Mining Site Visit To TSX Amex Frankfurt FSE Listed Canada Based Endeavour Silver Mines in Mexico
Endeavour Silver is a small cap silver mining producer listed on the TSX FSE and AMEX, and has operating mines in Durango, Mexico and elsehwere in the Sierra Madre Belt
Mexico Mike:
Endeavour Silver is an aggressive shark among the minnows
The junior mining sector is approaching a phase where there will likely be a rapid consolidation. Nowhere is this more evident than in Mexico, where over 250 juniors are currently active in various stages of development, and most of the participants have been hit with declining share values even as the companies build greater value in their projects. The field will resemble a small pond with sharks chasing little fish and some of the best projects will be snapped up to form much stronger mid-tier players.
The question for investors is where to put their bets down. There is no question that some producers are facing declining resource bases and will have to look seriously at buying other late-stage projects just to maintain their future operations. A lot of money has been parked in development prospects for several years, but as yet there have been few takeovers that built a great premium into the acquired companies.
Some of the best potential development plays are stalled because although an attractive resource base may have been proven up, these juniors do not have the people to develop them, and they do not have the money. So they are sitting ducks for an acquisition by a company that has the ability to make a project work. Therefore, the real gains in this market phase may come from the sharks on the acquisition hunt for bargain basement takeover deals.
I think Endeavour Silver Corp could be one great beneficiary of this process. The company has already demonstrated the ability to acquire projects at great value for its shareholders, and then rapidly complete successful development work.
Endeavour was one of the first emerging producers in Mexico after it bought up the Guanacevi Project from Industrias Penoles, in 2004. Shortly thereafter, the company initiated exploration and outlined a brand new resource zone within weeks of commencing a drill program. This allowed a rapid development program to support recommencement of mining operations just 6 months after the project was acquired.
One characteristic that defines Endeavour’s management team is their willingness to conduct aggressive exploration drilling. This is a refreshing change from the conservative approach taken by many other companies that require extensive fieldwork and geophysical testing before committing to a drill program. To their credit, management has achieved positive results and moved the projects forward at an impressive pace.
The company has continued this success to the present as it has built the Guanacevi Mines into a core area of operations, growing the resources through exploration, and expanding the production and processing capacity. Ongoing interpretation of the district geology has led to additional small property acquisitions in close proximity to the known deposit areas. Endeavour is working to assemble control of the most promising holdings to generate more exploration targets in the future.
I was able to tour this project in May, and was impressed by what I observed. The underground infrastructure is extensively developed and the mine is running at optimum efficiency. The mill is modern and efficient, with significant capital upgrades in place that will enable growth to continue for many years into the future. The entire operation is a model of how an emerging producer should go about building a sustainable mining project.
But Endeavour is not satisfied with running just one strong mine. The company completed another successful acquisition last year, picking up its Guanajuato Project including several historic mines and a large processing plant, all for a bargain-basement price. Once again the company set about proving up new resources, and invested in upgrading the infrastructure and refurbishing the plant equipment to support a much more efficient development plan.
Despite a tradition of mining activity in Mexico spanning more than 500 years, the standards for safety and development in the country are lacking. The Endeavour management team made the decision to improve all of the critical access and operational infrastructure up to standards that would merit approval in some of the more regulated mining districts of the world.
This activity created short term losses on the books while production levels were greatly diminished. In addition, the company chose to keep all of the labour force at the mine employed while the work was underway, a measure of the commitment to build a greater sense of trust with the employees and the entire community that depends on the mine.
With modernization efforts nearly complete, Endeavour appears ready to rebound with very strong operating results in the quarters ahead, and a stable workforce that is well trained and on board with the growth objectives of the company.
The share price for Endeavour is hovering near multi-year lows, despite all of the success that has been baked in, and the strong growth potential going forward. To me, that is the absolute best case scenario for a speculative investment. I believe Endeavour is capable of delivering several quarters of impressive performance that will support a much higher market capitalization from the current level.
This brings me back to the consolidation concept. The companies that can demonstrate the ability to take on a project and successfully add value in all aspects of a mining operation will be the ones that are in the driver’s seat to pick up the best acquisition targets. Several attractive mid-size deposits have been defined by other Mexico juniors and these projects are sitting ducks for a motivated producer to take on and develop. I believe Endeavour is an ideal company to serve in that role, and there will likely be some big news on the acquisition front.
The term ‘perfect storm’ is getting a lot of play these days, but it is a very good description of the confluence of positive factors that lie ahead for Endeavour Silver. With strong and capable management, a tight share structure, more than $20 million in cash and working capital, a solid balance sheet with zero debt, organic growth from operations, and a smorgasbord of potential acquisition targets to support rapid growth opportunities in the future, it is hard to envision a better case to build a winner around in the junior mining sector.
The company appears to be ready to build on its early success and grow into one of the bigger sharks in the pond. And the share price today is a screaming bargain nonetheless. I buy a double allotment of $20,000.00 in Endeavour Silver for the Mexico Mike Portfolio.
Visit the silver mining Canada based TSX FSE AMEX stocks exchange listed small cap miner, Endeavour Silver at Endeavour Silver TSX Canada Small Cap Mining Stock