The companies that make up the FTSE 100 index aren’t fixed. Firms can drop down to the FTSE 250 due to a low market capitalisation, and can be replaced by stocks doing very well. Evidence of this has been seen with Evraz and Polymetal International falling out, with one replacement being Endeavour Mining (LSE: EDV). So with this new kid on the block in the FTSE 100 now, should I be interested in buying Endeavour Mining shares?
Digging deeper into the newcomer
The company mines for gold at several sites in West Africa. It currently has four major mines. It also has various development and exploration projects dotted around that could yield results in coming years.
In terms of financials, the business has been growing for several years. In the 2021 report, it stated that it was the “ninth consecutive year of achieving or beating annual production and AISC guidance”.
EBITDA for the year jumped 115% to $1.1bn, up from $530m in 2020. I accept that any comparable results from the pandemic in 2020 need to be taken with a pinch of salt. Yet the business looks in good shape. For example, it generated $1.2bn in operating cash flow during the year, something that aided an increase in the dividend payments.
Even though the dividend yield is only 2.18%, it bodes well for coming years if this trajectory can continue or even be enhanced. This would help Endeavour Mining shares rally as income investors jump in.
My thoughts on Endeavour Mining shares
Even though Endeavour has benefited from exposure to the mining sector since 2010, it only went public last year on the London Stock Exchange. It should be noted that it also has a listing on the Toronto Stock Exchange.
Even though I don’t have a full-year of share price data for the UK listing, I do note that Endeavour Mining shares are volatile. The stock is up 11% over six months, but has seen a trade high of 2,150p and a low of 1,505p. This swing in excess of 40% isn’t for the fainthearted!
The price-to-earnings ratio is 10.37, which is below the FTSE 100 average. Endeavour Mining shares going forward will also be priced not just on earnings, but also on the gold price.
Personally, I think that the gold price could rally later this year. High inflation leads to investors wanting to hold something other than currency, which can devalue. Gold is a good option instead.
Yet there are risks to buying the shares now, such as the politics in the developing countries where Endeavour does business. Countries such as the Ivory Coast are not known for stability, and there are plenty of issues that could disrupt business.
On balance, I think that Endeavour Mining is a solid company. However, I don’t see anything to really get me excited right now. When coupled with the limited public trading history, I’m going to wait for the time being before considering any investment.
