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Endomines Annual Report 2022
3155_rns_2023-02-15_39aff300-e1ac-4ff0-906a-3b24875d5036.pdf
Annual Report
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ENDOMINES
Financial statements release
2022
15 February 2023
Contents
We are a Finnish forerunner in sustainable mining
Key events during the 2022 financial year
Consolidated key figures
Group's financial position H2/2022
CEO's review
Strategy
Strategy implementation
Outlook for the financial year 2023
Market development
Gold production at Pampalo
A strategic shift in the US
Cash flow and financing H2/2022
Business risks
Shares and shareholders
Key events after the review period
Investor calendar
Accounting principles
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated changes of shareholder's equity
Consolidated cash flow
Notes to financial information
We are a Finnish forerunner in sustainable mining
Our mining operations focus on gold production in Pampalo in the Ilomantsi region and on exploration along the Karelian Gold Line in eastern Finland. Our vision is to make the Karelian Gold Line one of the world's most significant and most sustainable gold production areas.
Our mission is to increase awareness of the availability of sustainably produced gold
The accelerating change in consumers values is shaping our operations towards the core of our strategy: sustainability. Our mission is to increase the awareness of consumers, goldsmiths and electronics manufacturers of the availability of a more ecologically produced raw material – and thereby create more demand for the gold that we produce.
We provide sustainably produced gold for the needs of the jewellery and electronics industries. Our operations create value by turning natural resources into wealth that, as an investment, sustains fluctuations in global politics and brings prosperity and well-being to Finland. Our expertise in the value chain for gold production increases our national economic significance.
Our operations focus on the Karelian gold line
Our growth is based on using the known gold reserves of the Karelian Gold Line and identifying new gold deposits, which brings predictability to our business operations. Our financial strategy allows us to accelerate our growth significantly,
while our operational efficiency and agility are among the best in the mining industry. We are a growth company, and our goal is to expand our operations in the Pampalo area.
Endomines is a growing mining company that embraces new ways of thinking
We are building our growth and competitiveness sustainably. As a forerunner in ethically produced metal and sustainable mining, we take responsibility for the impacts of our business operations on the environment and people. Our operations are centred around employees' safety and well-being, environmental responsibility, as well as good governance and ethical management in our company. We want to leave a positive footprint where we operate, which is why the gold we mine is always sustainable. It is our goal that the origin of our gold is always traceable.
Our day-to-day work is guided by our common values: humanity, openness and honesty. We are experts who keep their promises. Our operations have a strong local focus, which is reflected in our cooperation with local business owners and the local community. Through local cooperation, we can have an impact on the development of the Pampalo area and local well-being. With the importance of value-based partnerships increasing, we are the most valued partner and supplier of raw materials for our end customers and partners, and the most responsible and popular employer in our industry for our employees.
Key events during the 2022 financial year
H2/2022
- Gold production at Pampalo grew by 47.3% compared to January-June 2022 period, being 159.4 kg (5123 ounces).
- Pampalo EBITDA 0.5 MEUR (6.7% of revenue). Adjusted EBITDA, excluding the impact of prior periods, was MEUR 0.7 i.e. approximately 9.1% of revenue.
- New mid-term targets and ESG-program defined to support strategy implementation.
- Production started at East open pit.
- Redomicile project completed, and headquarters moved to Finland.
- Parent company listing to Nasdaq Helsinki main market.
- Initial public offering successfully completed with 13.0 MEUR gross proceeds.
- Positive drilling results confirming the continuation of underground mineralisation.
- New gold mineralisation discovered North of Pampalo.
Full Year 2022
- Full year production of 2675 kg (8601 ounces).
- Pampalo's EBITDA amounted to MEUR 0.6 (5.0% of revenue). EBITDA effected by low production volume during Q1 and by high inflation, lower gold price and high energy costs especially during Q4.
- New strategy focusing activities to Karelian gold line, Finland.
- USA operations restructured to lower the cost level significantly.
- Organizational development to match the new strategy.
- Stronger balance sheet as 9.0 MEUR of loans converted to shares.
- Rolling twelve-months LTI rate (lost-time injuries per one million working hours) of 77 at the end of Dec 2022.
- Large number of activities to build the foundation for the company, enabling future growth.
Q1/2022
- New CFO
- New CEO
- Focusing operations on the Karelian gold line
- Restarting the Pampalo mine
Q2/2022
- New strategy
- Reorganising operations in the United States
- Increasing production at Pampalo
- High-grade drilling results
Q3/2022
- New medium-term objectives
- Decision to open the Eastern open pit
- Exploration started at the Karelian gold line
Q4/2022
- Transfer of domicile from Sweden to Finland
- Listing on the Nasdaq Helsinki stock exchange
- Directed share issue
- Development of the ESG program
Consolidated key figures
| Hq. MEUR | 2022 | 2021 | FY, MEUR | 2022 | 2021 |
|---|---|---|---|---|---|
| Gold production in Pampalo (kg) | 159.4 | ||||
| (5123 ounces) | 0.0 | Gold production in Pampalo (kg) | 267.5 | ||
| (8601 ounces) | 0.0 | ||||
| Revenue | 7.9 | 0.0 | Revenue | 13.5 | 0.0 |
| Operational expense | -10.3 | -8.1 | Operational expense | -19.5 | -12.1 |
| EBITDA | -3.0 | -7.7 | EBITDA | -6.4 | -11.6 |
| Depreciation and write-downs | -2.5 | -8.1 | Depreciation and write-downs | -9.1 | -13.5 |
| EBIT | -5.4 | -15.7 | EBIT | -15.5 | -25.1 |
| Net result | -7.4 | -13.8 | Net result | -17.9 | -25.7 |
| Earnings per share (eur/share) | -0.79 | -1.49 | Earnings per share (eur/share) | -1.93 | -2.77 |
| Gearing ratio (%) | 19 | 56 | Gearing ratio (%) | 19 | 56 |
| Equity ratio (%) | 65 | 55 | Equity ratio (%) | 65 | 55 |
The share-specific key figures in the release have been reported according to the number of shares on 31 December 2022 also for the comparison period.
Group's financial position H2/2022
Revenue developed favourably during the review period as a result of the start-up of production at Pampalo. The result for the period was affected by the sharp increase in prices in the global market and the Nordic electricity market, as well as by non[1] recurring costs related to the transfer of domicile from Sweden to Finland, among other costs.
Revenue in the second half of the year was MEUR 7.9 (0.0). EBITDA being MEUR -3.0 (-7.7), and the change in EBITDA being MEUR 4.7. Profit and costs were affected by the start-up of operating activities at the Pampalo mine, the costs arising for the company from the transfer of its domicile from Sweden to Finland and its strategic focus on exploration at the Karelian gold line.
The operating profit amounted MEUR -5.4 (-15.7). Depreciation and impairment totalled MEUR -2.5 (-8.1), reflecting depreciation according to plan at the Pampalo mine following the start-up of operations. The operating expenses were MEUR -10.3 (-8.2). The increase is mainly due to the operational costs of the Pampalo mine, the transfer of domicile and the focus on exploration at the Karelian gold line. The net amount of the financial items was MEUR -1.9 (1.9). Net result amounted MEUR -7.4 (-13.8). Net earnings per share was -0.79 EUR (-1.49).
CEO's review:
After the 2022 changes, we are investing in growth with confidence
The year 2022 was very exceptional. The Russian invasion of Ukraine affected us all and caused uncertainty in people's daily lives and companies' business operations. The war in Ukraine had an impact on Endomines' business operations through high inflation and energy costs towards the end of 2022. Despite the challenging operating environment, our EBITDA for Pampalo improved during the second half of the year.
We focused on creating a solid foundation for future growth in 2022
We revised Endomines' strategy to shift the focus from operations in the United States to gold exploration and production in Finland. In connection with the revised strategy, we also determined our key operational objectives for 2023-2025.
The ramp-up of production at Pampalo progressed as planned in July-December. Our production increased by 47.3% during the second half of the year. Our EBITDA for Pampalo in July-December was EUR 0.5 million, being 6.7% of revenue. The adjusted EBITDA without the impact of previous periods amounted EUR 0.7 million, being around 9.1% of revenue.
The operating environment was challenging in the second half of 2022. Our energy costs doubled in July-December compared with the first half of the year, being EUR 1.8 million. In addition, general inflation and the decrease in the price of gold towards the end of the year had a negative impact on Pampalo's EBITDA. We believe that these impacts were temporary, and look ahead to 2023 with confidence.
In December 2022, we transferred the company's domicile to Finland, and now we can proudly say that we are a Finnish company. We are investing in Finland and especially in
Our vision is to make the Karelian gold line one of the world's most significant and most sustainable gold production areas. Our operations are centred around employees' safety and well-being and environmental responsibility, as well as good governance and ethical management in our company.
Pampalo, because our vision is to make the Karelian gold line one of the world's most significant and most sustainable gold production areas. In addition, the transfer of the company's domicile to Finland simplifies its structure and reduces administrative costs and number of employees.
Our initial public offering (IPO) in late 2022 was also an important step in establishing the company's foundation. The IPO reduced the company's debt and strengthened its balance sheet significantly. Major changes in the company's operations burdened its result in 2022. However, we believe that the changes were a necessary step towards profitable growth in Endomines' operations.
We are confident about 2023
We expect the production of gold to increase by 35–55% at Pampalo from 2022. We expect a considerable improvement in financial profitability, as the price of energy, for example, has decreased significantly from late 2022. In 2022, high inflation increased the cost level of our mining operations because of the rapid increase in cost indices. We have started measures to reduce the cost level in our mining operations, and we believe that we will achieve significant cost savings from June 2023 onwards. We also believe that the higher production level at Pampalo will improve our overall cost-effectiveness.
On the other hand, the recent development of the price of gold and the short-term outlook are very strong and thereby support the outlook for 2023.
A new ESG programme at the core of our operations
During 2022, we created an ESG programme for Endomines. The programme will strongly guide the company's operations. The programme is centred around employees' safety and well-being and environmental responsibility, as well as good governance and ethical management in our company. More information about this is provided on page 11.
Exploration at the Karelian gold line is an important part of our future operations
We started exploration drilling in the Karelian gold line area in late 2022. The area has high potential, and we see realistic opportunities to determine a significant deposit of more than 1 million ounces. A major deposit would enable investments in higher levels of production in the future, above the current medium-term target levels.
In addition, we are exploring previously unexplored areas in the Pampalo underground mine, 230–240 metres below the current production area. Research results show that the area has high gold concentrations. This confirms our understanding that gold mineralisation at Pampalo is extremely deep and enables a good foundation for our gold production in the coming years.
In line with our new strategy, we are promoting deposits in the United States through the partnership model and will not invest there significantly in the near future. We chose a team of advisors for this purpose in late 2022, and we believe that the partnership negotiations will be completed during 2023.
I would like to thank our employees for their good work. I would also like to thank our shareholders, partners and other stakeholders for an interesting year. We have made a difference, and it is great to move forward together towards our strategic goals.
Espoo 15 February 2023
Kari Vyhtinen
CEO, Endomines Finland plc
Strategy
We revised our business strategy during 2022. We believe that the strategy will create significant business growth while also increasing shareholder value. Our revised strategy shifts the focus from operations in the United States to gold production and exploration in Finland. Our revised strategy has the following four focus areas:
Production at Pampalo lays the foundation for business operations
Our production and processing plants are located in Pampalo in Ilomantsi. Its location in the middle of the Karelian gold line is optimal for our business operations, enabling us to centralise our gold production in our area of operation. The Pampalo processing plant has unused production capacity, which enables gold production to be expanded with the inclusion of gold reserves discovered in the current satellite deposits nearby. Our aim is to bring known nearby gold deposits to production.
Active exploration at the Karelian gold line to determine a deposit with gold resources of more than 1 million ounces
The Karelian gold line is seen as an area with extremely high potential for exploration. According to a study carried out by GTK (Geological Survey of Finland) in 2015, the probability that more than 1 million ounces of gold will be discovered at the Karelian gold line is more than 50%. In terms of its geological properties, the Karelian Gold Line area is very similar to many of the world's largest gold production areas, such as Kalgoorlie in Australia, Abitibi in Canada and Witwatersrand in South Africa. This illustrates the Karelian gold line's potential to become a significant gold deposit and production area. Through
There are four focus areas in our revised strategy:
- Production at Pampalo lays the foundation for business operations
- Exploration at the Karelian gold line to determine a deposit with gold resources of more than 1 million ounces
- Partnership model in the United States to increase local operational knowledge and funding
- Sustainable choices (ESG) guide our business operations
exploration, we seek to ensure the continuity of our mining operations and the company's long-term growth. Thanks to our production plant at Pampalo at the Karelian gold line and our extensive exploration rights, we have a strong position in the area.
Our view, based on previous studies and expert statements, is that the potential of the area is very significant. For example, in the Korvilansuo area, GTK carried out several studies in the 1980s and 1990s in which the samples contained considerable concentrations of gold. However, further studies in the region were interrupted for decades while Outokumpu and other organisations active in the region focused on other business operations. Our goal is to carry out extensive exploration in the region and focus on further studies in areas that have previously been determined to have potential.
Partnership model in the United States to increase local operational knowledge and funding
In our revised strategy, deposits in the United States are promoted through the partnership model. We currently hold rights of possession to seven gold deposits in the United States: five in Idaho and two in Montana. These rights were acquired between 2018 and 2020 at a total price of USD 44 million. Drilling has been carried out in the deposits and high gold concentrations have been discovered, but further drilling is needed to start production. This calls for significant additional investments in the areas. The areas have high production potential, as the known historical gold resources in Idaho are more than 500,000 ounces, and the nearby areas have significant exploration potential.
Endomines' revised strategy focuses on gold production and exploration at the Karelian gold line in Finland. Our goal is to find a local partner to create added value through local knowledge and funding. We are not planning significant investments in the United States in the near future.
Possible forms of implementation for operations in the United States include, for example, the following:
- Establishing a joint venture with a local operator that will bring operational experience and funding to the company.
- Selling certain deposits in full so that the buyer commits to their development through a royalty-based operating model.
- Selling certain deposits in part to a local operator so that Endomines remains a partial owner
- A combination of the above options
Sustainable choices (ESG) guide our operations
The mining industry has also realised the importance of ethical and transparent business operations – especially in advanced and stable operating environments such as Finland. Compared with the world's largest gold-producing countries, Finland offers clear benefits as a pioneer in sustainable mining. In 2018, the Fraser Institute listed Finland as the world's most attractive jurisdiction for mining investments. The assessment was based on the geological environment and the impact of legislative factors on people's attitudes towards mineral exploration.
In 2022, we started an ESG programme, which we identified as strategically important for us. Its short-term activities and long-term measures to achieve goals create the foundation for the company's future development. We want to be a forerunner in sustainable mining with new ways of thinking. Our operating principles focus on an environmentally sustainable gold production process, employees' and local residents' well-being, and transparency in all our operations in accordance with good governance.
Our goal-oriented journey to become a forerunner in sustainable mining began in 2022, when we determined the key focuses of our new ESG programme through a materiality analysis. Our journey continues in 2023 with practical measures to achieve our goals, as well as creating a roadmap for sustainable operations, so that we have clear guidelines for achieving our future goals.
We will provide more information about our ESG programme in our Annual Report, which will be published on 31 March 2023.
The environment
- Water recycling rate
- Water quality in mine area based on quarterly samples
- Measuring and reducing CO₂ emissions per ounce of gold produced
- Updating the mine's post-closure plan
People
- Number of accidents at work per year
- Well-being at work
- Open dialogue with stakeholders
- Support for local communities
Governance
- Operational risk management
- Openness of decision-making and communication
- Ethical operating model: code of conduct
Strategy implementation
Production at Pampalo as the foundation for business operations
Production at Pampalo increased significantly during 2022. Production volumes increased from 108.2 kg (3,478 ounces) in January–June to 159.4 kg (5,123 ounces) in July–December 2022.
The eastern open pit was opened in 2022, and the related development work started. This increased gold production at Pampalo by 7.7% between July and December. In 2023, we will continue to explore other known and permitted parts of the Karelian Gold Line to further increase Pampalo's production volumes.
Exploration at Karelian gold line
Preliminary exploration in the Karelian gold line area started in the autumn of 2022. The possible continuation of the underground mine below the current production area was studied at the same time. On 3 January 2023, we were able to report high-grade drilling results. (More information is provided under "Events after the review period".)
Partnership model in the United States
Our operations in the United States were reorganised. This led to a significant reduction in the cost of operations, enabling the careful identification of potential partners and partnership models. We selected advisors for the planning and implementation of the partnership model in late 2022.
Sustainability at the core of our business operations
We started our ESG programme towards the end of 2022. We carried out a materiality analysis to understand our stakeholders' expectations and the significance of the impacts of our business operations on the environment and people.
On this basis, we determined priorities and targets to promote the sustainable development of our business operations, as well as indicators to monitor the achievement of our targets. Our ESG programme includes short-term improvement measures and longer-term development needs.
The implementation of the strategy progressed as planned in 2022.
Outlook for the financial year 2023
- We expect the production of gold to increase by 35–55% at Pampalo from 2022.
- No production is expected to take place at the Friday mine.
- We expect our financial performance to improve considerably from 2022 for the following reasons:
- The positive development of energy prices and their positive outlook for 2023
- The positive development of the price of gold and its strong future outlook
- Lower production costs in the mine, especially during June–December
- The positive impact of higher production levels on unit costs
- The ESG programme guides the development of our company in various areas. Our operations are centred around employees' safety and well-being and environmental responsibility, as well as good governance and ethical management in our company. During 2023, we will also start measures to reduce our carbon footprint. We are aiming for a 5% reduction in our CO2 emissions (scope 1 and scope 2) during 2023 (CO2 per ounce of gold produced).
- Exploration at the Karelian gold line is an important part of our future operations. During the year, we will actively engage in exploration through the reprocessing of old exploration material, till samples and drilling.
- In our revised strategy, deposits in the United States are promoted through the partnership model. We believe that the partnership negotiations will be completed during 2023.
Market development
Market outlook
The market development of gold has been continuously driven by high inflation and interest rate hikes implemented by central banks, especially by the Fed in the United States, in an effort to prevent increases in consumer prices.
Periods of historically high inflation have been favourable for the price of gold, as investors have sought to shift their focus from fiat money to gold, which is known as a safe haven. Therefore, central banks' monetary policies to curb inflation play a key role in terms of the higher price of gold.
In trading, gold is denominated in dollars, which creates a reverse relationship with the dollar. When the US dollar increases in relation to other currencies, gold becomes more expensive, which reduces demand. On the other hand, when the US dollar decreases, the price of gold increases, because gold becomes less expensive for buyers outside the United States.
The price of gold rose sharply in late 2022 and during the first weeks of 2023. In the beginning of February showed a decline, although the price is expected to remain high for some time to come.
Price development of gold (USD)
Source: LBMA Precious Metal Prices, AM
Gold production at Pampalo
The revenue from gold production at Pampalo in the second half of 2022 was MEUR 7.5 (0.0), and the EBITDA MEUR 0.5 (-2.3). The operating costs related to production at Pampalo were EUR -7.0 (-2.3) in the second half of the year. There was no gold production or revenue in the comparison period. During the second half of 2021, costs arose from preparations related to production operations.
The reported revenue was MEUR 3.7 (0.0) in the third quarter and MEUR 3.8 (0.0) in the fourth quarter. Pampalo's operating expenses were MEUR -3.0 (-0.7) in the third quarter and MEUR -4.0 (-1.6) in the fourth quarter. Towards the end of the 2022 financial year, costs increased as a result of the general increase in prices and the increase in the price of electricity in particular. The reported EBITDA was MEUR 0.7 (-0.7) in the third quarter of 2022 and MEUR -0.2 (-1.6) in the fourth quarter.
During a review period, revenue typically consists of advance invoices issued in connection with production deliveries, and final sales are recognised based on final invoicing when the final market price and concentration of gold are known. The final invoicing often takes place after the review period during which the production deliveries were made. For this reason, the final invoicing for previous periods causes the revenue and EBITDA for the review period to decrease or increase to some extent.
The second half of 2022 included a total of MEUR 0.2 in revenue and EBITDA related to the final invoicing for the first half of 2022. Adjusted for the impact of previous periods, the revenue was MEUR 7.7 and the EBITDA was MEUR 0.7 in the review period. The adjusted revenue was MEUR 4.0 and the adjusted EBITDA was MEUR 0.0 in the fourth quarter.
Revenue of the full year was MEUR 12.7 (0.0) and EBITDA MEUR 0.6 (-2.9). The revenue consist of gold concentrate sales in Finland.
| MEUR | MEUR | |
|---|---|---|
| H2 | 2022 | 2021 |
| Revenue | 7.5 | 0.0 |
| Operating costs | -7.0 | -2.3 |
| EBITDA | 0.5 | -2.3 |
| July-September | ||
| Revenue | 3.7 | 0.0 |
| Operating costs | -3.0 | -0.7 |
| EBITDA | 0.7 | -0.7 |
| October-December | ||
| Revenue | 3.8 | 0.0 |
| Operating costs | -4.0 | -1.6 |
| EBITDA | -0.2 | -1.6 |
| FY | 2022 | 2021 |
| Revenue | 12.7 | 0.0 |
| Operating costs | -12.1 | -2.9 |
| EBITDA | 0.6 | -2.9 |
A strategic shift in the US
Endomines current operations in the US
- Endomines has seven deposits in the US: five in Idaho and two in Montana. Deposits were acquired in 2018-2020 for MUSD 44.
- Friday production ramp up continued until Feb 2022.
- Drilling campaign completed with 5 out of 8 drill holes intersected high-grade (over 8g/t) of gold mineralization, however further drilling is required before restarting production.
Change of strategic direction in 2022 – focus on partnerships
- Restructuring executed to reflect the current status of the operations.
- H2 EBITDA MEUR -0.8 (-4.0).
- We will not continue to make large-scale investments in the United States.
- We focus on partnership negotiations, small-scale licensing and the assessment of strategic options.
- The known historical resources in the Idaho projects amount to over 500,000 ounces gold, in addition to which the exploration potential near the deposits is significant.
| MEUR | MEUR | |
|---|---|---|
| H2 | 2022 | 2021 |
| Revenue | 0.4 | 0.0 |
| Operating costs | -1.2 | -4.0 |
| EBITDA | -0.8 | -4.0 |
| July-September | ||
| Revenue | 0.0 | 0.0 |
| Operating costs | -0.6 | -2.2 |
| EBITDA | -0.6 | -2.2 |
| October-December | ||
| Revenue | 0.4 | 0.0 |
| Operating costs | -0.6 | -1.8 |
| EBITDA | -0.2 | -1.8 |
| FY | 2022 | 2021 |
| Revenue | 0.7 | 0.0 |
| Operating costs | -4.0 | -6.1 |
| EBITDA | -3.2 | -6.1 |
Cash flow and financing H2/2022
In the second half of the year, the financial position and the balance sheet improved significantly as a result of the oversubscribed initial public offering, which was carried out in connection with the transfer of domicile in December 2022.
Through the initial public offering, the company raised a total of EUR 13.0 million in gross assets, which consisted of EUR 4.0 million in new cash assets and EUR 9.0 million in the conversion of convertible notes into shares. This significantly reduced the company's future interest expenses related to financing and strengthened its balance sheet position.
During the review period, Endomines issued a convertible bond of EUR 3 million, which was partly converted into shares in connection with the initial public offering in December 2022.
In addition, the company agreed on extensions to its previous convertible bonds during the review period.
The company's existing convertible loan will mature during the second half of 2024, with the exception of a EUR 0.1 million loan, which will mature in 2023.
After the review period, in January 2023, LDA Capital invested EUR 1.0 MEUR in a convertible loan as part of its investment option, and announced a maximum of EUR 2.4 MEUR of possible additional investment options to be executed during the first quarter of 2023.
Cash and cash equivalents at the end of the reporting period on 31 December 2022 amounted to MEUR 3.7 (1.2).
Net debt on 31 December 2022 was MEUR 6.9 (16.8).
The net gearing ratio of 19% (55%) decreased significantly during 2022 as a result of a stronger balance sheet and financial position.
The equity ratio was 66% (55%).
Investments in 2022 focused on deepening the Pampalo mine and exploration at the Karelian gold line. Cash flow during 2022 including financing was MEUR 2.7 (0.1).
More information about financial items is provided in the notes to the report.
Business risks
Mining operations involve various technical risks, which the company cannot always control. Uncertainty is inherent in exploration, and it involves financial risk-taking.
Operational, financial, environmental and international risks and uncertainties may affect the company's operations, performance and financing. We can manage and prevent these risks only to some extent through proactive planning and active responses to materialised risks. Our company's revenue and financial performance are directly affected by the market price of gold and the US dollar exchange rate, both of which developed favourably for the company during the review period. The war in Ukraine has affected not only metal prices, but also production costs. For example, the higher price of electricity increased costs during the review period.
Business risks
- Incorrect assessment of ore and mineral reserves.
- Integration processes that are more expensive or slower than expected.
- Dependence on agreements with third parties.
Operating environment
- The unfavourable development of the price of gold may have a negative impact on the result.
- Interruptions in operations, delays in production, damage, accidents.
- The war in Ukraine and its impacts on the general market situation may have a negative impact on operations and financial flexibility.
- The proposed mining tax may affect the company's profitability.
Financial position
- Impairment of assets may affect the company's ability to pay dividends or negotiate future financing.
- Changes in exchange rates may have a negative impact on the company's result.
- External financing involves risks.
The environment and permits
- The company's operations depend on exploration, mining and environmental permits, as well as other permits and rights. Its operations are subject to environmental risks and environmental requirements.
Shares
- The company's ability to pay dividends or otherwise distribute non-restricted equity depends on the availability of distributable funds.
- The concentration of holdings in the company may affect the market price and liquidity of its shares. The company's major shareholders may have a significant impact on the company's governance, and the interests of major shareholders may differ from those of minority shareholders.
- The market price of the shares may fluctuate considerably.
Shares and shareholders
Initial public offering
Trading in shares in Endomines Finland plc began on the main list of Nasdaq Helsinki on 20 December 2022. In the initial public offering carried out in connection with the transfer of domicile in December 2022, Endomines Finland plc issued a total of 2,600,000 new shares. The issue was oversubscribed, with the share subscription price being EUR 5.00. The subscription price in the issue for the personnel was EUR 4.50 per share. The new shares were entered into the Trade Register on 19 December 2022.
The gross assets raised through the initial public offering totalled EUR 13.0 million (including subscriptions made under the terms of the initial public offering against the receivables based on outstanding convertible notes issued by Endomines Finland plc). Around EUR 4.0 million of the total subscription price was paid in cash, and around EUR 9.0 million was made against the receivables based on outstanding convertible notes issued by Endomines Finland plc.
The new shares issued through the initial public offering corresponded to around 28.0% of all shares in Endomines Finland plc following the initial public offering.
Share capital
At the end of the financial year 30.12.2022 the total amount of Endomines Finland Plc's shares is 9 287 959.
Trading in shares
Endomines Finland plc has one class of shares. Each share entitles its holder to one vote at a general meeting of the company.
The total number of shares traded on the stock market during 2022 was 21 318 990, of which
- in Nasdaq Helsinki 20.-30.12.2022: 8 480
- in Nasdaq Stockholm 1.1.-19.12.2022: 21 310 510
At the end of the year 98.96 of the shares were registered in Finland, 0.09 in Sweden and 0.95 elsewhere.
At the end of the review period, Endomines had 5766 registered shareholders. The company held 8,000 treasury shares at the end of the review period. The highest closing price on the Stockholm Stock Exchange (1.1.2022-19.12.2022) was EUR 6.24 on 14.11.2022 and the lowest EUR 0.15 on 26.9.2022. The highest closing price on the Helsinki Stock Exchange (20.12-30.12.2022) was EUR 4.82 on 30.12. and the lowest EUR 4.52 on 28.12.
Management transactions
Endomines Finland plc's management transactions have been announced through stock exchange releases, which are available on our website at: https://endomines.com/investors/materials/releases/
Proposal on dividend distribution
The Board of Directors proposes that no dividend be paid for the 2022 financial year.
Key events after the review period
1 February 2023
LDA partially converts its convertible loan into shares
LDA announced to Endomines its intention to convert part of its convertible loan, EUR 200,000, into new shares in Endomines. As a result of the conversion, Endomines will issue 37,275 new shares. After the partial conversion of the convertible loan, the total number of shares and votes in Endomines will increase from 9,332,275 shares and votes to 9,369,550 shares and votes. The new shares represent around 0.39% of the increased total number of shares and votes following the registration of the new shares.
12 January 2023
LDA partially converts its convertible bond into shares
LDA announced to Endomines its intention to convert part of its convertible loan, EUR 200,000, into new shares in Endomines. As a result of the conversion, Endomines issued 44,316 new shares. After the partial conversion of the convertible loan, the total number of shares and votes in Endomines increased to 9,332,275 shares and votes. The new shares represent around 0.47% of the increased total number of shares and votes following the registration of the new shares.
4 January 2023
LDA exercises the investor call option and offers a convertible loan to Endomines
LDA exercised its investor call option and offered a convertible loan to Endomines Finland plc. Endomines received an investor call notice concerning a directed issue of convertible loans as follows: the first tranche, EUR 1,000,000, will be issued immediately. The next tranches, up to EUR 2,400,000, which are conditional on the terms and conditions of the loan agreement and the investor's consideration, can be executed no later than 31 March 2023. In accordance with the financing agreement, the investor has the right to request the issue of the convertible notes concerning the remaining undrawn portion, EUR 3,400,000 in total.
3 January 2023
Endomines Finland plc reports high-grade drilling results at the level of 1,050 metres at the Pampalo gold mine
An underground exploration hole (T-1827) was drilled as part of the drilling campaign in the autumn of 2022 to confirm the downward continuation of the deposit. Drill hole T-1827 intersected 6.0 metres of gold with a concentration of 9.2 g/t, proving that the mineralised zone continues at least 235 vertical metres downwards from the current production area between the 755-metre and 815-metre mine levels.
More information: https://endomines.com/investors/materials/releases/
Investor calendar
31 March 2023 Annual Report 2022
25 May 2023 Annual General Meeting (the company's Board of Directors will convene the meeting later)
17 August 2023 Half-year report (H1/2023)
25 September 2023 Indexes ROAST
Previously published reports are available on the company's investor website at https://endomines.com/investors/materials/financial-reports-presentations/
Accounting principles
Endomines group's financial statements bulletin has been prepared for the accounting period of 1 January – 31 December 2022 according to the IAS 34 Interim Financial reporting principles. Endomines has abided by the same accounting principles in its financial statements bulletin as in its IFRS financial statement 2021. The information presented in the interim financial reports and financial statements bulletin are not audited. All figures in these accounts have been rounded. Consequently, the sum of individual figures can deviate from the presented sum figure.
The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the valuation of the reported assets and liabilities, and the recognition of income and expenses in the statement of income. Although the estimates are based on the management's best knowledge of current events and actions, actual results may differ from the values given in the financial statements bulletin.
ESMA (European Securities and Markets Authority) has published guidelines on Alternative Performance Measures (APMs). Endomines presents Alternative Performance Measures (APMs) to reflect the underlying business performance and to enhance comparability between financial periods. APMs should not be considered as a substitute for measures of performance in accordance with the IFRS. APMs are calculated in accordance with the definitions presented on page 11 of the 2021 Annual Report.
Endomines' Swedish parent company Endomines AB (the merging company) completed a cross-border reverse merger with its subsidiary Endomines Finland Oyj (the acquiring company) on 16 December 2022. As a result of the merger, Endomines AB's bookkeeping will be included in Endomines Finland Oyj's bookkeeping from the financial year beginning 1 January 2022 and the company's domicile has thus changed from Sweden to Finland.
As the reporting currency of the merging company was Swedish kronor, the figures of the merging company have been converted into euros. The transitional balance sheet of Endomines AB has been converted at the closing rate on 16 December 2022 and transferred to the acquiring company via the merger account. The difference in the merger account, the merger gain of 28.2 MEUR, has constituted the equity of the merging company and has been recognised in other income of the parent company. The profit and loss statement of Endomines AB has been consolidated at the average exchange rate for the financial year. As a result of the change of domicile, the Swedish Accounting Act (ÅRL) has been replaced by Finnish Accounting and Company Law. As the change in reporting currency is a change in accounting policy, the company reports the third balance sheet for the financial year 2022.
Correction to the H1 2022 income statement
The company corrects the income statement for the H1 2022 period to correspond to the accounting principles for recording the FX rate difference of intragroup loans. According to the accounting principles, the exchange rate gain or loss of internal loans between the parent company and Endomines Idaho LLC are recorded directly in the balance sheet through the translation differences of the comprehensive income statement. In the previously published H1 2022 income statement, the exchange rate gain was presented in Financial income. The exchange rate difference and this correction has no cash flow effect. The change and correction have no effect on the figures for full year 2022. The change has no impact on the previously presented balance sheet for H1 2022 and not on the total amount of equity on 30 June 2022.
The effect of the change on the income statement for the H1 2022 period to the changed items only:
| H1 2022 MEUR | before correction | after correction |
|---|---|---|
| Financial income | 6.7 | 1.2 |
| Net financial items | 5.1 | -0.4 |
| Profit+/(-) loss before taxes | -5.0 | -10.5 |
| Net result | -5.0 | -10.5 |
| Translation differences | -4.8 | 0.7 |
| Comprehensive result | -9.8 | -9.8 |
The change has no effect on the turnover, EBITDA or operating profit of the income statement for H1 2022 presented earlier.
Consolidated statement of comprehensive income
| HEUR | H2 / 2022 | H2 / 2021 | 2022 | 2021 |
|---|---|---|---|---|
| Revenue | 7.9 | 0.0 | 13.5 | 0.0 |
| Change of stocks of finished goods and work-in-progress | -0.2 | 0.5 | -0.4 | 0.5 |
| Other income | -0.3 | 0.0 | 0.0 | 0.0 |
| Raw materials and supplies | -0.4 | -1.3 | -1.1 | -1.6 |
| Personnel expenses | -1.6 | -3.0 | -3.8 | -4.9 |
| Other expenses | -8.3 | -3.8 | -14.6 | -5.6 |
| EBITDA | -3.0 | -7.7 | -6.4 | -11.6 |
| Depreciation and impairment | -2.5 | -8.1 | -9.1 | -13.5 |
| Operating profit | -5.4 | -15.7 | -15.5 | -25.1 |
| Financial income | -1.2 | 1.0 | 0.04 | 1.0 |
| Financial expenses | -0.8 | 0.9 | -2.4 | -1.6 |
| Net financial items | -1.9 | 1.9 | -2.4 | -0.6 |
| Earnings before tax | -7.4 | -13.8 | -17.9 | -25.7 |
| Deferred taxes | 0.0 | 0.0 | 0.0 | 0.0 |
| Result for the year | -7.4 | -13.8 | -17.9 | -25.7 |
| Conversion differences | 2.2 | -0.2 | 2.9 | 2.1 |
| Other comprehensive income for the period, net after tax | 2.2 | -0.2 | 2.9 | 2.1 |
| Total profit and loss for the period | -5.1 | -14.0 | -15.0 | -23.6 |
| Profit for the year attributable to | ||||
| Parent company shareholders | -7.4 | -13.8 | -17.9 | -25.7 |
| Total comprehensive income attributable to | ||||
| Parent company shareholders | -5.1 | -14.0 | -15.0 | -23.6 |
| Earnings per share before and after dilution | -0.79 | -1.49 | -1.93 | -2.77 |
Consolidated balance sheet
| MEUR | 2022 | 2021 | 1.1.2021 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | |||
| Capitalized exploration expenses and valuation assets | 33.5 | 31.2 | 38.6 |
| 33.5 | 31.2 | 38.6 | |
| Tangible fixed assets | |||
| Land and buildings | 4.1 | 3.8 | 3.8 |
| Mine | 5.5 | 3.3 | 0.5 |
| Machinery and equipment | 1.5 | 8.6 | 7.8 |
| Construction in progress | 3.7 | 4.0 | 5.3 |
| 14.8 | 19.8 | 17.4 | |
| Financial assets | |||
| Other receivables | 0.5 | 0.5 | 0.5 |
| 0.5 | 0.5 | 0.5 | |
| Total non-current assets | 48.8 | 51.5 | 56.5 |
| Current assets | |||
| Inventories | 0.4 | 0.8 | 0.2 |
| Sales receivables | 1.3 | - | - |
| Other receivables | - | 0.5 | 0.1 |
| Prepaid expenses and accrued income | 0.6 | 1.2 | 0.2 |
| Liquid assets | 3.7 | 1.2 | 1.1 |
| Total current assets | 6.1 | 3.8 | 1.7 |
| TOTAL ASSETS | 54.9 | 55.3 | 58.2 |
| MEUR | 2022 | 2021 | 1.1.2021 |
| --- | --- | --- | --- |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Capital and reserves attributable to the owners of the parent company | |||
| Share capital | 53.3 | 45.6 | 39.9 |
| Other equity | 115.1 | 99.3 | 81.8 |
| Retained earnings | -132.5 | -114.6 | -88.9 |
| Total equity | 35.9 | 30.2 | 32.9 |
| Liabilities | |||
| Long-term liabilities | |||
| Liabilities to credit institutions | 0.0 | 0.0 | 0.0 |
| Leasing liabilities | 0.0 | 0.3 | 0.3 |
| Convertible loans | 10.5 | 9.7 | - |
| Bridge loans | - | 1.6 | 3.2 |
| Bond loans | - | - | 3.7 |
| Other interest-bearing liabilities | - | 0.2 | 2.5 |
| Provisions | 1.5 | 1.4 | 1.2 |
| Total long-term liabilities | 12.0 | 13.3 | 11.0 |
| Current liabilities | |||
| Accounts payable | 4.7 | 2.5 | 1.7 |
| Liabilities to credit institutions | 0.0 | 0.0 | 0.0 |
| Leasing liabilities | 0.0 | 0.3 | 0.8 |
| Other interest-bearing liabilities | - | 2.1 | - |
| Provisions | 0.0 | 0.0 | 0.0 |
| Bridge loans | - | - | 7.0 |
| Bond loans | - | 3.7 | - |
| Other loans | 0.5 | 0.9 | 2.7 |
| Arcrued expenses and prepaid income | 1.6 | 2.2 | 2.1 |
| Total current liabilities | 6.8 | 11.8 | 14.4 |
| Total liabilities | 18.8 | 25.1 | 25.3 |
| TOTAL EQUITY AND LIABILITIES | 54.9 | 55.3 | 58.2 |
Consolidated changes of shareholder's equity
| EUR | Share capital | Othe contributed capital | Reserves | Retained earnings | Total equity |
|---|---|---|---|---|---|
| Opening balance 1.1.2021 | 39.9 | 84.1 | -2.2 | -88.9 | 32.9 |
| Other comprehensive income | - | - | - | -25.7 | -25.7 |
| Total comprehensive income | - | - | 2.1 | - | 2.1 |
| Equity 31.12.2021 | - | - | 2.1 | -25.7 | -23.6 |
| Transactions with shareholders | |||||
| Share issue | 5.7 | 17.8 | - | - | 23.5 |
| Issue costs | - | -2.5 | - | - | -2.5 |
| Total transactions with shareholders | 5.7 | 15.3 | - | - | 21.0 |
| Closing balance 31.12.2021 | 45.6 | 99.3 | -0.1 | -114.6 | 30.2 |
| Opening balance 1.1.2022 | 45.6 | 99.3 | -0.1 | -114.6 | 30.2 |
| Profit for the period | - | - | - | -17.9 | -17.9 |
| Other comprehensive income | - | - | 2.9 | - | 2.9 |
| Total comprehensive income | - | - | 2.9 | -17.9 | -15.0 |
| Transactions with shareholders | |||||
| Share issue | 5.3 | 13.8 | - | - | 19.1 |
| Shareholder investments | - | 0.1 | - | - | 0.1 |
| Issue costs | - | -1.0 | - | - | -1.0 |
| Convertible loan conversion into shares | 2.5 | - | - | - | 2.5 |
| Total transactions with shareholders | 7.7 | 12.9 | - | - | 20.6 |
| Closing balance 31.12.2022 | 53.3 | 112.2 | 2.8 | -132.5 | 35.9 |
Consolidated statement of cash flows
| MEUR | |
|---|---|
| Cash flows from operating activities | |
| •Profit/(-)loss before taxes | -17.9 |
| Adjusted for: | |
| Depreciation and impairment | 9.1 |
| Unrealised exchange rate differences on internal receivables and payables | 0.0 |
| Financing income and expense | 2.8 |
| Other items | -0.8 |
| Cash flows from operating activities before change in net working capital | -6.8 |
| Change in net working capital | 3.4 |
| Increases (-) / decreases (+) in sales- and other non-interest-bearing receivables | 2.3 |
| Increases (-) / decreases (+) in inventories | 0.4 |
| Additions (+) / reductions (-) in accounts payables and other non-interest-bearing liabilities | 0.8 |
| Total cash flows from operating activities | -3.4 |
| Interests paid | -0.7 |
| Paid income tax | 0.0 |
| Total cash flows from operating activities | -4.1 |
| MEUR | |
| --- | --- |
| Cash flows from investing activities | |
| Payments for intangible fixed assets | -0.7 |
| Payments for tangible fixed assets | -3.2 |
| Total cash flows from investing activities | -3.9 |
| Total cash flows before financing activities | -8.0 |
| Cash flows from financing activities | |
| Proceeds from share issues | 9.6 |
| Issue costs | -1.3 |
| Proceeds from borrowings | 8.8 |
| Repayment of borrowings | -6.6 |
| Repayment of lease liabilities | -0.1 |
| Net (decrease)/increase in liquid assets | 10.5 |
| Net (decrease)/increase in liquid assets | 2.5 |
| Liquid assets at the beginning of the period | 1.2 |
| Effect of exchange rate changes on liquid assets | 0.0 |
| Liquid assets in the end of the period | 3.7 |
Notes to financial report
| Note 1 Financial instrumentsn MEUR | 2022 | 2021 |
|---|---|---|
| Receivables: | ||
| Trade receivables and other receivables excluding accruals | 1.3 | 1.5 |
| Cash and cash equivalents | 3.7 | 1.2 |
| Total receivables | 5.0 | 2.7 |
| Other financial liabilities: | ||
| Bond, principle | – | 3.7 |
| Loan facility | – | – |
| Convertible, principle | 10.5 | 9.7 |
| Warrant | 0.1 | 0.9 |
| Lease financing | 0.1 | 0.6 |
| Bridge loan | – | 1.6 |
| Subtotal borrowings | 10.7 | 16.5 |
| Accounts payables and other current liabilities excluding non-financial liabilities | 6.8 | 2.5 |
| Total | 17.5 | 19.1 |
| Note 2 Borrowings and net debt, MEUR | 2022 | 2021 |
| --- | --- | --- |
| Long-term borrowings | ||
| Long-term loan facility, principle | – | 1.6 |
| Convertible, principle | 10.5 | 9.7 |
| Lease financing | 0.0 | 0.3 |
| Other interest-bearing liabilities | 0.0 | 0.2 |
| Total long-term liabilities | 10.6 | 11.9 |
| Short-term borrowings | ||
| Bond, principle | – | 3.7 |
| Lease financing | 0.0 | 0.3 |
| Other interest-bearing liabilities | 0.0 | 2.1 |
| Total short-term liabilities | 0.1 | 6.1 |
| Total borrowings (all amounts are EUR/USD-denominated) | 10.6 | 18.0 |
| Net debt | ||
| Cash and cash equivalents | 3.7 | 1.2 |
| Total borrowings | 10.6 | 18.0 |
| Net interest-bearing debt | 6.9 | 16.8 |
| Shareholders' equity | 36.0 | 30.3 |
| Gearing ratio (net debt divided by equity) | 19% | 55% |
Notes to financial report
| Note 3
Bond, MEUR | 2022 | 2021 |
| --- | --- | --- |
| Bond, Principle | 0.0 | 3.7 |
| Accrued interest of bond | 0.0 | 0.4 |
| Total amount | 0.0 | 4.1 |
The bond was issued on 4 March 2019. It has a three-year tenor and a fixed annual interest rate of 12.0 percent. The bond was repaid in march 2022.
| Note 5
Bridge Loans, KSEK | 2022 | 2021 |
| --- | --- | --- |
| Long-term loan facility | 0.0 | 1.6 |
| Accrued interest of long-term loan facility | 0.0 | 0.3 |
| Total amount | 0.0 | 1.9 |
Long-term loan facility was issued on 1st April 2020 primarily for Finnish institutional investors, including the Chairman of the Board. The loan had a two-year tenor and fixed annual interest rate of 12.0 percent. The loan and accrued interest was converted to a new convertible loan in June 2022. For specification of convertible loans, please see note 4.
| Note 4
Convertible, MEUR | 2022 | 2021 |
| --- | --- | --- |
| Convertible loans, non-IFRS principle | 10.8 | 9.9 |
| IFRS-adjustments | -0.3 | -0.2 |
| Convertible loans, IFRS principle | 10.5 | 9.7 |
| Accrued interest of convertible loans | 0.5 | 0.3 |
| Total amount | 11.0 | 10.1 |
In 2021 the principle of convertible loans issued was in total 9.9 MEUR, none of the loans were converted into shares in 2021. In H1 2022, new convertible loan was issued for 3.5 MEUR and bridge loans and interest of 2.8 MEUR were converted to a new convertible loan. During H2 2022 convertible loans was issued for 3.3 MEUR and convertible loans and interests totalling 9.0 MEUR were converted into shares in Endomines Finland Oyj. Convertible loans which LDA provided during the financial year 2022 were fully converted into shares.
Contact information
Kari Vyhtinen
CEO
[email protected]
+358 40 585 0050
Mikko Sopanen
CFO
[email protected]
+358 50 434 7439
ENDOMINES
WWW.ENDOMINES.COM
