Endeavour Silver is “cheap, cheap, cheap, and poised for a bounce,’’ CEO says

By Peter Kennedy

Endeavour Silver’s Guanacevi Mine located 260 km northwest of Durango City, Durango State, Mexico. Source: Endeavour Silver Corp.

Endeavour Silver Corp. [EDR-TSX, EXK-NYSE], the owner and operator of three underground silver-gold mines in Mexico, has not been a stellar investment in recent months. Disappointing financial results and some unforeseen issues at one of the company’s flagship mines combined to send the stock tumbling below $2.60 this week from a high of $6.44 in February 2017. But during a recent mining conference in San Francisco, Endeavour CEO Bradford Cooke promised that the situation will soon change for the better.

“No matter how you look at it, we are cheap, cheap, cheap,’’ Cooke told attendees at the Cambridge House Gold & Silver Summit. “ We think there is a bounce coming.” The Endeavour CEO reminded the conference that from a standing start in 2004, the company has grown to achieve 9.7 million ounces of silver production in 2016.

Mines currently in production are the Guanacevi mining complex in Durango State, and the Bolanitos and El Cubo mines in Guanajuato state.

Endeavour also has two more mines in the pipeline, including the El Compass Mine in Zacatecas, which is expected to see its first production in the first quarter of 2018 and the Terronera Project in the State of Jalisco.

Investors were led to expect that the Guanacevi Mine would produce range from 2.4 to 2.6 million and between 5,300 to 6,300 ounces of gold in 2017.

However, the operation has been hit by a number of unrelated operating problems that caused to production to fall below the company’s targets. These included an influx of water from an underground hot spring that limited access to the underground workings and slower than planned mine development due to narrower vein widths. A lightning strike in July that knocked out power, causing another pump failure that resulted in more flooding in the deeper areas of the Santa Cruz Mine. Santa Cruz is one of three underground silver-gold mines that feed ore to the Guanacevi operation.

That led to a revision in Guanacevi production forecasts. The mine is now expected to produce 2.0 to 2.1 million ounces of silver and between 4,400 and 4,500 ounces of gold. As well, direct production costs in the quarter ended September 30, 2017 jumped 19% from year ago levels, primarily because of the issues at Guanacevi. However, Cooke has promised that investors will see an improvement in the company’s operating and financial performance in the fourth quarter of 2017.

“Returning Guanacevi to long term profitability relies in part on developing two new orebodies, Milache and Santa Cruz Sur,’’ he said. “Underground ramp access is already underway towards Milache with initial production expected in the second half of 2018. Mine development at Santa Cruz Sur is scheduled to commence this quarter with initial production to coincide with production at Milache.”

Cooke said the company has received mine and plant permits for Terronera and continues to conduct engineering trade-off studies while it waits to receive the dumps and tailings permits. That would be followed by debt financing package to initiate construction.

“We look forward to updating reserves and resources to include new discoveries including the La Luz vein and optimizing the prefeasibility study with improved project economics,” Cooke said.

Terronera is located about 40 km northeast of Puerto Vallarta in the State of Jalisco. Terronera surrounds the Santa Quiteria Mine, a small 100-tonnes-per day operation, and represents a new district-scale silver and gold exploration and mining opportunity for Endeavour.

During the San Francisco conference, Cooke called Terranera the “jewel in the company’s pipeline.’’

It hosts an indicated resource of 19.9 million ounces of silver, 156,000 ounces of gold. On top of that amount is an inferred resource of 8.5 million ounces of silver and 54,400 ounces of gold.

Endeavour has said its exploration teams feel there is a substantial potential for additional high-grade mineralized zones within the several dozen kilometres of known veins on the Terronera properties, which cover approximately 6,100 hectares. That was confirmed by the recent discovery of a new high-grade silver-gold mineralized zone that was located in the Terronera vein, which is now over 1,400 metres long and 200 metres deep. Mine commissioning at Terronera is expected by the second half of 2019.

Meanwhile, H.C. Wainwright & Co. recently reiterated its buy rating for Endeavour shares. It has a target of US $6. Raymond James analyst Chris Thompson has an outfperform rating on the stock with a $5 target price. Canadian investment firm GMP has a buy rating on the stock and a target of $5.90.

“Although improving, Guanaceví is still the laggard. We will continue to monitor the performance of the asset,’’ GMP said in a report.

Filed in: Resources, Silver

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