Endeavour: Silver Gains

02/21/2017 9:00 am EST


Kuen (Scott) Chan

Editor, Investing Daily's Real World Investing

Endeavour Silver (EXK) recently reported production figures for 2016 — 57,375 ounces of gold and 5.4 million ounces of silver, explains Kuen Chan, contributing editor to The Complete Investor.

The gold output, which was 4 percent lower than in 2015, was slightly above company guidance. Silver production was slightly below guidance and fell by a significant 24 percent compared to a year ago.

The lower production reflects management’s decision in January 2016, when precious metals prices were languishing, to cut spending on exploration and development.

In the middle of the year, as metals prices rallied, the company reversed course, but the initial reduction had already left its mark on output for the year. Still, two of Endeavour’s three mines, all of which are in Mexico, exceeded company production guidance.

During the year, as gold and silver prices rallied and the outlook improved, Endeavour acquired two additional gold/silver projects, one being the El Compas mine acquisition.

Subsequently, in September, Endeavour added further to its assets with the purchase from Silver Standard Resources (SSRI)  of a 100 percent ownership of three exploration properties in Mexico’s Parral District in exchange for $6 million in Endeavour stock.

Historic drilling at those properties had resulted in estimated resources of 32 million ounces, meaning Endeavour paid the exceedingly low price of just 20 cents per historic resource ounce.

The caveat is that the last time the properties were mined was in 1990. Endeavour has yet to perform its own assessment of the properties and update the resource estimates.

Essentially, Endeavour picked up a group of mines that Silver Standard wasn’t willing to spend time or money on.

While El Compas figures to be a surer bet as a near-term contributor to revenues, with commercial production possible this year, El Parral could turn out to be a tremendous bargain depending on what exploration drilling reveals.

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