232) (39,829) (28,690)
Less:Non-sustainingexploration1 $ (17,346) (15,146) (21,392) (32,492) (32,902)
All-InMargin1 $ 72,882 80,026 45,782 152,908 68,121
Changesinoperatingworkingcapitalandlong-termassets $ (27,994) 8,811 2,418 (19,184) (28,658)
Taxespaid $ (20,148) (8,524) (29,569) (28,672) (31,234)
Interestpaid,financingfeesandleaserepayment $ (15,862) (20,406) (20,548) (36,268) (33,334)
Cashsettlementsonhedgeprograms,goldcollarpremiums $ (16,754) (497) (802) (17,251) (937)
Netfreecashflow1 $ (7,876) 59,410 (2,719) 51,533 (26,042)
Growthprojects1 $ (2,086) (2,113) (19,601) (4,199) (85,876)
Explorationexpense2 $ (1,796) (1,333) (1,674) (3,129) (6,036)
M&A,restructuringandassetsales/purchases $ 9,215 (9,760) — (545) (453)
CashpaidonsettlementofDSUsandPSUs $ (7) (214) — (221) (1,125)
Netequity(dividends)/proceeds $ — — 36 — 274
Proceedsoflong-termdebt $ — 120,000 20,000 120,000 80,000
Foreignexchange(losses)/gains $ 981 (1,422) (3,878) (441) (5,454)
Other(expenses)/income $ (3,957) 2,887 1,479 (1,070) (1,634)
Cash(outflow)/inflowfortheperiod $ (5,526) 167,454 (6,357) 161,928 (46,345)1Non-GAAPfinancialperformancemeasureswithnostandardmeaningunderIFRS.RefertotheNon-GAAPMeasuressectionforfurtherdetails.2Explorationexpenseperthestatementofcomprehensive(loss)/earnings.Thiscashoutflowrelatestoexpenditureongreenfieldexplorationactivity.
• GoldsalesdecreasedinQ2-2020comparedtoQ1-2020asaresultof lowerproductionattheIty,KarmaandAgbaoumines.Goldsales increasedinH1-2020comparedtoH1-2019duetohigherproductionfromtheItyminewhichwascommissionedinQ2-2019.
• The realized gold price for H1-2020 was $1,612 per ounce compared to $1,271 per ounce in H1-2019. Both theseamountsincludetheimpactoftheKarmastream,amountingto10,000ouncessoldinH1-2020and10,938inH1-2019,at20%ofspotprices.TherealizedgoldpriceexcludingthegoldstreamatKarma,wouldhavebeen$1,653perounceforH1-2020and$1,311perounceforH1-2019.
• Royaltiesincreasedfrom$100perounceinQ1-2020to$119perounceinQ2-2020.TheH1-2020royaltyratewas$109per ounce, up from $69 per ounce for H1-2019, due to both the higher realized gold price and an increase in theunderlyingroyaltyratebasedontheapplicableslidingscale(aboveaspotgoldpriceof$1,300perounce,government
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royalty rates in Burkina Faso increase from 4.0% to 5.0%, and above a spot gold price of $1,600 per ounce ratesincreasefrom4.0%to5.0%inCôted'Ivoire).
• The sustaining capital expenditure for Q2-2020 decreased slightly over Q1-2020 primarily due to the significantreduction in waste capitalization at Agbaou which offset the slight increases at Ity and Karma Mine with Houndéremainingflat.ThesustainingcapitalexpenditureforH1-2020increasedcomparedtothecorrespondingperiodof2019duetoscheduledwastecapitalizationatHoundéandthecommissioningoftheItyCILproject.
• TheAll-InsustainingMarginforQ2-2020remainedflatoverQ1-2020asthehigherrealizedgoldpriceoffsetlowergoldsales.TheAll-InMargin forH1-2020 increasedcomparedto thecorrespondingperiodof2019dueto increasedgoldsalesandincreasedrealizedgoldpricewhichwaspartiallyoffsetbyahighercashcosts,royaltiesandsustainingminingcapitalspend.
• The non-sustaining capital spend increased in Q2-2020 compared to Q1-2020, due to increases at Ity, Houndé andKarma.Thenon-sustainingcapitalspendforH1-2020increasedcomparedtothecorrespondingperiodof2019mainlyduetotheTSFraiseandwastecapitalizationatIty,whilespenddecreasedatAgbaou,KarmaandHoundé.
• Thenon-sustainingexplorationcapitalspendforH1-2020continuedtoremainhigh,inlinewithEndeavour’sstrategicobjectiveofunlockingexplorationvaluethroughitsaggressivedrillingcampaign.Themajorityoftheexplorationworkplanned for 2020 was conducted in H1-2020, ahead of the rainy season, with approximately 85% of the full yearguidancealreadycompleted.
• Taxes paid increased by $11.6 million in Q2-2020 compared to Q1-2020. This was due to corporate income taxpaymentsmade at Agbaou and Ity of $11.9million and $7.5million respectively. Taxes paid in H1-2020 decreasedslightlycomparedtothepreviousyear,despitesignificantlyhigherrevenues,mainlyduetoadecreaseoftaxespaidatHoundé(duetoinstallmentpaymentsbeingmade).
• Theinterestpaid,financingfeesandleaserepaymentsdecreasedinQ2-2020comparedtoQ1-2020astheconvertiblenotescouponispayableduringthefirstandthirdquarters.TheamountforH1-2020increasedslightlycomparedtothecorrespondingperiodofH1-2019mainlyduetointerestpaymentonequipmentleasesatIty.
• Cash settlements on hedge programs in H1-2020 includes a $4.5million fee for the gold collar program and $19.5millionforitsassociatedsettlements,andaninflowof$6.7millionrelatedtoshort-termforwardsalesinH1-2020.ThecollarexpiredattheendofJune2020withthefinalpaymentonthecollardueinearlyQ3-2020.
• Growthprojectspenddecreasedto$2.1millioninQ2-2020astheItyCILplantwascompletedinQ1-2019.TheamountforH1-2020of$4.2millionrelatesmainlytotheKalanaproject.
• M&A, restructuring and asset sales/purchases include proceeds of $10.3 received on sale of mining equipment, inaddition to$1,5million received for associated spares atKarma , offsetby$5.4million cashpaid for theadditionalinterestinItyMineand$6.9millioninacquisitionandrestructuringcosts.
• OtherexpensesinQ2-2020mainlyrelatedtoCOVID-19relatedexpensesintheformofdonationsandmedicalsupplies.
• $120.0millionwasdrawnontheRCFasaproactivemeasureinQ1-2020tosecuretheCorporation’sliquidityaspartofitsCOVID-19businesscontinuityprogram.
WorkingCapital
TheH1-2020workingcapitalisanoutflowof$19.2millionwhichisbrokendownasfollows:
• Receivableswereanoutflowof$18.0millionH1-2020.ThisismainlyduetotheincreaseinVATreceivableatHoundéandadvancestotheBCMGroup.
• Inventoriesandlong-termassetswereaninflowof$5.5inH1-2020,thisismainlyduetothedecreaseinstockpiles,GICandconsumablesatItyandHoundéwhichwasoffsetbyanincreaseofGICatKarma.
• Accountspayableoutflowof$10.0millionforQ2-2020and$6.8millionoutflowinH1-2020astheCorporationbegantosettleoutstanding supplierswhosebalanceshadbuiltupQ1-2020as financial institutionshadexperiencedapprovalbacklogsattheonsetofCOVID-19.
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NetDebtPosition
ThefollowingtablesummarizestheCorporation’snetdebtpositionasatJune30,2020,March31,2020,andJune30,2019.
Table17:NetDebtPosition
($'000s)June30,2020
March31,2020
December31,2019
Cashandcashequivalents 351,817 357,343 189,889
Less:Equipmentfinanceobligation (64,463) (69,997) (78,081)
Less:Convertibleseniorbond (330,000) (330,000) (330,000)
Less:Drawnportionof$430millionRCF (430,000) (430,000) (310,000)
NetDebt (472,646) (472,654) (528,192)
NetDebt/AdjustedEBITDALTMratio1 1.00 1.06 1.481AdjustedEBITDAispertable21andiscalculatedusingthetrailingtwelvemonthsAdjustedEBITDAaspresentedinpriorreporting
EquipmentFinanceObligations
TheequipmentfinanceobligationrelatestoagreementsrelatingtoKomatsuminingequipmentattheHoundéandItymines.
Table18:EquipmentFinanceObligations
June30,2020
March31,2020
December31,2019
Houndémine 32,680 36,115 39,340
Itymine 31,783 33,882 38,741
Presentvalueofminimumfinancepayments 64,463 69,997 78,081
ConvertibleSeniorNotes
OnFebruary8,2018,theCorporationcompletedaprivateplacementofconvertibleseniornoteswithatotalprincipalamountof$330.0millionduein2023(the“Notes”).Theinitialconversionrateis41.84oftheCorporation’scommonshares(“Shares”)per$1,000Note,oraninitialconversionpriceofapproximately$23.90(CAD$29.47)pershare.
TheNotesbear interestatacouponrateof3%payablesemi-annually inarrearsonFebruary15andAugust15ofeachyear,beginningonAugust15,2018.TheNotesmatureonFebruary15,2023,unlessredeemedearlier,repurchasedorconvertedinaccordance with the terms of the Notes. The Corporation may, subject to certain conditions, elect to satisfy the principalamountand conversionoptiondueatmaturityorupon redemption through thepaymentordeliveryof any combinationofSharesandcash.
ThekeytermsoftheConvertibleSeniorNotesinclude:
• Principalamountof$330.0million.
• Couponrateof3%payableonasemi-annualbasis.
• Thetermofthenotesis5years,maturinginFebruary2023.
• Thenotesarereimbursablethroughthepaymentordeliveryofsharesand/orcash.
• Theinitialconversionpriceis$23.90(CAD$29.47)pershare.
• Thereferencesharepriceofthenotesis$18.04(CAD$22.24)pershare.
For accountingpurposes, theCorporationmeasures theNotes at amortized cost, accreting tomaturityover the termof theNotes. The conversion option is an embedded derivative and is accounted for as a financial liabilitymeasured at fair valuethrough profit or loss, as the Corporation has the ability to settle the option at fair value in cash, common shares, or acombinationofcashandcommonsharesincertaincircumstances.
Theunrealizedgain/lossontheconvertiblenoteoptionforthethreeandsixmonthsendedJune30,2020wasanunrealizedlossof$63.9millionandanunrealizedlossof$61.2millionrespectively(threeandsixmonthsendedJune30,2019-unrealizedlossof$4.5millionandanunrealizedgainof$3.9millionrespectively).
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EquityandCapital
EndeavourMining’sauthorizedcapitalis200,000,000sharesdividedinto100,000,000ordinaryshareswithaparvalueof$0.10eachand100,000,000undesignatedshares.ThetablebelowsummarizesEndeavourMining’ssharestructureatJune30,2020.
Table19:OutstandingShares
June30,2020
March31,2020
December31,2019
Sharesissuedandoutstanding 110,993,240 110,993,240 109,927,097
Stockoptions 14,950 14,950 14,950
AsatAugust5,2020,theCorporationhad163,080,336sharesissuedandoutstanding,andnooutstandingstockoptions.
Financialinstruments
Toincreasethecashflowcertaintyduringitsdebtreimbursementphase,EndeavourMininghadputinplaceashort-termGoldRevenue Protection Strategy consisting of Gold Option Contracts, similar to the strategy employed during the constructionphase.
AdeferredpremiumcollarstrategyusingwrittencalloptionsandboughtputoptionshadbeenputinplacebeginningonJuly1,2019andendingonJune30,2020withafloorpriceof$1,358perounceandaceilingpriceof$1,500perounce.Theprogramcoveredatotalof360,000ounces,whichrepresentedapproximately50%ofEndeavourMining’stotalgoldproductionfortheperiod. In the sixmonthsended June30, 2020, theCorporation'sdeferredpremiumcollar strategy for the12-monthperiodfromJuly2019toJune2020expired.Overthelifeofthecollar,theCorporationrealizedalossof$35.9million.
6.3. ACCOUNTINGPOLICIESANDCRITICALJUDGEMENTS
Criticaljudgementsandkeysourcesofestimationuncertainty
The Corporation’s management has made critical judgments and estimates in the process of applying the Corporation’saccounting policies to the consolidated financial statements that have significant effects on the amounts recognized in theCorporation’s consolidated financial statements. These estimates include commencement of commercial production,determination of economic viability, functional currency, business combinations, exchangeable shares, and capitalization ofwastestripping.TherehavebeennosignificantchangescomparedtoJune30,2019.
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7. NON-GAAPMEASURES
7.1. ALL-INSUSTAININGMARGINANDADJUSTEDEBITDA
TheCorporationbelievesthat, inadditiontoconventionalmeasurespreparedinaccordancewithGAAP,certain investorsusetheall-in sustainingmarginandadjustedearningsbefore interest, tax,depreciationandamortization (“AdjustedEBITDA”) toevaluate the Corporation’s performance and ability to generate cash flows and service debt. These do not have a standardmeaningandare intended toprovideadditional informationand shouldnotbe considered in isolationorasa substitute formeasuresofperformancepreparedinaccordancewithGAAP.Thefollowingtablesprovidetheillustrationofthecalculationofthismargin,forthethreemonthsendedJune30,2020,March31,2020,andJune30,2019andsixmonthsendedJune30,2020andJune30,2019.
Table20:All-InSustainingMargin
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Revenues 253,084 269,902 219,371 522,986 370,681Less:Royalties (17,771) (17,452) (11,032) (35,223) (20,021)Less:Totalcashcosts (101,143) (115,355) (107,967) (216,498) (187,675)Less:CorporateG&A (5,049) (5,231) (5,143) (10,280) (11,204)Less:Sustainingcapital (16,784) (18,972) (10,823) (35,756) (22,068)
All-insustainingmargin 112,337 112,892 84,406 225,229 129,713
Table21:AdjustedEBITDA
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
(Loss)/Earningsbeforetaxes (11,835) 59,782 22,280 47,947 23,091
Addback:Depreciationanddepletion 43,760 52,529 51,970 96,289 88,102Addback:Acquisitionandrestructuringcosts 2,589 4,330 — 6,919 —Addback:Other(expenses)/income 1,791 (1,935) (4,574) (144) (4,377)Addback:Financecosts 11,982 11,662 12,386 23,644 17,305
Addback:Lossonfinancialinstruments 71,931 3,492 11,757 75,423 10,634
AdjustedEBITDA 120,218 129,860 93,819 250,078 134,755
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7.2. CASHANDALL-INSUSTAININGCOSTPEROUNCEOFGOLDSOLD
TheCorporationreportscashcostsbasedonouncessold.TheCorporationbelievesthat,inadditiontoconventionalmeasuresprepared in accordancewith GAAP, certain investorsmay find this information useful. However, there are no standardizedmeanings,and therefore thisadditional informationshouldnotbeconsidered in isolation,orasa substitute formeasuresofperformancepreparedinaccordancewithGAAP.Thefollowingtableprovidesareconciliationofcashcostsperounceofgoldsold,forthethreemonthsendedJune30,2020,March31,2020,andJune30,2019andsixmonthsendedJune30,2020andJune30,2019.
Table22:CashCosts
THREEMONTHSENDED SIXMONTHSENDED
($'000sexceptouncessold)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Operatingexpensesfrommineoperations (103,307) (114,404) (103,318) (217,711) (191,681)
Non-cashandotheradjustments 2,164 (951) (4,649) 1,213 4,006
Totalcashcosts (101,143) (115,355) (107,967) (216,498) (187,675)
Goldouncessold 149,828 174,554 170,749 324,382 291,624
Totalcashcostperounceofgoldsold 675 661 632 667 644
TheCorporationisreportingall-insustainingcostsperouncesold.Thisnon-GAAPmeasureprovidesinvestorswithtransparencyregardingthetotalcashcostofproducinganounceofgoldineachperiod.Readersshouldbeawarethatthismeasuredoesnothaveastandardizedmeaning.Itisintendedtoprovideadditionalinformationandshouldnotbeconsideredinisolation,orasasubstituteformeasuresofperformancepreparedinaccordancewithGAAP.
Table23:All-InSustainingCosts
THREEMONTHSENDED SIXMONTHSENDED
($'000sexceptouncessold)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Totalcashcostforouncessold (101,143) (115,355) (107,967) (216,498) (187,675)
Royalties (17,771) (17,452) (11,032) (35,223) (20,021)
CorporateG&A (5,049) (5,231) (5,143) (10,280) (11,204)
Sustainingcapital (16,784) (18,972) (10,823) (35,756) (22,068)
All-insustainingcosts (140,747) (157,010) (135) (297,757) (241)
Goldouncessold 149,828 174,554 170,749 324,382 291,624
All-insustainingcostperouncesold 939 899 790 918 826
Table24:SustainingandNon-SustainingCapital
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Expendituresonmininginterests 58,325 53,952 65,792 112,277 169,537
Non-sustainingcapitalexpenditures (22,109) (17,720) (17,232) (39,829) (28,690)
Non-sustainingexploration (17,346) (15,146) (21,392) (32,492) (32,902)
Growthprojects (2,086) (2,113) (16,345) (4,199) (85,876)
SustainingCapital 16,784 18,972 10,823 35,757 22,069
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7.3. ADJUSTEDNETEARNINGSANDADJUSTEDNETEARNINGSPERSHARE
Net earnings have been adjusted for items considered exceptional in nature and not related to Endeavour Mining’s coreoperation of mining assets. The presentation of adjusted net earningsmay assist investors and analysts to understand theunderlyingoperatingperformanceofourcoreminingbusiness.However,adjustednetearningsandadjustednetearningspersharedonothaveastandardmeaningunderIFRS.Theyshouldnotbeconsideredinisolation,orasasubstituteformeasuresofperformance prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow fromoperationsasdeterminedunderIFRS.
Thefollowingtablereconcilesthesenon-GAAPmeasurestothemostdirectlycomparableIFRSmeasure.
Table25:AdjustedNetEarnings
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Totalnetandcomprehensive(loss)/earnings (22,616) 35,463 6,904 12,847 (4,539)
Deferredincometaxexpense 8,468 620 1,531 9,088 307
Lossonfinancialinstruments 71,931 3,492 11,757 75,423 10,634
Otherexpenses/(income) 1,791 (1,935) (4,574) (144) (4,377)
Share-basedcompensation 4,942 1,623 4,385 6,565 6,985
Acquisitionandrestructuringcosts 2,589 4,330 — 6,919 —
Non-cashandotheradjustments 2,164 (951) (4,649) 1,213 4,006
Adjustednetearnings 69,269 42,642 15,354 111,911 13,016
Attributabletonon-controllinginterests 16,476 9,125 6,835 25,601 9,407
AttributabletoshareholdersoftheCorporation 52,793 33,517 8,519 86,310 3,609
Weightedaveragenumberofsharesissuedandoutstanding 110,993,240 110,584,356 109,919,887 110,788,798 109,734,405
Adjustednetearningspershare(basic)fromoperations 0.48 0.30 0.08 0.78 0.03
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7.4. OPERATINGCASHFLOW
TheCorporationbelievesthat, inadditiontoconventionalmeasurespreparedinaccordancewithGAAP,certain investorsusefreecashflowtoassesstheCorporation’sabilitytogenerateandmanageliquidresources.Thesetermsdonothaveastandardmeaningandareintendedtoprovideadditional information.TheyshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithGAAP.
Table26:OperatingCashFlow(OCF)andOCFpershare
THREEMONTHSENDED SIXMONTHSENDED
($'000s)June30,2020
March31,2020
June30,2019
June30,2020
June30,2019
Cashgeneratedfromoperatingactivities 57,416 125,955 62,209 183,371 85,125
Changesinnon-cashworkingcapital (27,937) 6,663 4,887 (21,274) (20,189)
Operatingcashflowsbeforenon-cashworkingcapital 85,353 119,292 57,322 204,645 105,314
DividedbyweightedaveragenumberofO/Sshares,inthousands 110,993 110,584 109,920 110,789 109,734
Operatingcashflowpershare $ 0.77 $ 1.08 $ 0.52 $ 1.85 $ 0.96
7.5. NETDEBT/ADJUSTEDEBITDARATIO
TheCorporation is reportingNetDebtandNetDebt/AdjustedEBITDA ratio. Thisnon-GAAPmeasureprovides investorswithtransparencyregardingtheliquiditypositionoftheCorporation.ItisintendedtoprovideadditionalinformationandshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithGAAP.Thecalculationofnetdebtisshownintable17,calculatedasnominalundiscounteddebtincludingleases(butexcludingliabilitiesrecognizedontheadoptionofIFRS16-leases),lesscash.Thefollowingtableexplainsthecalculationofnetdebt/AdjustedEBITDAratiousingthelasttwelvemonthsofAdjustedEBITDA.
Table27:NetDebt/AdjustedEBITDAratio
($'000s)June30,2020
March31,2020
December31,2019
NetDebt 472,646 472,654 528,192
TrailingtwelvemonthAdjustedEBITDA 471,013 444,614 355,690
NetDebt/AdjustedEBITDALTMratio 1.00 1.06 1.48
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7.6. RETURNONCAPITALEMPLOYED
TheCorporationusesReturnonCapitalEmployed(“ROCE”)asameasureoflong-termoperatingperformancetomeasurehoweffectivelymanagement utilizes the capital it has been provided. This non-GAAPmeasure is intended to provide additionalinformationandshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithGAAP.ThecalculationofROCE,expressedasapercentage, isAdjustedEBIT (basedonadjustedEBITDAasper table21)dividedbytheaverageof theopeningandclosingcapitalemployedfor thetwelvemonthsprecedingtheperiodend.Capitalemployedisthetotalassetslesscurrentliabilities.
Table28:ReturnonCapitalEmployed
TRAILINGTWELVEMONTHS
($'000sunlessotherwisestated)June30,2020
March31,2020
June30,2019
AdjustedEBITDA 471,013 444,614 355,690
Less:depreciationandamortisation (205,406) (213,616) (174,129)
AdjustedEBIT(A) 265,607 230,998 236,921
OpeningCapitalemployed(B) 1,753,857 1,716,115 1,587,930
TotalAssets 2,057,124 2,037,108 1,982,150
Less:CurrentLiabilities (249,358) (285,129) (228,293)
ClosingCapitalemployed(C) 1,807,766 1,751,979 1,753,857
AverageCapitalEmployed(D)=(B+C)/2 1,780,812 1,734,047 1,670,894
ROCE(A)/(D) 15% 13% 14%
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8. QUARTERLYANDANNUALFINANCIALANDOPERATINGRESULTS
The following tables summarize theCorporation’s financial andoperational information for the lasteightquartersand threefiscalyears.
Table29:2020-2019QuarterlyKeyPerformanceIndicators
FORTHETHREEMONTHSENDED
($'000sexceptouncessold) UnitJune30,2020
March31,2020
December31,2019
September30,2019
Goldouncessold oz 149,828 174,554 171,862 185,268
Goldrevenues $ 253,084 269,902 248,398 267,292
Cashflowsfromoperations $ 57,416 125,955 120,371 96,389
Earningsfrommineoperations $ 88,245 85,518 55,445 83,704
Net(loss)/earningsandtotalcomprehensive(loss)/earnings $ (22,616) 35,463 (113,076) (23,545)
Net(loss)/earningsattributabletoshareholders $ (37,229) 25,998 (113,169) (32,199)
Basic(loss)/earningspersharefromoperations $ (0.34) 0.24 (1.03) (0.29)
Diluted(loss)/earningspersharefromoperations $ (0.34) 0.24 (1.03) (0.29)
Table30:2019-2018QuarterlyKeyPerformanceIndicators
FORTHETHREEMONTHSENDED
($'000sexceptouncessold) UnitJune30,2019
March31,2019
December31,2018
September30,2018
Goldouncessold oz 170,749 120,876 173,424 134,159
Goldrevenues $ 219,371 151,310 207,784 155,764
Cashflowsfromoperations $ 62,209 22,916 11,569 11,569
Earningsfrommineoperations $ 53,051 17,826 22,498 25,322
Netearnings/(loss)andtotalcomprehensiveearnings/(loss) $ 6,904 (11,443) (129,557) (20,394)
Netearnings/(loss)attributabletoshareholders $ 711 (14,667) (31,515) (16,775)
Basicearnings/(loss)persharefromcontinuingoperations $ 0.01 0.13 (0.29) 0.14
Dilutedearnings/(loss)persharefromcontinuingoperations $ 0.01 0.13 (0.29) 0.14
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Table31:AnnualKeyPerformanceIndicators1
FORTHEYEARENDED
($'000sexceptpershareamounts)December31,
2019December31,
2018December31,
2017
Goldouncessold 648,755 612,103 667,569
Goldrevenues 886,371 751,957 470,643
Cashflowsfromoperations 301,885 250,920 221,791
Earningsfrommineoperations 210,026 95,769 121,926
Net(loss)/earningsandtotalcomprehensive(loss)/earnings (136,766) 17,060 (177,068)
Netlossattributabletoshareholders (159,324) (65) (156,337)
Basiclosspershare (1.45) 0.00 (1.59)
Dilutedlosspershare (1.45) 0.00 (1.59)
Totalassets 1,872,791 1,922,043 1,693,511
Totallongtermfinancialliabilities 738,294 660,472 451,705
Totalattributableshareholders'equity 717,867 858,006 984,864
Adjustednetearningspershare2 0.67 0.49 0.601Figuresarepresentedasperpriorperiodreporting.2TheadjustednetearningspershareisinclusiveofthepriorperiodtaxadjustmentincludedintheDecember31,2018adjustedearningspershare.
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9. RISKFACTORS
Readers of this MD&A should consider the information included or incorporated by reference in this document and theCorporation’sauditedconsolidatedfinancialstatementsandrelatednotesforthethreeandsixmonthsendedJune30,2020.ThenatureoftheCorporation’sactivitiesandthelocationsinwhichitworksmeanthattheCorporation’sbusinessgenerallyisexposedtosignificantriskfactors,manyofwhicharebeyonditscontrol.TheCorporationexaminesthevariousriskstowhichitis exposed and assesses any impact and likelihood of those risks. For discussion on all the risk factors that affect theCorporation’sbusinessgenerally,pleaserefertothemostrecentAnnualInformationFormfiledonSEDARatwww.sedar.com,andthe2019year-endauditedconsolidatedfinancialstatements.Therisksthataffectthefinancialstatementsspecifically,andtherisksthatarereasonablylikelytoaffecttheminthefuturewhichareincorporatedbyreferenceinthisMD&A,arediscussedbelow.
9.1. BUSINESSRISKS
BusinesscontinuityrisksinlightofCOVID-19
OnMarch 11, 2020, theWorld Health Organization declared the outbreak of a respiratory disease caused by a new novelcoronavirus(“COVID-19”)asapandemic. InresponsetohealthrisksassociatedwiththespreadofCOVID-19,theCorporationimplementedanumberofhealthandsafetymeasuresdesignedtoprotectemployeesatitsoperationsaroundtheworld.
Asofthedateofissuanceofthesecondensedinterimconsolidatedfinancialstatements,theCorporation’soperationshavenotbeen significantly impacted, however, the Corporation continues tomonitor the situation.While the Corporation's financialposition,performanceandcashflowscouldbenegativelyimpacted,theextentoftheimpactcannotbereasonablyestimatedatthis time.Management is currentlymonitoringand regularly assessing the short andmedium-term impactsof theCOVID-19virus, including for example supply chain, mobility, workforce, market and trade flow impacts, as well as the resilience ofCanadian, West African, and other global financial markets to support recovery. Any longer term impacts are also beingconsideredandmonitored,asappropriate.However,thispandemicisevolvingrapidlyanditseffectsonourownoperationsareuncertain.Itispossiblethatinthefutureoperationsmaybetemporarilyshutdownorsuspendedforindeterminateamountsoftime, any of which may, individually or in the aggregate, have a material and adverse impact on our business, results ofoperationsandfinancialperformance.TheextenttowhichCOVID-19mayimpacttheCorporation’sbusinessandoperationswilldependonfuturedevelopmentsthatarehighlyuncertainandcannotbeaccuratelypredicted,includingnewinformationwhichmayemergeconcerningtheseverityofandtheactionsrequiredtocontainCOVID-19orremedyitsimpact.
TheglobalresponsetotheCOVID-19pandemichasresultedin,amongotherthings,borderclosures,severetravelrestrictions,aswellasquarantine,self-isolationandotheremergencymeasuresimposedbyvariousgovernments.Additionalgovernmentorregulatory actions or inactions around the world in jurisdictions where the Corporation operatesmay also have potentiallysignificanteconomicandsocialimpacts.IfthebusinessoperationsoftheCorporationaredisruptedorsuspendedasaresultoftheseorothermeasures,itmayhaveamaterialadverseeffectontheCorporation’sbusiness,resultsofoperationsandfinancialperformance. The COVID-19 virus and efforts to contain it may have a significant effect on commodity prices, and thepossibilityofaprolongedglobaleconomicdownturnmayfurtherimpactcommoditydemandandprices.
The global pandemic caused by COVID-19 may affect Endeavour's ability to operate at one or more of its mines for anindeterminateperiodoftime,mayaffectthehealthofitsemployeesorcontractorsresultingindiminishedexpertiseorcapacity,maymeanthatkeyexpatorcontractresourcescannotaccessWestAfrica,mayresultindelaysordisruptioninitssupplychainleading to unavailability of critical spares and inventory (or increased costs), may lead to restrictions on transferability ofcurrency,may cause business continuity issues at global gold refineries (and therefore its ability to generate revenue),maymean it cannot transport gold from its sites to refineries,may result in failures of various local administration, logistics andcriticalinfrastructure,maycausesocialinstabilityinWestAfricancountrieswhichinturncoulddisruptbusinesscontinuity,andmay result in additional and currently unknown liabilities. All or any of the foregoing may present risks to the investmentpropositionofEndeavour,itsliquidity,solvencyandabilitytomeetitsdebtobligationsastheyfalldue.
TheintegrationofSEMAFOandEndeavourmaynotoccurasplanned.
The Arrangement Agreement has been entered into with the expectation that its completion will result in, among otherbenefits, increasedgoldproduction, the realizationof synergies resulting from the consolidationof SEMAFOandEndeavour,greaterabilitytofundgrowthandenhancedgrowthopportunitiesforEndeavourfollowingthecompletionoftheArrangementasaresultofthecombinedentity’sprojectandexplorationpipeline.TheseanticipatedbenefitswilldependinpartonwhetherSEMAFOandEndeavour’srespectiveoperationscanbeintegratedinanefficientandeffectivemanner.Mostoperationaland
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strategicdecisionsandcertainstaffingdecisionswithrespecttointegrationhavenotyetbeenmade.Thesedecisionsandtheintegrationofthetwocompanieswillpresentchallengestomanagement,includingtheintegrationofsystemsandpersonnelofthe two companies, unanticipated liabilities, unanticipated costs and the loss of key employees. The performance ofEndeavour’s operations after completion of the Arrangement could be adversely affected if Endeavour cannot retain keyemployeestoassistintheintegrationandoperationofSEMAFOandEndeavour.Asaresultofthesefactors,itispossiblethatthesynergiesexpectedfromthecombinationofSEMAFOandEndeavourwillnotberealizedorcouldbeadverselyaffected.
9.2. FINANCIALRISKS
Creditrisk
CreditriskistheriskthatthecounterpartytoafinancialinstrumentwillcauseafinanciallossfortheCorporationbyfailingtodischargeitsobligations.Creditriskarisesfromcash,restrictedcash,marketablesecurities,tradeandotherreceivables, long-termreceivableandotherassets.TheCorporationcloselymonitors its financialassetsanddoesnothaveanysignificantconcentrationofcreditriskotherthanreceivablebalancesowedfromthegovernmentsinthecountriestheCorporationoperatesinanditsreceivablefromtheBCMGroup.BCMGroup,aprivateminingcontractorandoperator,isthecounterpartywhoacquiredtheNzemaandTabakotominesin2017and 2018 respectively, and from whom the receivables are ultimately due. The Corporation signed an omnibus settlementagreementinNovember2019,whichoffsetcertainamountsoutstandingbetweenthetwoparties,resultingincashinstallmentsof$6.8millionreceivedin2020relatingtothesaleofNzemamine.FurthertoadditionalamountspaidonbehalfofBCMGroupin theperiod, theCorporationreceived$4.5million in thethreemonthsendedMarch31,2020, in relationto thereceivablefromthesaleoftheTabakotomine.Long-termreceivablesof$8.8millionmainlyconsistofareceivableandNSRassociatedwiththesaleoftheTabakotomineinDecember2018.TheCorporationsellsitsgoldtolargeinternationalorganizationswithstrongcreditratings,andthehistoricallevelofcustomerdefaults isminimal. As a result, the credit risk associatedwith gold trade receivables at June 30, 2020 is considered to benegligible.TheCorporationdoesnotrelyonratingsissuedbycreditratingagenciesinevaluatingcounterparties’relatedcreditrisk.
TheCorporation’smaximumexposuretocreditriskisasfollows:
Table32:ExposuretoCreditRisk
($'000s)June30,2020
March31,2020
December31,2019
Cashandcashequivalents 351,817 357,343 189,889
Cash-restricted 13,115 11,165 9,958
Tradeandotherreceivables 37,562 26,717 19,228
Workingcapitalloan 565 553 541
Marketablesecurities 1,839 1,175 1,224
Long-termreceivable 8,822 10,670 13,322
413,720 407,623 234,162
Liquidityrisk
LiquidityriskistheriskthattheCorporationwillencounterdifficultyinmeetingobligationsassociatedwithitsfinancialliabilitiesthat are settled by delivering cash, physical gold or another financial asset. The Corporation has a planning and budgetingprocessinplacetohelpdeterminethefundsrequiredtosupporttheCorporation’snormaloperatingrequirements.
Currencyrisk
CurrencyriskrelatestotheriskthatthefairvaluesorfuturecashflowsoftheCorporation’sfinancialinstrumentswillfluctuatebecauseofchangesinforeignexchangerates.ExchangeratefluctuationsmayaffectthecoststhattheCorporationincursinitsoperations. There has been no change in the Corporation’s objectives and policies formanaging this risk during the periodendedJune30,2020.
TheCorporationhasnothedgeditsexposuretoforeigncurrencyexchangerisk.
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Thetablebelowhighlightsthenetassetsheldinforeigncurrencies,presentedinUSdollars:
Table33:NetAssetsinForeignCurrencies
($'000s)June30,2020
March31,2020
December31,2019
Canadiandollar 124 138 431
CFAFrancs 5,461 8,114 11,147
Euro 2,892 2,593 2,973
Othercurrencies 5,691 4,093 6,185
14,168 14,938 20,736
The effect on earnings before taxes as at June 30, 2020, of a 10% appreciation or depreciation in the foreign currenciesagainsttheUSdollarontheabovementionedfinancialandnon-financialassetsandliabilitiesoftheCorporationisestimatedto be $1.4million (June 30, 2019, $3.1million), if all other variables remained constant. The calculation is based on theCorporation’sstatementoffinancialpositionasatJune30,2020.
Interestraterisk
Interest rate risk is the risk that future cash flows from, or the fair values of, the Corporation’s financial instruments willfluctuatebecauseofchangesinmarketinterestrates.TheCorporationisexposedtointerestrateriskprimarilyonitslong-termdebt.Sincemarketablesecuritiesandgovernmenttreasurysecuritiesheldasloansareshortterminnatureandareusuallyheldtomaturity,thereisminimalfairvaluesensitivitytochangesininterestrates.TheCorporationcontinuallymonitorsitsexposuretointerestratesandiscomfortablewithitsexposuregiventherelativelylowshort-termUSinterestratesandLIBOR.
TheeffectonearningsandothercomprehensivelossbeforetaxasatJune30,2020,ofa10%changeintheLIBORrateontheRCFisestimatedtobe$0.1million(December31,2019-$0.1million).
Pricerisk
PriceriskistheriskthatthefairvalueorfuturecashflowsoftheCorporation’sfinancialinstrumentswillfluctuatebecauseofchangesinmarketprices.TherehasbeennochangeintheCorporation’sobjectivesandpoliciesformanagingthisriskandnosignificantchangestotheCorporation’sexposuretopriceriskduringtheperiodendedJune30,2020.
TheCorporation’sbusinessrequiressubstantialcapitalexpenditureandtherecanbenoassurancethatsuchfundingwillbeavailableonatimelybasis,oratall
The Corporation may require additional capital if it decides to develop other operations properties or make additionalacquisitions.TheCorporationmayalsoencountersignificantunanticipated liabilitiesorexpenses.TheCorporation’sability tocontinue its planned exploration and development activities, as well as its ability to discharge unanticipated liabilities andexpenses,dependsonitsabilitytogeneratesufficientfreecashflowfromitsoperatingmines,eachofwhichissubjecttocertainrisks anduncertainties. TheCorporationmaybe required toobtain additional equity or debt financing in the future to fundexplorationanddevelopmentactivitiesoracquisitionsofadditionalprojects.TherecanbenoassurancethattheCorporationwillbeabletoobtainsuchfinancinginatimelymanner,onacceptabletermsoratall.Inaddition,anyadditionaldebtfinancings,ifavailable,mayinvolvefinancialcovenantsandthegrantingoffurthersecurityovertheCorporation’sassets.
TheCorporation’suseofderivativeinstrumentsinvolvescertaininherentrisks,includingcreditrisk,marketliquidityrisk,andunrealizedmark-to-marketrisk
Fromtimetotime,theCorporationemployshedgingtoolsforaportionofitsgoldproductionandcommoditypricestoprotectaportionofitscashflowsagainstdecreasesinthepriceofgoldorincreasesinthepriceoftheunderlyingcommoditiesituses.Themainhedgingtoolsavailabletoprotectagainstpriceriskarecollarcontractswhich involveacombinationofputandcalloptions or forward sales. Various strategies are available using these tools. Although hedging activities may protect theCorporationagainstalowgoldpriceorcommoditypricefluctuations,theymayalso(i)limitthepricethatcanberealizedontheportionofhedgedgoldwherethemarketpriceofgoldexceedsthestrikepriceinforwardsaleorcalloptioncontracts,and(ii)stipulateapriceatwhichacommodity(suchasfuel)mustbepurchased,whichmaybehigherthantheprevailingmarketpriceforthatcommodity.
TheCorporation’sbusinesscouldbeadverselyaffectedbyglobalfinancialconditions
Globalfinancialconditionshavebeencharacterizedbyongoingvolatility.Globalfinancialconditionscouldsuddenlyandrapidlydestabilize in response to future events, as government authoritiesmay have limited resources to respond to future crises.Global capital markets have continued to display increased volatility in response to global events. Future crises may beprecipitatedbyanynumberofcauses,includingnaturaldisasters,geopoliticalinstability,changestoenergypricesorsovereigndefaults.SucheventsareillustrativeoftheeffectthateventsbeyondtheCorporation’scontrolmayhaveoncommodityprices,
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demandformetals,includinggold,availabilityofcredit,investorconfidenceandgeneralfinancialmarketliquidity,allofwhichaffecttheCorporation’sbusiness.
Commitmentandcontingencies
TheCorporationis,fromtimetotime,involvedinvariousclaims,legalproceedings,taxassessmentsandcomplaintsarisinginthe ordinary course of business from third parties. The Corporation cannot reasonably predict the likelihood or outcome oftheseactions.TheCorporationdoesnotbelievethatadversedecisionsinanyotherpendingorthreatenedproceedingsrelatedtoanymatter,oranyamountwhichmayberequiredtobepaidbyreasonthereof,willhaveamaterialeffectonthefinancialconditionorfutureresultsofoperations.
TheCorporationwasrecentlyservedintheCaymanIslandswithnoticeofaclaimbyaformerserviceprovider.TheCorporationistakinglegaladviceonthemeritsoftheclaimandtheprobableoutcomebutintendstovigorouslydefendagainsttheclaims.TheCorporationdoesnotbelievethattheoutcomeoftheclaimwillhaveamaterialimpact.
TheCorporation’sminingandexplorationactivitiesaresubjecttovariouslawsandregulationsgoverningtheprotectionoftheenvironment.Theselawsandregulationsarecontinuallychangingandaregenerallybecomingmorerestrictive.TheCorporationbelieves itsoperationsarematerially in compliancewithall applicable lawsand regulations. TheCorporationhasmade, andexpectstomakeinthefuture,expenditurestocomplywithsuchlawsandregulations.
TheCorporationisobligatedtodeliver100,000ouncesofgold(20,000ouncesperyear)toFranco-NevadaCorporationandSandstormGoldInc.(the“Syndicate”)overafiveperiodinexchangefor20%ofthespotpriceofgoldforeachounceofgolddelivered(the“ongoingpayment”).Theamountthatwaspreviouslyadvancedforthisagreementof$100.0millionisreducedoneachdeliverybytheexcessofthespotpriceofthegolddeliveredovertheongoingpayment.Followingthefive-yearperiod,whichcommencedonMarch31,2016,theCorporationiscommittedtodeliverrefinedgoldequalto6.5%ofthegoldproductionattheKarmaMineforthelifeofthemineinexchangeforongoingpayments.TheCorporationdeliveredanadditional7,500ouncesbetweenJuly2017andApril2019inexchangefortheadditionaldepositof$5.0millionreceivedin2017.TheCorporationassumedthegoldstreamwhenitacquiredtheKarmaMineonApril26,2016.GoldouncessoldtotheSyndicateunderthestreamagreementarerecognizedasrevenueonlyontheactualproceedsreceived,whichpertheagreementis20%ofthespotgoldprice.AsatJune30,2020,thereare16,665ouncesstilltobedelivered.
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10. CONTROLSANDPROCEDURES
10.1. DISCLOSURECONTROLSANDPROCEDURES
Disclosurecontrolsandproceduresaredesignedtoprovidereasonableassurancethatallrelevantinformationisgatheredandreportedona timelybasis to seniormanagement, including theChiefExecutiveOfficer (CEO)and theChief FinancialOfficer(CFO).Additionally, thesecontrolsandproceduresprovidereasonableassurance that informationrequired tobedisclosed inthe Corporation’s annual and interim filings (as such terms are defined under National Instrument 52-109 Certification ofDisclosureinIssuers’AnnualandInterimFilings)andotherreportsfiledorsubmittedunderCanadiansecuritieslawisrecorded,processed, summarized and reported within the time periods specified by those laws, and that material information isaccumulatedandcommunicatedtomanagementincludingtheCEOandCFOasappropriatetoallowtimelydecisionsregardingrequireddisclosure.
AsatJune30,2020,managementevaluatedthedesignandoperatingeffectivenessoftheCorporation’sdisclosurecontrolsandproceduresasrequiredbyCanadianSecuritiesLaw.Basedonthatevaluation,theCEOandCFOconcludedthatasofJune30,2020,thedisclosurecontrolsandprocedureswereeffective.
Therehavebeennomaterial changes in theCorporation’sdisclosurecontrolsandprocedures since theyearended June30,2020thathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,theCorporation’spublicdisclosures.
10.2. INTERNALCONTROLSOVERFINANCIALREPORTING
The Corporation’s management, with the participation of its CEO and CFO, is responsible for establishing and maintainingadequateinternalcontrolsoverfinancialreporting.UnderthesupervisionoftheCFO,theCorporation’sinternalcontrolsoverfinancial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparationoffinancialstatementsforexternalpurposesinaccordancewithIFRS.
AsatJune30,2020,managementevaluatedtheeffectivenessoftheCorporation’s internalcontroloverfinancialreportingasrequiredbyCanadiansecuritieslaws.
Basedonthatevaluationofinternalcontroloverfinancialreporting,theCEOandCFOhaveconcludedthat,asatJune30,2020,theinternalcontrolsoverfinancialreportingwereeffectiveandabletoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithIFRS.
TherehavebeennomaterialchangesintheCorporation’sinternalcontrolsoverfinancialreportingsincetheyearendedJune30, 2020 that havematerially affected or are reasonably likely to materially affect the Corporation’s internal controls overfinancialreporting.
10.3. LIMITATIONSOFCONTROLSANDPROCEDURES
The Corporation’smanagement, including the CEO and CFO believe that any disclosure controls and procedures or internalcontrol over financial reporting, can provide only reasonable, but not absolute, assurance that the objectives of the controlsystem are met. These inherent limitations include the realities that judgments in decision making can be faulty, and thatbreakdowns canoccurbecauseof simple error ormistake.Additionally, controls canbe circumventedby the actionsof oneindividual,bycollusionoftwoormorepeople,orbyunauthorizedoverrideofthecontrol.Accordingly,becauseoftheinherentlimitationsinacontrolsystem,misstatementsduetoerrororfraudmayoccurandnotbedetected.
CAUTIONARYNOTEREGARDINGFORWARD-LOOKINGSTATEMENTS
Certain statements in this MD&A and certain information incorporated herein by reference constitute forward-lookingstatements.Forward-lookingstatementsinclude,butarenotlimitedto,statementswithrespecttotheCorporation’splansorfuturefinancialoroperatingperformance,theestimationofmineralreservesandresources,therealizationofmineralreserveestimates, conclusionsofeconomicassessmentsofprojects, the timingandamountofestimated futureproduction, costsoffutureproduction, future capital expenditures, costs and timingof thedevelopmentof newdeposits, success of explorationactivities,permittingtimelines,requirementsforadditionalcapital,sourcesandtimingofadditionalfinancing,realizationofunusedtaxbenefitsandfutureoutcomeoflegalandtaxmatters.Generally,theseforward-lookingstatementscanbeidentifiedby the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”,“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “will continue” or “believes”, orvariationsofsuchwordsandphrasesorstatethatcertainactions,eventsorresults“may”,“could”,“would”,“might”or“willbetaken”,“occur”or“beachieved”.Thematerialfactorsorassumptionsusedtodevelopmaterialforward-lookingstatementsaredisclosedthroughoutthisdocument.
Forward-looking statements, while based on management’s best estimates and assumptions, are subject to known andunknownrisks,uncertaintiesandotherfactorsthatmaycausetheactualresults,levelofactivity,performanceorachievementsofEndeavourMiningtobemateriallydifferentfromthoseexpressedorimpliedbysuchforward-lookingstatements,includingbut not limited to: risks related to the successful integration of acquisitions; risks related to international operations; risksrelatedtojointventureoperations;risksrelatedtogeneraleconomicconditionsandcreditavailability,actualresultsofcurrentexploration activities, unanticipated reclamation expenses; changes in project parameters as plans continue to be refined;
39
fluctuations in prices ofmetals including gold; fluctuations in foreign currency exchange rates, increases inmarket prices ofmining consumables,possible variations inore reserves, gradeor recovery rates; failureofplant, equipmentorprocesses tooperateasanticipated;accidents,labourdisputes,titledisputes,claimsandlimitationsoninsurancecoverageandotherrisksofthe mining industry; delays in obtaining governmental approvals or financing or in the completion of development orconstructionactivities,changesinnationalandlocalgovernmentregulationofminingoperations,taxrulesandregulations,andpoliticalandeconomicdevelopmentsincountriesinwhichtheCorporationoperates,actualresolutionsoflegalandtaxmatters,aswellasthosefactorsdiscussedinthesectionentitled“DescriptionoftheBusiness–RiskFactors”inEndeavourMining’smostrecentAnnualInformationFormavailableonSEDARatwww.sedar.com.AlthoughEndeavourMininghasattemptedtoidentifyimportantfactorsthatcouldcauseactualresultstodiffermateriallyfromthosecontainedinforward-lookingstatements,theremaybeotherfactorsthatcauseresultsnottobeasanticipated,estimatedor intended.Therecanbenoassurancethatsuchstatementswillprovetobeaccurate,asactualresultsandfutureeventscoulddiffermateriallyfromthoseanticipatedinsuchstatements. Accordingly, readers should not place undue reliance on forward-looking statements. The Corporation’smanagement reviewsperiodically informationreflected in forward-lookingstatements.TheCorporationhasandcontinues todisclose in its Management’s Discussion and Analysis and other publicly filed documents, changes to material factors orassumptions underlying the forward-looking statements and to the validity of the statements themselves, in the period thechangesoccur.
CAUTIONARYNOTEREGARDINGRESERVESANDRESOURCES
Readers should refer to the most recent Annual Information Form of Endeavour Mining and other continuous disclosuredocumentsfiledbyEndeavourMiningavailableatwww.sedar.com,forfurtherinformationonmineralreservesandresources,whichissubjecttothequalificationsandnotessetforththerein.
AdditionalinformationrelatingtotheCorporationisavailableontheCorporation’swebsiteatwww.endeavourmining.comandintheCorporation’smostrecentlyfiledAnnualInformationFormfiledonSEDARatwww.sedar.com.
40
5
FINANCIAL STATEMENTS
SECTION 2
TABLEOFCONTENTS
1 DESCRIPTIONOFBUSINESSANDNATUREOFOPERATIONS........................................................................... 52 BASISOFPRESENTATIONANDSIGNIFICANTACCOUNTINGPOLICIES............................................................ 53 TRADEANDOTHERRECEIVABLES................................................................................................................... 64 INVENTORIES.................................................................................................................................................. 75 PREPAIDEXPENSESANDOTHER..................................................................................................................... 76 MININGINTERESTS......................................................................................................................................... 87 OTHERLONG-TERMASSETS............................................................................................................................ 118 TRADEANDOTHERPAYABLES........................................................................................................................ 119 FINANCEOBLIGATIONS................................................................................................................................... 1210 LONG-TERMDEBT........................................................................................................................................... 1311 OTHERLONG-TERMLIABILITIES...................................................................................................................... 1512 SHARECAPITAL............................................................................................................................................... 1513 NON-CONTROLLINGINTERESTS...................................................................................................................... 1814 (LOSS)/GAINONFINANCIALINSTRUMENTS................................................................................................... 1915 DERIVATIVEFINANCIALINSTRUMENTS.......................................................................................................... 1916 INCOMETAXES................................................................................................................................................ 2117 SEGMENTEDINFORMATION........................................................................................................................... 2218 CAPITALMANAGEMENT................................................................................................................................. 2519 FINANCIALINSTRUMENTSANDRELATEDRISKS............................................................................................. 2520 COMMITMENTSANDCONTINGENCIES.......................................................................................................... 3021 SUBSEQUENTEVENTS..................................................................................................................................... 30
NoteAsat
June30,2020
AsatDecember31,
2019
ASSETSCurrentCashandcashequivalents 351,817 189,889Tradeandotherreceivables 3 37,562 19,228Inventories 4 163,864 168,379Prepaidexpensesandother 5 18,799 18,542
572,042 396,038Non-currentMininginterests 6 1,424,331 1,410,274Deferredtaxassets 3,880 5,498Otherlong-termassets 7 56,871 60,981
Totalassets $2,057,124 $1,872,791
LIABILITIES
CurrentTradeandotherpayables 8 166,977 173,267Currentportionoffinanceandleaseobligations 9 29,739 29,431Currentportionofderivativefinancialliabilities 15 — 10,349Incometaxespayable 52,642 54,968
249,358 268,015Non-currentFinanceandleaseobligations 9 46,362 57,403Long-termdebt 10 826,117 638,980Otherlong-termliabilities 11 43,735 41,911Deferredtaxliabilities 57,453 49,985
Totalliabilities $1,223,025 $1,056,294
EQUITY
Sharecapital 12 1,793,132 1,774,172Equityreserve 12 58,712 72,487Deficit (1,140,453) (1,128,792)
EquityattributabletoshareholdersoftheCorporation $ 711,391 $ 717,867
Non-controllinginterests 13 122,708 98,630
Totalequity $ 834,099 $ 816,497
Totalequityandliabilities $2,057,124 $1,872,791COMMITMENTSANDCONTINGENCIES(NOTE20)SUBSEQUENTEVENTS(NOTE21)
ApprovedbytheBoard:August5,2020
"SebastiendeMontessus"Director "AlisonBaker"Director
Theaccompanyingnotesareanintegralpartofthesecondensedinterimconsolidatedfinancialstatements
ENDEAVOURMININGCORPORATIONCondensedInterimConsolidatedStatementofFinancialPosition(ExpressedinThousandsofUnitedStatesDollars)
1
THREEMONTHSENDED SIXMONTHSENDED
Note June30,2020
June30,2019
June30,2020
June30,2019
Revenues
Goldrevenue 253,084 219,371 522,986 370,681
Costofsales Operatingexpenses (103,308) (103,318) (217,711) (191,681)
Depreciationanddepletion 6 (43,760) (51,970) (96,289) (88,102)Royalties (17,771) (11,032) (35,223) (20,021)
Earningsfrommineoperations 88,245 53,051 173,763 70,877
Corporatecosts (5,049) (5,143) (10,280) (11,204)
Acquisitionandrestructuringcosts 21 (2,589) — (6,919) —
Share-basedcompensation 12 (4,942) (4,385) (6,565) (6,985)
Explorationcosts (1,796) (1,674) (3,129) (6,035)
Earningsfromoperations 73,869 41,849 146,870 46,653
Other(expenses)/income Lossonfinancialinstruments 14 (71,931) (11,757) (75,423) (10,634)
Financecosts 10 (11,982) (12,386) (23,644) (17,305)
Other(expenses)/income (1,791) 4,574 144 4,377(Loss)/Earningsbeforetaxes (11,835) 22,280 47,947 23,091Currentincometaxexpense (2,313) (13,845) (26,012) (27,323)Deferredincometaxexpense (8,468) (1,531) (9,088) (307)
Netandcomprehensive(loss)/earnings (22,616) 6,904 12,847 (4,539)
Attributableto: ShareholdersofEndeavourMiningCorporation (37,229) 711 (11,231) (13,956)Non-controllinginterests 13 14,613 6,193 24,078 9,417
$ (22,616)$ 6,904 $ 12,847 $ (4,539)
(Loss)/Earningspershare Basic(loss)/earningspershare 12 $ (0.34)$ 0.01 $ (0.10)$ (0.13)Diluted(loss)/earningspershare 12 $ (0.34)$ 0.01 $ (0.10)$ (0.13)
Theaccompanyingnotesareanintegralpartofthesecondensedinterimconsolidatedfinancialstatements
ENDEAVOURMININGCORPORATIONCondensedInterimConsolidatedStatementofComprehensive(Loss)/Earnings(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
2
THREEMONTHSENDED SIXMONTHSENDED
Note June30,2020
June30,2019
June30,2020
June30,2019
OperatingActivities (Loss)/Earningsfromcontinuingoperationsbeforetaxes (11,835) 22,280 47,947 23,091
Adjustmentsfor: Depreciationanddepletion 6 43,760 51,970 96,289 88,102Financecosts 10 11,982 12,386 23,644 17,305Share-basedcompensation 12 4,942 4,385 6,565 6,985Lossonfinancialinstruments 14 71,931 11,757 75,423 10,634Gainonsaleofassets 1,512 — 1,512 —
CashpaidonsettlementofDSUsandPSUs 12 (7) — (221) (1,125)Cashreceivedonsettlementofforwardcontract — — 6,686 —Incometaxespaid (20,148) (29,569) (28,672) (31,234)Netcashmovementfromgoldcollarsettlements (16,754) (802) (23,937) (937)Netnon-cashassetadjustments — (10,659) — (2,004)Foreignexchangeloss (30) (4,426) (591) (5,503)
Operatingcashflowsbeforechangesinnon-cashworkingcapital 85,353 57,322 204,645 105,314
Tradeandotherreceivables (10,553) 270 (18,039) (3,630)Inventories (7,363) (16,846) 3,363 (20,838)Prepaidexpensesandother 2 (3,107) 177 (4,338)Tradeandotherpayables (10,023) 24,570 (6,775) 8,617Cashgeneratedfromoperatingactivities $ 57,416 $ 62,209 $ 183,371 $ 85,125
InvestingActivities Expendituresonmininginterests 6 (58,325) (66,133) (112,277) (169,537)CashpaidforadditionalinterestofItymine 13 — — (5,430) (453)Changesinlong-termassets 7 (58) (2,469) 2,090 (8,469)Proceedsfromsaleofassets 6 10,292 — 10,292 —Cashusedininvestingactivities $ (48,091)$ (68,602)$ (105,325)$ (178,459)
FinancingActivities
Proceedsreceivedfromtheissueofcommonshares 12 — 36 — 274Paymentoffinancingfeesandother (94) (1,547) (441) (1,738)Interestpaid (6,187) (8,047) (16,794) (17,222)Proceedsoflong-termdebt 10 — 20,000 120,000 80,000Repaymentoffinanceandleaseobligation 9 (9,581) (10,954) (19,033) (14,374)Cash(usedin)/generatedfromfinancingactivities $ (15,862)$ (512)$ 83,732 $ 46,940
Effectofexchangeratechangesoncash 1,011 548 150 49(Decrease)/Increaseincash (5,526) (6,357) 161,928 (46,345)Cash,beginningofperiod 357,343 84,034 189,889 124,022Cash,endofperiod $ 351,817 $ 77,677 $ 351,817 $ 77,677
Theaccompanyingnotesareanintegralpartofthesecondensedinterimconsolidatedfinancialstatements
ENDEAVOURMININGCORPORATIONCondensedInterimConsolidatedStatementofCashFlows(ExpressedinThousandsofUnitedStatesDollars)
3
SHARECAPITAL
NoteNumberofCommonShares
ParValueAdditional
PaidinCapital
TotalShareCapital
EquityReserve
DeficitTotal
AttributabletoShareholders
Non-ControllingInterests
Total
At1January,2019 108,081,596 10,804 1,732,857 1,743,661 65,452 (951,107) 858,006 86,327 944,333
Sharesissuedonexerciseofoptions,RSU's&PSU's 770,956 77 12,792 12,869 (12,594) — 275 — 275
Sharebasedcompensation 12 — — — — 6,264 — 6,264 — 6,264
Acquisitionofnon-controllinginterestoftheItymine 13 1,072,305 107 17,508 17,615 — (13,967) 3,648 (4,101) (453)
Totalnetandcomprehensive(loss)/earnings — — — — — (13,956) (13,956) 9,417 (4,539)
AtJune30,2019 109,924,857 $ 10,988 $ 1,763,157 $ 1,774,145 $ 59,122 $ (979,030)$ 854,237 $ 91,643 $ 945,880
At1January,2020 109,927,097 10,988 1,763,184 1,774,172 72,487 (1,128,792) 717,867 98,630 816,497
SharesissuedonexerciseofPSU's 1,066,143 107 18,853 18,960 (18,960) — — — —
Sharebasedcompensation 12 — — — — 5,185 — 5,185 — 5,185
Acquisitionofnon-controllinginterestoftheItymine 13 — — — — — (430) (430) — (430)
Totalnetandcomprehensive(loss)/earnings — — — — — (11,231) (11,231) 24,078 12,847
AtJune30,2020 110,993,240 $ 11,095 $ 1,782,037 $ 1,793,132 $ 58,712 $ (1,140,453)$ 711,391 $ 122,708 $ 834,099
Theaccompanyingnotesareanintegralpartofthesecondensedinterimconsolidatedfinancialstatements
ENDEAVOURMININGCORPORATIONCondensedInterimConsolidatedStatementofChangesinEquity(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
4
1 DESCRIPTIONOFBUSINESSANDNATUREOFOPERATIONS
EndeavourMining Corporation (“Endeavour” or the “Corporation”) is a publicly listed goldmining company thatoperates fourmines inWest Africa in addition to having project development and exploration assets.As furtherdiscussed in Note 21, Subsequent Events, on July 1, 2020, Endeavour successfully completed the acquisition ofSEMAFOIncwhooperatetwominesinBurkinaFaso.Endeavourisfocusedoneffectivelymanagingitsexistingassetsto maximize cash flows as well as pursuing organic and strategic growth opportunities that benefit from itsmanagementandoperationalexpertise.
Endeavour’scorporateofficeisinLondon,England,anditssharesarelistedontheTorontoStockExchange(“TSX”)(symbol EDV) and quoted in the United States on the OTCQX International under the symbol ‘EDVMF’. TheCorporation is incorporated in theCayman Islandsand its registeredoffice is locatedat27HospitalRoad,GeorgeTown,GrandCaymanKY1-9008,CaymanIslands.
TheCorporationhasbeentakingstepstomonitorandaddresstherisksinresponsetotheCOVID-19pandemicandtheirimpactontheCorporation'soperations(Note2).
2 BASISOFPRESENTATIONANDSIGNIFICANTACCOUNTINGPOLICIES
2.1. STATEMENTOFCOMPLIANCE
These condensed interim consolidated financial statements havebeenprepared in accordancewith InternationalAccounting Standard (“IAS”) 34, Interim Financial Reporting, using the accounting policies consistent withInternationalFinancialReportingStandards(‘IFRS’).
These condensed interimconsolidated financial statements shouldbe read in conjunctionwith themost recentlyissuedannualconsolidatedfinancialstatementsoftheCorporation,whichincludeinformationnecessaryorusefultounderstanding the Corporation’s operations, financial performance, and financial statement presentation. Inparticular,theCorporation’ssignificantaccountingpolicieswerepresentedasNote2totheconsolidatedfinancialstatementsfortheyearendedDecember31,2019andhavebeenconsistentlyappliedinthepreparationofthesecondensedinterimconsolidatedfinancialstatements.
2.2. BASISOFPREPARATION
Thesecondensedinterimconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasis,exceptcertainfinancialinstrumentsthataremeasuredatfairvalueattheendofeachreportingperiod.TheCorporation’saccounting policies have been applied consistently to all periods in the preparation of these condensed interimconsolidated financial statements. In preparing the Corporation's unaudited condensed interim consolidatedfinancial statements for the three and six months ended June 30, 2020, the Corporation applied the criticaljudgments andestimates disclosed in notes 3 and4of its audited consolidated financial statements for the yearendedDecember31,2019.
2.3.COVID-19ANDOTHERPANDEMICRISKS
OnMarch11,2020,theWorldHealthOrganizationdeclaredtheoutbreakofarespiratorydiseasecausedbyanewnovelcoronavirus(“COVID-19”)asapandemic.InresponsetohealthrisksassociatedwiththespreadofCOVID-19,the Corporation implemented a number of health and safety measures designed to protect employees at itsoperationsaroundtheworld.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
5
As of the date of issuance of these condensed interim consolidated financial statements, the Corporation’soperations have not been significantly impacted, however, the Corporation continues to monitor the situation.WhiletheCorporation'sfinancialposition,performanceandcashflowscouldbenegativelyimpacted,theextentoftheimpactcannotbereasonablyestimatedatthistime.Managementiscurrentlymonitoringandregularlyassessingtheshortandmedium-termimpactsoftheCOVID-19virus,includingforexamplesupplychain,mobility,workforce,market and trade flow impacts, as well as the resilience of Canadian, West African, and other global financialmarkets to support recovery. Any longer term impactsarealsobeingconsideredandmonitored,asappropriate.However,thispandemicisevolvingrapidlyanditseffectsonourownoperationsareuncertain.Itispossiblethatinthefutureoperationsmaybetemporarilyshutdownorsuspendedforindeterminateamountsoftime,anyofwhichmay,individuallyorintheaggregate,haveamaterialandadverseimpactonourbusiness,resultsofoperationsandfinancialperformance. Theextent towhichCOVID-19may impact theCorporation’sbusinessandoperationswilldepend on future developments that are highly uncertain and cannot be accurately predicted, including newinformationwhichmayemergeconcerningtheseverityofandtheactionsrequiredtocontainCOVID-19orremedyitsimpact.
TheglobalresponsetotheCOVID-19pandemichasresultedin,amongotherthings,borderclosures,severetravelrestrictions,aswellasquarantine,self-isolationandotheremergencymeasures imposedbyvariousgovernments.Additionalgovernmentor regulatoryactionsor inactionsaround theworld in jurisdictionswhere theCorporationoperates may also have potentially significant economic and social impacts. If the business operations of theCorporationaredisruptedorsuspendedasaresultoftheseorothermeasures,itmayhaveamaterialadverseeffectontheCorporation’sbusiness,resultsofoperationsandfinancialperformance.TheCOVID-19virusandeffortstocontain itmay have a significant effect on commodity prices, and the possibility of a prolonged global economicdownturnmayfurtherimpactcommoditydemandandprices.
TheglobalpandemiccausedbyCOVID-19mayaffectEndeavour'sabilitytooperateatoneormoreofitsminesforan indeterminate period of time, may affect the health of its employees or contractors resulting in diminishedexpertiseorcapacity,maymeanthatkeyexpatorcontractresourcescannotaccessWestAfrica,mayresultindelaysordisruption in its supplychain leading tounavailabilityof critical sparesand inventory (or increasedcosts),mayleadtorestrictionsontransferabilityofcurrency,maycausebusinesscontinuityissuesatglobalgoldrefineries(andthereforeitsabilitytogeneraterevenue),maymeanitcannottransportgoldfromitssitestorefineries,mayresultinfailures of various local administration, logistics and critical infrastructure, may cause social instability in WestAfrican countries which in turn could disrupt business continuity, and may result in additional and currentlyunknown liabilities.All or anyof the foregoingmaypresent risks to the investmentpropositionof Endeavour, itsliquidity,solvencyandabilitytomeetitsdebtobligationsastheyfalldue.
3 TRADEANDOTHERRECEIVABLES
June30,2020
December31,2019
ReceivableforsaleofNzemamine — 7,163VATreceivablei 21,660 7,487Receivablesforgoldsales 1,928 2,149Tradeandotherreceivablesii 13,974 2,429
Total $ 37,562 $ 19,228
i. VATreceivable
VATreceivablerelatestonetVATpaidtovendorsongoodsandservicespurchasedincountry.Thesebalancesareexpectedtobecollectedinthenexttwelvemonths.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
6
ii. Tradeandotherreceivables
During the six months ended June 30, 2020 the Corporation provided $6.0 million to BCM Group to pay theremainingportionofaminingpermitthatwastransferredasapartoftheTabakotosaleinDecember2018,aswellas an additional $5.0million forworking capital purposes. The amounts are expected to be repaid in the nexttwelvemonthsandarenon-interestbearing.
4 INVENTORIES
June30,2020
December31,2019
Dorébars 11,422 15,496Goldincircuit 38,467 29,707Orestockpiles 56,807 52,577Sparepartsandsupplies 57,168 70,599Total $ 163,864 $ 168,379
AsofJune30,2020,therewasnoprovisiontoadjust inventorytonetrealizablevalue(December31,2019-$0.7million).
The cost of inventories recognized as an expense in the three and sixmonths ended June 30, 2020was $147.1millionand$314.0millionrespectivelyandwasincludedincostofsales(threeandsixmonthsendedJune30,2019-$155.3millionand$279.8millionrespectively).
5 PREPAIDEXPENSESANDOTHER
June30,2020
December31,2019
Deposits 1,682 1,511
Supplierprepayments 13,675 15,893
Other 3,442 1,138
Total $ 18,799 $ 18,542
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
7
6 MININGINTERESTS
MININGINTERESTS
DepletableNon
depletable
Property,plantandequipment
Assetsunderconstruction
Nonmining Total
Cost
Balanceasat1January,2019 549,057 261,108 711,192 397,230 9,846 1,928,433
Additions/expenditures 50,966 19,085 33,191 112,599 — 215,841
TransfersrelatedtoItyconstruction 225,981 — 171,728 (397,709) — —
Transferstoinventoryoncommercialproduction — — — (18,463) — (18,463)
Transfers 20,706 26,630 — (47,336) — —
Reclamationliabilitychangeinestimate (3,261) — — — — (3,261)
Adjustmentforchangeinaccountingpolicy — — 11,636 — — 11,636
Disposals — (7,317) (4,849) — — (12,166)
BalanceasatDecember31,2019 843,449 299,506 922,898 46,321 9,846 2,122,020
Additions/expenditures 53,732 30,550 13,705 17,372 1,404 116,763
Disposals — — (30,352) — — (30,352)
BalanceasatJune30,2020 $ 897,181 $ 330,056 $ 906,251 $ 63,693 $ 11,250 $ 2,208,431
AccumulatedDepreciation
Balanceasat1January,2019 170,887 422 208,929 — 4,353 384,591
Depreciation/depletion 80,317 — 119,957 — — 200,274
Impairment 45,007 — 82,373 — — 127,380
Adjustmentforchangeinaccountingpolicy — — (499) — — (499)
BalanceasatDecember31,2019 296,211 422 410,760 — 4,353 711,746
Depreciation/depletion 41,055 — 55,144 — 2,359 98,558
Disposals $ — $ — $ (26,204) $ — $ — $ (26,204)
BalanceasatJune30,2020 $ 337,266 $ 422 $ 439,700 $ — $ 6,712 $ 784,100
Carryingamounts
AtDecember31,2019 $ 547,238 $ 299,084 $ 512,138 $ 46,321 $ 5,493 $ 1,410,274
AtJune30,2020 $ 559,915 $ 329,634 $ 466,551 $ 63,693 $ 4,538 $ 1,424,331
During the six months ended June 30, 2020 the Corporation disposed of its mining fleet at its Karma mine inconnectionwithmovingallminingoperations to a contractor andwere leasedback for theCorporation'sminingoperating at Karma site. Included in the Condensed Interim Consolidated Statement of Comprehensive (Loss)/Earningsisagainof$4.1millionrelatedtothesaleandleasebackmininginterestassets(June30,2019:nil)
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
8
TheCorporation'sleasedassetsconsistofbuildings,plantandequipmentanditsvarioussegmentswhichareright-of-useassetsunderIFRS16.Thesehavebeenincludedwithintheproperty,plantandequipmentcategoryabove.
Plant HeavyEquipment Property June30,2020
BalanceasatJanuary1,2019 5,699 3,021 2,915 11,635Additions 1,061 — — 1,061Depreciationfortheyear (2,551) (827) (1,309) (4,687)BalanceasatDecember31,2019 4,209 2,194 1,606 8,009Additions 1,961 2,041 475 4,477Depreciationfortheperiod (1,233) (438) (643) (2,314)Disposals — (1,112) — (1,112)BalanceasatJune30,2020 $ 4,937 $ 2,685 $ 1,438 $ 9,060
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
9
Asummaryofthecarryingvaluesbypropertyisasfollows:
AgbaouMine
ItyMine
KarmaMine
HoundéMine KalanaProjectExplorationProperties
Nonmining Total
Cost
Balanceasat1January,2019 291,176 476,161 373,466 543,982 193,099 13,792 36,757 1,928,433
Additions/expenditures 25,225 79,273 33,175 49,932 11,868 7,205 9,163 215,841
Transferstoinventoryoncommercialproduction — (18,463) — — — — — (18,463)
Transfers 230 (23,301) 1,063 782 1,020 23,776 (3,570) —
Reclamationliabilitychangeinestimate (434) 3,622 (648) (5,801) — — — (3,261)
Adjustmentforchangeinaccountingstandard 3,291 2,615 — 2,816 — — 2,914 11,636
Disposals — (4,849) — — — (7,317) — (12,166)
BalanceasatDecember31,2019 319,488 515,058 407,056 591,711 205,987 37,456 45,264 2,122,020
Additions/expenditures 7,272 29,167 9,430 31,649 4,199 32,501 2,545 116,763
Disposals — (1,551) (28,801) — — — — (30,352)
BalanceasatJune30,2020 $ 326,760 $ 542,674 $ 387,685 $ 623,360 $ 210,186 $ 69,957 $ 47,809 $ 2,208,431
Accumulateddepreciationandimpairment
Balanceasat1January,2019 155,062 62,927 76,973 83,288 — 3,169 3,172 384,591
Depreciation/depletion 45,129 36,733 48,288 65,039 — 207 4,878 200,274
Impairment — — 127,380 — — — — 127,380
Disposals — (499) — — — — — (499)
BalanceasatDecember31,2019 200,191 99,161 252,641 148,327 — 3,376 8,050 711,746
Depreciation/depletion 18,739 18,312 29,493 27,881 — 328 3,805 98,558
Disposals — (439) (25,516) (249) — — — (26,204)
BalanceasatJune30,2020 $ 218,930 $ 117,034 $ 256,618 $ 175,959 $ — $ 3,704 $ 11,855 $ 784,100
Carryingamounts
AtDecember31,2019 $ 119,297 $ 415,897 $ 154,415 $ 443,384 $ 205,987 $ 34,080 $ 37,214 $ 1,410,274
AtJune30,2020 $ 107,830 $ 425,640 $ 131,067 $ 447,401 $ 210,186 $ 66,253 $ 35,954 $ 1,424,331
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
10
7 OTHERLONG-TERMASSETS
Otherlong-termassetsarecomprisedof:
June30,2020
December31,2019
Workingcapitalloanreceivable 565 541Restrictedcashi 13,115 9,958Long-termstockpiles 21,523 22,490Long-termcriticalsparepartsandsupplies 12,846 14,670Long-termreceivableii 8,822 13,322Total $ 56,871 $ 60,981
i. Restrictedcash
Restrictedcashreflectscashsetasidefortheassetretirementobligationsasrequiredbythelocalgoverningbodies.
ii. Long-termreceivable
Long-term receivablesmainly consist of thenet smelter royalty ("NSR") connectedwith the sale of the Tabakotomine,whichisnotexpectedtobereceivedinthenexttwelvemonthsandhasbeenclassifiedaslong-termasatJune30,2020.
8 TRADEANDOTHERPAYABLES
Tradeandotherpayablesconsistofthefollowing:
June30,2020
December31,2019
Tradeaccountspayable 136,595 147,461
Royaltiespayable 11,288 2,444
Payrollandsocialcharges 7,376 10,714
Otherpayables 11,718 12,648
Total $ 166,977 $ 173,267
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
11
9 FINANCEOBLIGATIONS
TheCorporationhasenteredintothefollowingfinanceobligations:
June30,2020
December31,2019
Financingarrangementsi 64,463 78,081Leaseliabilitiesii 11,638 8,753Financeobligations $ 76,101 $ 86,834
June30,2020
December31,2019
Financeobligations 76,101 86,834
Less:currentportion (29,739) (29,431)
Long-termfinanceobligations $ 46,362 $ 57,403
i. Financingarrangements
June30,2020
December31,2019
Financingarrangements 64,463 78,081
Less:currentportion (24,428) (25,529)
Long-termfinancingarrangement $ 40,035 $ 52,552
ThepresentvalueoftheCorporation’slong-termequipmentfinancialobligationsissplitbelow.Thepresentvalueoftheminimumpaymentsaretheinstallmentsoverthelifeofthearrangementdiscountedtopresentvalue.Paymentsareapportionedbetweenthefinancechargeandthereductionoftheoutstandingliability.
June30,2020
December31,2019
Notlaterthanoneyear 29,841 30,562
Laterthanoneyearandnotlaterthanfiveyears 41,241 56,390
71,082 86,952
Lessfuturefinancecharges (6,619) (8,871)
Presentvalueofminimumfinancepayments $ 64,463 $ 78,081
June30,2020
December31,2019
HoundéMine 32,680 39,340
ItyMine 31,783 38,741
Presentvalueofminimumfinancepayments $ 64,463 $ 78,081
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
12
ii. Leaseliabilities
Theleaseliabilitiesincludedwithinfinancialobligationsinthecondensedinterimconsolidatedstatementoffinancialpositionareasfollows:
June30,2020
December31,2019
Leaseliabilities 11,638 8,753
Less:currentportion (5,311) (3,902)
Long-termleaseliabilities $ 6,327 $ 4,851
Amounts recognized in the condensed interim consolidated statement of comprehensive (loss)/earnings are asfollows:
THREEMONTHSENDED SIXMONTHSENDED
June30,2020
June30,2019
June30,2020
June30,2019
Interestonleaseliabilities 180 218 318 399
Depreciationonright-of-useassets 1,196 1,268 2,314 2,326
Recognizedinnet(loss)/earnings $ 1,376 $ 1,486 $ 2,632 $ 2,725
10 LONG-TERMDEBT
June30,2020
December31,2019
Corporateloanfacilityi 430,000 310,000
Deferredfinancingcosts (3,677) (5,059)Revolvingcreditfacility $ 426,323 $ 304,941
Convertibleseniornotesii 307,137 302,600
Conversionoptioniii 92,657 31,439Convertibleseniorbond $ 399,794 $ 334,039
Totallongtermdebt $ 826,117 $ 638,980
TheCorporationincurredthefollowingfinancecostsintheperiod:
THREEMONTHSENDED SIXMONTHSENDED
Note June30,2020
June30,2019
June30,2020
June30,2019
Interestexpense 10,823 9,640 21,150 19,518
Amortizationofdeferredfacilityfees 757 746 1,497 1,350
Commitment,structuringandotherfees 402 2,000 997 3,240
Less:Capitalizedborrowingcosts 6 — — — (6,803)
Totalfinancecosts $ 11,982 $ 12,386 $ 23,644 $ 17,305
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
13
i. CorporateLoanFacility
OnMay17, 2019, theCorporation renewed its $430.0million revolving credit facility ("RCF")with a syndicateofleadinginternationalbanks.InthesixmonthsendedJune30,2020,theCorporationdrewdownanadditional$120.0milliononitsRCF.
ThekeytermsoftheRCFinclude:
• Principalamountof$430.0million.
• InterestaccruesonaslidingscaleofbetweenLIBORplus2.95%to3.95%basedon theCorporation’s leverageratio.
• CommitmentfeesfortheundrawnportionoftheRCFof1.03%.
• ThetermoftheRCFisfouryears,maturinginSeptember2021.
• TheprincipaloutstandingontheRCFisrepayableasasinglebulletpaymentonthematuritydate.
• BankingsyndicateincludesSociétéGénérale,ING,CitibankN.A.,InvestecBankPlc,MacquarieBankLtd,BarclaysBank,HSBCandBMO.
• TheRCFcanberepaidatanytimewithoutpenalty.
ii. ConvertibleSeniorNotes
On February 8, 2018, the Corporation completed a private placement of convertible senior notes with a totalprincipalamountof$330.0millionduein2023(the“Notes”).Theinitialconversionrateis41.84oftheCorporation’scommonshares(“Shares”)per$1,000Note,oraninitialconversionpriceofapproximately$23.90(CAD$29.47)pershare.
TheNotesbearinterestatacouponrateof3%payablesemi-annually inarrearsonFebruary15andAugust15ofeach year, beginning on August 15, 2018. The Notes mature on February 15, 2023, unless redeemed earlier,repurchased or converted in accordance with the terms of the Notes. The Corporation may, subject to certainconditions,electtosatisfytheprincipalamountandconversionoptiondueatmaturityoruponredemptionthroughthepaymentordeliveryofanycombinationofSharesandcash.
ThekeytermsoftheConvertibleSeniorNotesinclude:
• Principalamountof$330.0million.
• Couponrateof3%payableonasemi-annualbasis.
• Thetermofthenotesis5years,maturinginFebruary2023.
• Thenotesarereimbursablethroughthepaymentordeliveryofsharesand/orcash.
• Theinitialconversionpriceis$23.90(CAD$29.47)pershare.
• Thereferencesharepriceofthenotesis$18.04(CAD$22.24)pershare.
Foraccountingpurposes,theCorporationmeasurestheNotesatamortizedcost,accretingtomaturityoverthetermoftheNotes.Theconversionoptionisanembeddedderivativeandisaccountedforasafinancialliabilitymeasuredat fair value through profit or loss, as the Corporation has the ability to settle the option at fair value in cash,commonshares,oracombinationofcashandcommonsharesincertaincircumstances.
Theunrealizedgain/lossontheconvertiblenoteoptionforthethreeandsixmonthsendedJune30,2020wasanunrealizedlossof$63.9millionandanunrealizedlossof$61.2millionrespectively(threeandsixmonthsendedJune30,2019-unrealizedlossof$4.5millionandanunrealizedgainof$3.9millionrespectively).
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
14
TheliabilitycomponentfortheNotesatJune30,2020hasaneffectiveinterestrateof6.2%(December31,2019:6.2%)andwasasfollows:
June30,2020
December31,2019
Liabilitycomponentatbeginningoftheyear 302,600 293,893
Interestexpenseintheyear 9,487 18,607
Less:Interestpaymentsintheyear (4,950) (9,900)
Total $ 307,137 $ 302,600
iii. Conversionoption
The conversionoption related to theNotes is recordedat fair value, using a valuationmodel,with the followingassumptions;volatilityof43%(December31,2019,26%),riskfreerateof0.2%(December31,2019,2.6%),termofthe conversion option 2.63 (December 31, 2019, 3.19 years), and a share price of $24.10 (December 31, 2019,$18.89).
June30,2020
December31,2019
Conversionoptionatbeginningoftheyear 31,439 25,076Fairvalueadjustment 61,218 6,363Total $ 92,657 $ 31,439
11 OTHERLONG-TERMLIABILITIES
June30,2020
December31,2019
Environmentalrehabilitationprovision 39,184 38,521
DSUliabilities 4,551 3,390
Total $ 43,735 $ 41,911
12 SHARECAPITAL
i. Votingshares
Authorized
• 200,000,000votingsharesof$0.10parvalue
• 100,000,000undesignatedshares
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
15
ii. Share-basedcompensation
Thefollowingtablesummarizestheshare-basedcompensationexpense:
THREEMONTHSENDED SIXMONTHSENDED
June30,2020
June30,2019
June30,2020
June30,2019
AmortizationandchangeinfairvalueofDSUs 1,687 251 1,160 208
AmortizationandchangeinfairvalueofPSUs 3,255 4,134 5,405 6,777
Totalshare-basedexpenses $ 4,942 $ 4,385 $ 6,565 $ 6,985
iii. Options
Asummaryofthechangesinshareoptionsispresentedbelow:
Optionsoutstanding
Weightedaverageexerciseprice
(C$)
AtDecember31,2018 50,535 16.26
Exercised (35,119) 10.99
Expired (466) 24.68
AtDecember31,2019,andatJune30,2020 14,950 10.94
ThefollowingtablesummarizesinformationabouttheexercisableshareoptionsoutstandingasatJune30,2020:
ExercisePrices(C$)
Outstanding ExercisableWeightedaverageexerciseprice(C$)
Weightedaverageremaining
contractuallife
$8.00-$14.99 14,950 14,950 $ 10.94 0.70years
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
16
iv. Shareunitplans
Asummaryofthechangesinshareunitplansispresentedbelow:
DSUsoutstanding
Weightedaverage
grantprice(C$)
PSUsoutstanding
Weightedaverage
grantprice(C$)
AtDecember31,2018 191,706 12.20 2,845,880 19.25Granted 26,871 22.60 1,556,328 18.63Exercised (39,893) 12.61 (738,078) 18.15Forfeited — — (365,753) 20.62
AtDecember31,2019 178,684 13.67 3,298,377 19.05Granted 10,886 26.19 1,214,996 22.59Exercised — — (1,066,143) 19.00Forfeited — — (421,146) 20.08
AtJune30,2020 189,570 14.39 3,026,084 20.35
v. Deferredshareunits
On January 26, 2013, the Corporation established a deferred share unit plan (“DSU”) for the purposes ofstrengtheningthealignmentof interestsbetweennon-executivedirectorsoftheCorporationandshareholdersbylinkingaportionoftheannualdirectorcompensationtothefuturevalueoftheCorporation’scommonshares.Uponestablishing theDSUplan fornon-executivedirectors, theCorporationno longergrantsoptions tonon-executivedirectors.
TheDSUplanallowseachnon-executivedirectortochoosetoreceive, intheformofDSUs,allorapercentageoftheirdirector’sfees,whichwouldotherwisebepayableincash.CompensationforservingoncommitteesmustbepaidintheformofDSUs.TheplanalsoprovidesfordiscretionarygrantsofadditionalDSUsbytheBoard.EachDSUvestsuponawardbutisdistributedonlywhenthedirectorhasceasedtobeamemberoftheBoard.Vestedunitsaresettledincashbasedonthecommonsharepriceatthedateofsettlement.
ThefairvalueoftheDSUsisdeterminedbasedonmultiplyingthe5dayvolumeweightedaveragesharepriceoftheCorporationbythenumberofDSUsattheendofthereportingperiod.
Thetotal fairvalueofDSUsatJune30,2020was$4.6million(December31,2019–$3.4million). ThetotalDSUshare-based compensation recognized in thecondensed interim consolidated statementof comprehensive (loss)/earningswasanexpenseof$1.7millionandanexpenseof$1.2millionforthethreeandsixmonthsendedJune30,2020respectively(forthethreeandsixmonthsendedJune30,2019,expenseof$nil).
vi. Performanceshareunits
In March 2014, following a review of its executive compensation programs and pay practices, the Corporationintroducedachangeinitslong-termincentiveplan(“LTIPlan”)toincludeaportionofperformance-linkedshareunitawards (“PSUs”). The PSU program is intended to increase the pay mix in favor of long-term equity-basedcompensationwiththree-yearcliff-vestingtoserveasanemployeeretentionmechanism.
ThefairvalueofthePSUsisdeterminedbasedonTotalShareholderReturn(“TSR”)relativetopeercompaniesandachieving certain operational performance measures (key future operational indicators – Net debt / adjustedearningsbeforeinterest,tax,depreciationandamortization,productionandEnvironmental,SocialandGovernance
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
17
("ESG")targets).ThefairvaluerelatedtotheTSRportionisdeterminedusingamulti-assetMonteCarlosimulationmodelwhile the fairvaluerelatedto theachievementofoperationalperformancemeasures isdeterminedbasedtheprobabilityofreachingtheoperationaltargets.
ThetotalPSUshare-basedexpenserecognizedinthecondensedinterimconsolidatedstatementofcomprehensive(loss)/earningsforthethreeandsixmonthsendedJune30,2020was$3.3millionand$5.4millionrespectively(forthethreeandsixmonthsendedJune30,2019,expenseof$4.1millionand$6.8millionrespectively).
vii. Basicanddilutedearningspershare
Dilutednetearningspersharewascalculatedbasedonthefollowing:
THREEMONTHSENDED SIXMONTHSENDED
June30,2020
June30,2019
June30,2020
June30,2019
Basicweightedaveragenumberofsharesoutstanding 110,993,240 109,919,887 110,788,798 109,734,405
Effectofdilutivesecurities1
Stockoptions — 9,263 14,950 —
Dilutedweightedaveragenumberof
sharesoutstanding 110,993,240 109,929,150 110,803,748 109,734,405
TotalcommonsharesoutstandingatJune30 110,993,240 109,924,857 110,993,240 109,924,857
TotalpotentialdilutedcommonsharesatJune30 115,092,032 114,166,444 115,092,032 114,166,444
1Dilutedearningspersharewasdeterminedusingthebasicweightedaveragesharesoutstandingratherthanthedilutedweighted average sharesoutstanding as the effects of dilutive securitieswouldhavebeen anti-dilutive inperiodswheretheCorporationhasanetloss.
13 NON-CONTROLLINGINTERESTS
Thecompositionofthenon-controllinginterests(“NCI”)isasfollows:
AgbaouGoldOperationsSA
(AgbaouMine)15%
SocietedesMinesd'Ity(ItyMine)
15%
RiverstoneKarmaSA
(KarmaMine)10%
HoundéGoldOperations
10%
SocietedesMinesd'Orde
Kalana(Kalana
Project)20%
Total
AtDecember31,2018 50,473 16,405 11,983 6,944 522 86,327
AcquisitionofNCI — (4,101) — — — (4,101)
Netearnings 8,026 11,553 2,019 960 — 22,558
Dividenddistribution (5,064) — — (1,090) — (6,154)
AtDecember31,2019 $ 53,435 $ 23,857 $ 14,002 $ 6,814 $ 522 $ 98,630
Netearnings 5,296 11,270 2,213 5,299 — 24,078
AtJune30,2020 $ 58,731 $ 35,127 $ 16,215 $ 12,113 $ 522 $ 122,708
Forsummarizedinformationrelatedtothesesubsidiaries,refertoNote17,SegmentedInformation.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
18
i. AcquisitionofinterestinIty
OnMay19,2017,theCorporationacquiredanadditional25%stakeinSociétédesMinesd'Ityfromoneofthenon-controllingintereststherebyincreasingitsownershipto80%forconsiderationof$54.4millionanda$5perounceroyalty foranyadditional reservesaddedsubsequenttoDecember31,2016.Duringthefirstquarterof2020, theCorporationpaid$5.4millionaspartofthistransactionofwhichonly$5millionwasinitiallyrecordedaspartoftheinvestment. The additional $0.4million has been disclosed in the Statement of Changes in Equity for the periodended30June2020.
OnJanuary11,2019,theCorporationincreaseditsownershipstakeintheItyMinefrom80%to85%.Inexchangefor the additional 5% interest in the Itymine (relating to the Société desMines d'Ity and Société desMines deDaapleuentities),theCorporationgrantedtheminorityshareholder1,072,305commonshareswithavalueof$17.6millioninadditiontoa$0.5millioncashpayment.
Followingthistransaction,theCorporationowns85%oftheItymine,withtheGovernmentofCoted’Ivoireowning10%andSODEMI(agovernmentownedminingcompany)owningtheremaining5%.
14 LOSSONFINANCIALINSTRUMENTS
THREEMONTHSENDED SIXMONTHSENDED
Note June30,2020
June30,2019
June30,2020
June30,2019
Gainonotherfinancialinstruments 535 566 590 1,216ChangeinvalueofreceivableatFVTPL 3 (175) — (307) —Realizedgainonforwardcontract 15 — — 6,686 —Lossongoldrevenueprotectionprogram 15 (10,171) (11,171) (21,156) (12,013)Unrealized(loss)/gainonconvertibleseniorbondderivative 10 (63,893) (4,461) (61,218) 3,875Gain/(loss)onforeignexchange 1,773 3,309 (18) (3,712)Totallossonfinancialinstruments $ (71,931)$ (11,757)$ (75,423)$ (10,634)
15 DERIVATIVEFINANCIALINSTRUMENTS
Thefollowingtablesummarizesthederivativefinancialliabilities:
June30,2020
December31,2019
Goldrevenueprotectionstrategy — (10,349)Derivativefinancialliabilities,currentportion $ — $ (10,349)
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
19
Thefollowingtablesummarizesthe(loss)/gainonderivativefinancialassets/(liabilities)thathavebeenrecognizedthroughthecondensedinterimconsolidatedstatementofcomprehensive(loss)/earnings:
THREEMONTHSENDED SIXMONTHSENDED
June30,2020
June30,2019
June30,2020
June30,2019
Realizedlossongoldrevenueprotectionstrategyi (10,171) (802) (21,156) (937)
Realizedgainonforwardcontractii — — 6,686 —
Unrealizedlossongoldrevenueprotectionstrategyi — (10,369) — (11,076)
Lossonderivativefinancialinstruments $ (10,171)$ (11,171)$ (14,470)$ (12,013)
i. Goldrevenueprotectionstrategy
IntheyearendedDecember31,2019,theCorporation’sdeferredpremiumcollarstrategyforthe15-monthperiodfromFebruary2018toApril2019expired.Overthelifeofthecollar,theCorporationrealizedagainof$5.1million.
IntheyearendedDecember31,2019,theCorporationimplementedadeferredpremiumcollarstrategy(“Collar”)usingwrittencalloptionsandboughtputoptionsforthe12-monthperiodfromJuly2019toJune2020.Theprogramcoveredatotalof360,000ounces,representingapproximately50%ofEndeavour’stotalestimatedgoldproductionfortheperiod,withanaveragefloorpriceof$1,358andaceilingpriceof$1,500.
InthesixmonthsendedJune30,2020,theCorporation'sdeferredpremiumcollarstrategyforthe12-monthperiodfromJuly2019toJune2020expired.Overthelifeofthecollar,theCorporationrealizedalossof$35.9million.
TheCollarwasnotdesignatedasahedgebytheCorporationandwasrecordedatitsfairvalueattheendofeachreporting period with changes in fair value recorded in the condensed interim consolidated statement ofcomprehensive(loss)/earnings.
ThetotalpremiumpaidforenteringintotheCollarof$8.7millionwasincludedaspartoftheCollarfairvalueandwas cash-settled on a net basis as monthly contracts matured. In the six months ended June 30, 2020, theCorporation paid $19.5 million for settlements of the Collar, included in realized gains and losses on derivativefinancialinstruments.
ii. Forwardcontract
OnMarch9,2020,theCorporationenteredintoagoldforwardcontracttomanagetheriskofchangesinthemarketpriceofgold.Under thegold forwardcontract, theCorporationbought73,919ouncesofgoldatanaveragegoldpricesof$1,590perounce.OnMarch30,2020,theCorporationexitedthegoldforwardcontractatafinalgoldpriceof$1,681perounceresultinginarealizedgainof$6.7million.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
20
16 INCOMETAXES
The Corporation operates in numerous countries, and accordingly it is subject to, and pays annual income taxesunder the various income tax regimes in the countries in which it operates. The Corporation is not subject tocorporate taxation in the Cayman Islands. However, the taxable earnings of the corporate entities in Barbados,BurkinaFaso,Canada,Côted’Ivoire,Mali,Monaco,France,LuxembourgandtheUnitedKingdomaresubjecttotaxunder the tax law of the respective jurisdiction. From time to time the Corporation is subject to a review of itsincome tax filings and in connection with such reviews, disputes can arise with the taxing authorities over theinterpretationorapplicationofcertainrulestotheCorporation'sbusinessconductedwithinthecountryinvolved.IftheCorporationisunabletoresolveanyofthesemattersfavorably,theremaybeamaterialadverseimpactontheCorporation'sfinancialperformance,cashflowsorresultsofoperations.Intheeventthatmanagement'sestimateofthe future resolution of these matters change, the Corporation will recognize the effects of the changes in itscondensedinterimconsolidatedfinancialstatementsintheperiodthatsuchchangesoccur.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
21
17 SEGMENTEDINFORMATION
The Corporation operates in three principal countries, Burkina Faso (Karma and Houndé mines), Côte d’Ivoire(Agbaou and Ity mines), and Mali (Kalana Project). The following table provides the Corporation’s results byoperating segment in theway information is provided to and used by the Corporation’s chief operating decisionmaker, which is the CEO, tomake decisions about the allocation of resources to the segments and assess theirperformance.
THREEMONTHSENDEDJUNE30,2020AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéMineBurkinaFaso
Other Total
RevenueGoldrevenue 43,503 79,419 29,973 100,189 — 253,084
CostofsalesOperatingexpenses (20,080) (29,702) (15,296) (36,304) (1,926) (103,308)
Depreciationanddepletion (8,295) (8,466) (11,318) (13,726) (1,955) (43,760)
Royalties (2,464) (4,453) (2,828) (8,026) — (17,771)
Earnings/(Loss)frommineoperations 12,664 36,798 531 42,133 (3,881) 88,245
Corporatecosts — — — — (5,049) (5,049)
Acquisitionandrestructuringcosts — — — — (2,589) (2,589)
Share-basedpayments — — — — (4,942) (4,942)
Exploration — — — — (1,796) (1,796)
Earnings/(Loss)fromoperations 12,664 36,798 531 42,133 (18,257) 73,869
Otherincome/(expenses)
Gain/(Loss)onfinancialinstruments 326 2,133 108 (652) (73,846) (71,931)
Financecosts (164) (610) (95) (823) (10,290) (11,982)
Otherincome/(expenses) 14 23 1,522 (6) (3,344) (1,791)
Earnings/(Loss)beforetaxes 12,840 38,344 2,066 40,652 (105,737) (11,835)
Currentincometax(expense)/recovery (2,050) (2,232) 4,479 (2,510) — (2,313)
Deferredincometax(expense)/recovery (2,871) (1,907) 1,539 (5,229) — (8,468)
Netearnings/(loss)fromcontinuingoperations $ 7,919 $ 34,205 $ 8,084 $ 32,913 $ (105,737) $ (22,616)
THREEMONTHSENDEDJUNE30,2019AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéMineBurkinaFaso
Other Total
RevenueGoldrevenue 45,108 82,208 21,042 71,013 — 219,371
CostofsalesOperatingexpenses (22,891) (30,122) (16,617) (33,688) — (103,318)
Depreciationanddepletion (12,207) (10,498) (11,564) (16,243) (1,458) (51,970)
Royalties (1,712) (3,028) (1,822) (4,470) — (11,032)
Earnings/(Loss)frommineoperations 8,298 38,560 (8,961) 16,612 (1,458) 53,051
Corporatecosts — — — — (5,143) (5,143)
Share-basedpayments — — — — (4,385) (4,385)
Exploration — — — — (1,674) (1,674)
Earnings/(Loss)fromoperations 8,298 38,560 (8,961) 16,612 (12,660) 41,849
Otherincome/(expenses)
Gain/(Loss)onfinancialinstruments (655) 923 (506) 606 (12,125) (11,757)
Financecosts (151) (632) (70) (1,135) (10,398) (12,386)
Otherincome/(expenses) — — — — 4,574 4,574
Earnings/(Loss)beforetaxes 7,492 38,851 (9,537) 16,083 (30,609) 22,280
Currentincometax(expense)/recovery (2,819) (14,002) — 3,402 (426) (13,845)
Deferredincometax(expense)/recovery (2,846) 611 (3) 707 — (1,531)
Netearnings/(loss)fromcontinuingoperations $ 1,827 $ 25,460 $ (9,540) $ 20,192 $ (31,035) $ 6,904
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
22
SIXMONTHSENDEDJUNE30,2020AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéMineBurkinaFaso
Other Total
Revenue
Goldrevenue 87,084 180,142 66,735 189,025 — 522,986
Costofsales
Operatingexpenses (38,391) (64,932) (34,055) (78,407) (1,926) (217,711)
Depreciationanddepletion (17,896) (19,145) (24,986) (30,129) (4,133) (96,289)
Royalties (4,797) (9,216) (6,079) (15,131) — (35,223)
Earnings/(Loss)frommineoperations 26,000 86,849 1,615 65,358 (6,059) 173,763
Corporatecosts — — — — (10,280) (10,280)
Acquisitionandrestructuringcosts — — — — (6,919) (6,919)
Share-basedpayments — — — — (6,565) (6,565)
Exploration — — — — (3,129) (3,129)
Earnings/(Loss)fromoperations 26,000 86,849 1,615 65,358 (32,952) 146,870
Otherincome/(expenses)
(Loss)/Gainonfinancialinstruments (467) 1,782 (144) (295) (76,299) (75,423)
Financecosts (323) (1,363) (134) (1,749) (20,075) (23,644)
Other(expenses)/income — 23 1,522 (13) (1,388) 144
Earnings/(Loss)beforetaxes 25,210 87,291 2,859 63,301 (130,714) 47,947
Currentincometax(expense)/recovery (6,743) (14,473) 4,209 (9,004) (1) (26,012)
Deferredincometax(expense)/recovery (2,584) (1,361) 351 (5,494) — (9,088)
Netearnings/(loss)fromcontinuingoperations $ 15,883 $ 71,457 $ 7,419 $ 48,803 $ (130,715) $ 12,847
SIXMONTHSENDEDJUNE30,2019AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéProjectBurkinaFaso
Other Total
Revenue
Goldrevenue 89,156 87,694 45,315 148,516 — 370,681
Costofsales
Operatingexpenses (40,326) (38,631) (41,029) (71,695) — (191,681)
Depreciationanddepletion (20,793) (10,498) (22,518) (31,920) (2,373) (88,102)
Royalties (3,415) (3,229) (3,634) (9,743) — (20,021)
Earnings/(Loss)frommineoperations 24,622 35,336 (21,866) 35,158 (2,373) 70,877
Corporatecosts — — — — (11,204) (11,204)Share-basedpayments — — — — (6,985) (6,985)Exploration — — — — (6,035) (6,035)Earnings/(Loss)fromoperations 24,622 35,336 (21,866) 35,158 (26,597) 46,653
Otherincome/(expenses)
Lossonfinancialinstruments (1,627) (1,542) (1,313) (1,303) (4,849) (10,634)Financecosts (342) (473) (140) (2,354) (13,996) (17,305)Other(expenses)/income — 301 — — 4,076 4,377Earnings/(Loss)beforetaxes 22,653 33,622 (23,319) 31,501 (41,366) 23,091Currentincometax(expense)/recovery (7,570) (15,311) — (1,756) (2,686) (27,323)Deferredincometax(expense)/recovery (948) (1,279) 5,095 (3,175) — (307)Netearnings/(loss)fromcontinuingoperations $ 14,135 $ 17,032 $ (18,224) $ 26,570 $ (44,052) (4,539)
Segmentrevenuereportedrepresentsrevenuegeneratedfromexternalcustomers. Therewereno inter-segmentsalesduringtheperiodsendedJune30,2020orJune30,2019.
TheCorporationisnoteconomicallydependentonalimitednumberofcustomersforthesaleofgoldbecausegoldcanbesoldthroughnumerouscommoditymarkettradersworldwide.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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The Corporation’s assets and liabilities, including geographic location of those assets and liabilities, are detailedbelow:
ASATJUNE30,2020AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéMineBurkinaFaso
Other Total
Mininginterests 107,830 425,640 131,067 447,401 312,393 1,424,331
Currentassets 104,290 103,652 91,260 158,161 114,679 572,042
Otherlong-termassets 5,913 20,071 3,076 18,291 9,520 56,871
Deferredtaxassets — 3,529 351 — — 3,880
Totalassets $ 218,033 $ 552,892 $ 225,754 $ 623,853 $ 436,592 $2,057,124
Currentliabilities 37,357 65,446 26,701 75,440 44,414 249,358
Long-termliabilities 9,558 32,099 10,193 31,141 833,223 916,214
Deferredtaxliabilities 1,975 — — 29,759 25,719 57,453
Totalliabilities $ 48,890 $ 97,545 $ 36,894 $ 136,340 $ 903,356 $1,223,025
ASATDECEMBER31,2019AgbaouMine
Côted’Ivoire
ItyMine
Côted’Ivoire
KarmaMine
BurkinaFaso
HoundéMineBurkinaFaso
Other Total
Mininginterests 119,297 415,897 154,415 443,384 277,281 1,410,274
Currentassets 81,838 84,580 68,275 118,006 43,339 396,038
Otherlong-termassets 5,843 22,714 2,709 15,840 13,875 60,981
Deferredtaxassets 609 4,889 — — — 5,498
Totalassets $ 207,587 $ 528,080 $ 225,399 $ 577,230 $ 334,495 $1,872,791
Currentliabilities 42,997 56,695 38,022 77,166 53,135 268,015
Long-termliabilities 9,793 38,321 7,669 37,434 645,077 738,294
Deferredtaxliabilities — — — 24,266 25,719 49,985
Totalliabilities $ 52,790 $ 95,016 $ 45,691 $ 138,866 $ 723,931 $1,056,294
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18 CAPITALMANAGEMENT
TheCorporation’sobjectivesofcapitalmanagementaretosafeguardtheentity’sabilitytosupporttheCorporation’snormal operating requirements on an ongoing basis, continue the development and exploration of its mineralpropertiesandsupportanyexpansionaryplans.
Inthemanagementofcapital, theCorporation includesthecomponentsofequity, financeobligations,derivativesandlong-termdebt,netofcashandcashequivalents,restrictedcashandmarketablesecurities.
Capital,asdefinedabove,issummarizedinthefollowingtable:
June30,2020
December31,2019
Equity 834,099 816,497
Long-termdebt 826,117 638,980
Financeobligations 76,101 86,834
Derivativefinancialliabilities — 10,349
1,736,317 1,552,660
Less:
Cashandcashequivalents (351,817) (189,889)
Cash-restricted (13,115) (9,958)
Marketablesecurities (1,839) (1,224)
Total $1,369,546 $1,351,589
TheCorporationmanages itscapitalstructureandadjusts itconsideringchanges in itseconomicenvironmentandthe risk characteristics of the Corporation’s assets. To effectively manage the entity’s capital requirements, theCorporation has in place a planning, budgeting and forecasting process to help determine the funds required toensuretheCorporationhastheappropriateliquiditytomeetitsoperatingandgrowthobjectives.TheCorporationisnotsubjecttoanyexternallyimposedcapitalrequirementswiththeexceptionofcomplyingwithcovenantsundertheRCF.AsatJune30,2020andDecember31,2019,theCorporationwasincompliancewiththesecovenants.
19 FINANCIALINSTRUMENTS
i. Financialassetsandliabilities
The Corporation’s financial instruments consist of cash, restricted cash, marketable securities, trade and otherreceivables, working capital loan, long term receivable, trade and other payables, derivative financial assets/liabilities, finance obligations and current and long-term debt. The fair value of these financial instrumentsapproximatestheircarryingvalue,unlessotherwisenotedbelow,exceptfortheconvertiblenote,whichhasafairvalueofapproximately$389.2million(December31,2019-$351.5million).
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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The Corporation has certain financial assets and liabilities that are held at fair value. The fair value hierarchyestablishesthreelevelstoclassifytheinputstovaluationtechniquestomeasurefairvalue:
Classificationoffinancialassetsandliabilities
Level1–quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities;
Level2–inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,eitherdirectly(thatis,asprices)orindirectly(thatis,derivedfromprices);and
Level3–inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservableinputs).
As at each of June 30, 2020 and December 31, 2019, the levels in the fair value hierarchy into which theCorporation’s financial assets and liabilities measured and recognized in the condensed interim consolidatedstatementoffinancialpositionatfairvaluearecategorizedasfollows:
ASATJUNE30,2020
NoteLevel1Input
Level2Input
Level3Input
AggregateFairValue
Assets:
Cash 351,817 — — 351,817
Cash-restricted 13,115 — — 13,115
ReceivableforsaleofTabakotomine 7 — — 8,822 8,822
Marketablesecurities 1,839 — — 1,839
Total $ 366,771 $ — $ 8,822 $ 375,593
Liabilities:
ConversionoptiononNotes 10 — (92,657) — (92,657)
Total $ — $ (92,657)$ — $ (92,657)
ASATDECEMBER31,2019
NoteLevel1Input
Level2Input
Level3Input
AggregateFairValue
Assets:
Cash 189,889 — — 189,889
Cash-restricted 9,958 — — 9,958
ReceivableforsaleofNzemamine 3 — — 7,163 7,163
ReceivableforsaleofTabakotomine 7 — — 13,322 13,322
Marketablesecurities 1,224 — — 1,224
Total $ 201,071 $ — $ 20,485 $ 221,556
Liabilities:
ConversionoptiononNotes 10 — (31,439) — (31,439)
Derivativefinancialinstruments 15 — (10,349) — (10,349)
Total $ — $ (41,788)$ — $ (41,788)
There were no transfers between level 1 and 2 during the year. The fair value of level 3 financial assets wasdeterminedusingaMonteCarlovaluationmethod,takingintoaccountassumptionswithrespecttogoldpricesanddiscountratesaswellasestimateswithrespecttoproductionandoperatingresultsatthedisposedmine.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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ii. Financialinstrumentriskexposure
TheCorporation’sactivitiesexpose it toavarietyof risks thatmay includecredit risk, liquidity risk, currency risk,interest rate risk andotherprice risks, includingequityprice risk. TheCorporationexamines thevarious financialinstrumentriskstowhichitisexposedandassessesanyimpactandlikelihoodofthoserisks.
CreditRisk
CreditriskistheriskthatthecounterpartytoafinancialinstrumentwillcauseafinanciallossfortheCorporationbyfailingtodischargeitsobligations.Creditriskarisesfromcash,restrictedcash,marketablesecurities,tradeandotherreceivables,long-termreceivableandotherassets.
TheCorporationcloselymonitors its financialassetsanddoesnothaveanysignificantconcentrationofcreditriskother than receivable balances owed from the governments in the countries the Corporation operates in and itsreceivablefromtheBCMGroup.
BCMGroup,aprivateminingcontractorandoperator, isthecounterpartywhoacquiredtheNzemaandTabakotominesin2017and2018respectively,andfromwhomthereceivablesareultimatelydue.TheCorporationsignedanomnibus settlement agreement in November 2019, which offset certain amounts outstanding between the twoparties,resultingincashinstallmentsof$6.8millionreceivedin2020relatingtothesaleofNzemamine.FurthertoadditionalamountspaidonbehalfofBCMGroupintheperiod,theCorporationreceived$4.5millioninthethreemonthsendedMarch31,2020,inrelationtothereceivablefromthesaleoftheTabakotomine.
Long-termreceivablesof$8.8millionmainlyconsistofareceivableandNSRassociatedwiththesaleoftheTabakotomineinDecember2018.TheCorporationsellsitsgoldtolargeinternationalorganizationswithstrongcreditratings,andthehistoricallevelofcustomerdefaults isminimal.Asaresult,thecreditriskassociatedwithgoldtradereceivablesatJune30,2020isconsideredtobenegligible.TheCorporationdoesnotrelyonratingsissuedbycreditratingagenciesinevaluatingcounterparties’relatedcreditrisk.
TheCorporation’smaximumexposuretocreditriskisasfollows:
June30,2020
December31,2019
Cash 351,817 189,889
Tradeandotherreceivables 3 37,562 19,228
Workingcapitalloan 7 565 541
Marketablesecurities 1,839 1,224
Long-termreceivable 7 8,822 13,322
RestrictedCash 7 13,115 9,958
Total $ 413,720 $ 234,162
LiquidityRisk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with itsfinancialliabilitiesthataresettledbydeliveringcash,physicalgoldoranotherfinancialasset.TheCorporationhasaplanningandbudgetingprocessinplacetohelpdeterminethefundsrequiredtosupporttheCorporation’snormaloperatingrequirements.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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ThefollowingtablesummarizestheCorporation’sliabilitiesthathavecontractualmaturitiesasatJune30,2020:
Within1year
2to3years
4to5years
Over5years
Total
Tradeandotherpayables 166,977 — — — 166,977
Corporateloanfacility — 430,000 — — 430,000
Convertibleseniorbond 9,900 349,800 — — 359,700
Leaseliabilities 5,850 3,968 1,354 966 12,138
Financearrangements 29,841 35,691 5,550 — 71,082
Total $ 212,568 $ 819,459 $ 6,904 $ 966 $1,039,897
iii. Marketrisks
CurrencyRisk
CurrencyriskrelatestotheriskthatthefairvaluesorfuturecashflowsoftheCorporation’sfinancial instrumentswillfluctuatebecauseofchangesinforeignexchangerates.ExchangeratefluctuationsmayaffectthecoststhattheCorporation incurs in its operations. There has been no change in the Corporation’s objectives and policies formanagingthisriskduringtheperiodendedJune30,2020.
TheCorporationhasnothedgeditsexposuretoforeigncurrencyexchangerisk.
Thetablebelowhighlightsthenetassetsheldinforeigncurrencies,presentedinUSdollars:
June30,2020
December31,2019
Canadiandollar 124 309
CFAFrancs 5,461 26,615
Euro 2,892 919
Othercurrencies 5,691 2,707
Total $ 14,168 $ 30,550
The effect on earnings before taxes as at June 30, 2020, of a 10% appreciation or depreciation in the foreigncurrencies against the US dollar on the abovementioned financial and non-financial assets and liabilities of theCorporation is estimated to be $1.4 million (December 31, 2019, $3.1 million), if all other variables remainedconstant.ThecalculationisbasedontheCorporation’sstatementoffinancialpositionasatJune30,2020.
InterestRateRisk
Interestrateriskistheriskthatfuturecashflowsfrom,orthefairvaluesof,theCorporation’sfinancialinstrumentswillfluctuatebecauseofchangesinmarketinterestrates.TheCorporationisexposedtointerestrateriskprimarilyonitslong-termdebt.Sincemarketablesecuritiesandgovernmenttreasurysecuritiesheldasloansareshortterminnature and are usually held to maturity, there is minimal fair value sensitivity to changes in interest rates. TheCorporation continually monitors its exposure to interest rates and is comfortable with its exposure given therelativelylowshort-termUSinterestratesandLIBOR.
TheeffectonearningsandothercomprehensivelossbeforetaxasatJune30,2020,ofa10%changeintheLIBORrateontheRCFisestimatedtobe$0.1million(December31,2019-$0.1million).
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PriceRisk
PriceriskistheriskthatthefairvalueorfuturecashflowsoftheCorporation’sfinancialinstrumentswillfluctuatebecause of changes inmarket prices. There has been no change in the Corporation’s objectives and policies formanaging this riskandnosignificantchanges to theCorporation’sexposure toprice riskduring theperiodendedJune30,2020.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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20 COMMITMENTSANDCONTINGENCIES
• TheCorporationhascommitments inplaceatall fourof itsminesandotherkeyprojectsfordrillandblastingservices,loadandhaulservices,supplyofexplosivesandsupplyofhydrocarbonservices.
• The Corporation is, from time to time, involved in various claims, legal proceedings, tax assessments andcomplaints arising in the ordinary course of business from third parties. The Corporation cannot reasonablypredictthelikelihoodoroutcomeoftheseactions.TheCorporationdoesnotbelievethatadversedecisionsinanyotherpendingorthreatenedproceedingsrelatedtoanymatter,oranyamountwhichmayberequiredtobepaidbyreasonthereof,willhaveamaterialeffectonthefinancialconditionorfutureresultsofoperations.
• The Corporation was recently served in the Cayman Islands with notice of a claim by a former serviceprovider.TheCorporationistakinglegaladviceonthemeritsoftheclaimandtheprobableoutcomebutintendstovigorouslydefendagainst the claims.TheCorporationdoesnotbelieve that theoutcomeof the claimwillhaveamaterialimpacttoCorporation’sfinancialposition.
• TheCorporation’sminingandexplorationactivities are subject to various lawsand regulations governing theprotectionoftheenvironment.Theselawsandregulationsarecontinuallychangingandaregenerallybecomingmore restrictive.TheCorporationbelieves itsoperationsarematerially in compliancewithall applicable lawsand regulations. TheCorporationhasmade, andexpects tomake in the future, expenditures to complywithsuchlawsandregulations.
• The Corporation is obligated to deliver 100,000 ounces of gold (20,000 ounces per year) to Franco-NevadaCorporationandSandstormGoldInc.(the“Syndicate”)overafive-yearperiodinexchangefor20%ofthespotprice of gold for each ounce of gold delivered (the “ongoing payment”). The amount that was previouslyadvancedforthisagreementof$100.0millionisreducedoneachdeliverybytheexcessofthespotpriceofthegolddeliveredovertheongoingpayment.Followingthefive-yearperiod,whichcommencedonMarch31,2016,theCorporationiscommittedtodeliverrefinedgoldequalto6.5%ofthegoldproductionattheKarmaMineforthe lifeof themine inexchange forongoingpayments.TheCorporationdeliveredanadditional7,500ouncesbetween July2017andApril2019 inexchange foranadditionaldepositof$5.0million received in2017.TheCorporationassumedthegoldstreamwhenitacquiredtheKarmaMineonApril26,2016.Goldouncessoldtothe Syndicate under the stream agreement are recognized as revenue only on the actual proceeds received,whichpertheagreementis20%ofthespotgoldprice.AsatJune30,2020,thereare16,665ouncesstilltobedelivered.
21 SUBSEQUENTEVENTS
AcquisitionofSEMAFOinc.
On July 1, 2020, theCorporation successfully completed the acquisitionof SEMAFO inc.Under the termsof theagreement,SEMAFOshareholdersreceived0.1422ofanEndeavourshareforeachSEMAFOcommonshareheld.Intotal, 47,561,205 Endeavour common shares were issued to the SEMAFO shareholders. Based on Endeavour'sclosingsharepriceasatJune30,2020,totalestimatedconsiderationfortheacquisitionwas$1.2billion.Asaresultoftheacquisition,SEMAFOhasbecomeawholly-ownedsubsidiaryofEndeavour.
SEMAFO Inc. is a Canadian-based intermediate gold producer with over twenty years’ experience building andoperatingminesinWestAfrica.SEMAFOInc.operatestwomines,theManaandBoungouMinesinBurkinaFaso.TheadditionofSEMAFO's twooperatingminesandhighqualityexplorationprojectsadvances theCorporation'sgoalofbecomingaleadingWestAfricangoldproducer.
TheCorporationhasidentifiedthatthistransactionconstitutesabusinesscombinationintermsofIFRS3BusinessCombinationswithEndeavourastheacquirer.FromJuly1,2020,theoperatingresults,cashflowsandnetassetsofSEMAFOIncwillbeconsolidatedwiththatofEndeavour.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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Theassetsacquiredconsistprimarilyofinventories,property,plantandequipmentandmininginterestrelatedtotheBoungouandManamines,andcashandcashequivalents.Atthedateofissuanceofthefinancialstatements,the initialbusinesscombinationaccountingforthepreliminarydeterminationofthefairvalueofacquiredassetsand assumed liabilities and any goodwill which may arise on the transaction was not complete. As a result, apreliminarypurchasepriceallocationhasnotbeendisclosed.
SharesissuedtoLaManchaHoldingS.A.R.L
On July 3, 2020, the Corporation issued a total of 4,507,720 ordinary shares in the capital of Endeavour to LaManchaHoldingS.A.R.L("LaMancha")foraggregatenetproceedsof$100.0million.Followingtheinvestment,theCorporationnowhas163,062,165sharesoutstandingwithLaManchaholdinganinterestofapproximately24.1%.
PartialrepaymentoftheRCF
OnAugust3,2020,theCorporationmadeavoluntaryrepaymentof$60.0millionontheRCFreducingthebalanceoutstandingasatAugust5,2020,to$370.0million.
ENDEAVOURMININGCORPORATIONNotestotheCondensedInterimConsolidatedFinancialStatements(ExpressedinThousandsofUnitedStatesDollars,exceptpershareamounts)
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