The Lost Art of Patience Pays for Endeavour Silver

I'm told that Endeavour Silver (NYSE: EXK  ) Chairman and CEO Bradford Cooke has a nickname around the office. They call him "the Captain," which fits nicely with the fact that the company was named after the famous vessel that carried Captain James Cook and his crew on their legendary voyage of discovery.

Under "Captain" Cooke's able command, Endeavour Silver has breezed its way through a remarkable campaign of organic growth at its pair of producing mines in Mexico. Aside from the consistent execution behind that successful growth trajectory, the achievement is remarkable for the lengthy period of research and careful deliberation that preceded this week's announcement that Endeavour will finally acquire its third producing mine. As revealed during my conversation with Cooke back in August of 2010, the company's tireless quest for mine No. 3 began more than three years ago!

"Captain" Bradford Cooke, CEO of Endeavour Silver, standing near a display of drill core samples from the Guanajuato complex during a tour of the Guanajuato mines in October 2011. Photograph by Christopher Barker.

Like Ferdinand Magellan's three-year expedition, which yielded the first circumnavigation of the globe, Endeavour Silver's quest for a third silver mine ultimately led right back to the company's backyard. According to a definitive letter of agreement announced over the weekend, Endeavour will acquire the producing El Cubo mine from AuRico Gold (NYSE: AUQ  ) that sits just a few kilometers to the east of Endeavour's complex of mines in Guanajuato, Mexico.

For total consideration of between $200 million and $250 million, including up to $100 million payable in Endeavour shares, Endeavour will launch straight into the mid-tier silver space with an instant 12% increase in projected 2012 output to at least 4.8 million silver ounces. The move will double Endeavour's proven and probable silver reserves while fueling a major 477% increase in gold reserves to 0.39 million ounces. Going forward, Endeavour hopes to tweak mill and mining operations, expand the resource through exploration, and capitalize on synergies with the nearby Guanajuato operations to reduce El Cubo's cost structure. As that occurs, AuRico Gold looks forward to joining the profitable expedition through a potentially sizable investment stake in Endeavour. The following map offers readers a helpful context for the relative locations of AuRico's El Cubo mine, Great Panther Silver's (AMEX: GPL  ) Guanajuato mine, and Endeavour's neighboring mine complex of the same name.

 

 

With the addition of AuRico's  El Cubo mine (at right) and a smattering of nearby properties (shown in blue), Endeavour Silver (whose pre-transaction properties are shown in red) becomes the dominant presence in this legendary silver and gold camp. Great Panther Silver's properties are shown in green.

Endeavour also nabbed AuRico's Guadalupe y Calvo development project in the deal, which I believe holds meaningful potential to blossom into a potential fourth mine through further exploration. I urged Fools to view the project as icing on the AuRico cake when offering that stock as my No. 2 gold stock for 2012, but now it sweetens the picture for Endeavour accordingly. With a preliminary assessment in hand that estimates a net present value of $93.4 million for Guadalupe y Calvo, Endeavour will now dig into this 55,000-hectare land package for further signs of golden promise.

As with First Majestic Silver's (NYSE: AG  ) recent acquisition of Silvermex Resources, I believe investors can expect to find the full scope of added shareholder value coming into clearer view once Endeavour has had a little time to explore and further assess these promising assets. Eldorado Gold (NYSE: EGO  ) , for example, enjoyed a double-digit surge last week after mapping out the growth from its latest acquisition, and as a shareholder of all three growth-hungry miners, I look forward to tracking the realization of acquired value going forward. To track their progress alongside me, please bookmark my article list or follow me on Twitter.

After nearly settling for the acquisition of a non-producing asset with the attempted acquisition of explorer Cream Minerals in 2010, the patience and restraint exercised by Endeavour in its lengthy quest for mine No. 3 resulted in a far larger and more attractive deal. With this pair of assets from AuRico Gold, Endeavour fulfilled its preferred objective of acquiring a producing mine, all while scoring an exciting addition to its development pipeline for a possible mine No. 4. Endeavour continues to exhibit a thoughtful and deliberate approach to its growth trajectory that has enhanced shareholder value every step along the way, and I see more of the same with this transformative transaction. My bullish CAPScall on Endeavour Silver has been in place since mid-2007, and I expect forthcoming gains in the years ahead to resemble those already enjoyed to date.

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Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of AuRico Gold, Endeavour Silver, Eldorado Gold, First Majestic Silver, and Great Panther Silver. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is the only surviving member of Ferdinand Magellan's global circumnavigation. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (9) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 17, 2012, at 2:45 PM, jyanferng wrote:

    Sinch, what are your thoughts on how this deal impacts AUQ going forward? Was this really a good move in AUQ's part? Thanks.

  • Report this Comment On April 17, 2012, at 4:06 PM, XMFSinchiruna wrote:

    iyanferng,

    I do think it was a solid move for AuRico. They are assimilating a rapid and substantial growth spurt, and right-sizing the portfolio while restoring cash and potentially landing a nice investment stake in Endeavour. It strikes me as a positive move for both companies, though I would argue it is more positive for Endeavour than for AuRico.

  • Report this Comment On April 17, 2012, at 4:23 PM, SN3165 wrote:

    Love the deal. Also like managements inventory strategy... holding off on selling silver at depressed prices. I believe that will make millions of a difference

  • Report this Comment On April 17, 2012, at 4:31 PM, XMFSinchiruna wrote:

    SN3165,

    Agreed! Credit to President and COO Godfrey Walton for spearheading that activity.

    I'm also very excited to see what can become of El Cubo under David Howe's extremely capable care.

  • Report this Comment On April 17, 2012, at 7:09 PM, Frankydontfailme wrote:

    Thanks Sinch, EXK has become my favorite silver stock and I'm looking to acquire a sizable position on any dips.

    Unrelated, I don't believe I saw your thoughts on the Argentina debacle and how it may affect miner share value going forward GG, AUY come to mind... my guess is they are safe, but I'd value your opinion over mine on this issue.

  • Report this Comment On April 18, 2012, at 10:35 AM, XMFSinchiruna wrote:

    Franky,

    Fernandez de Kirchner's administration had previously raised a few eyebrows when she repealed the exemption for miners to the nation's currency repatriation policies...

    http://business.financialpost.com/2011/10/27/argentinas-repa...

    This latest action certainly does raise the alert to a whole new level, and I encourage mining investors to watch the unfolding events carefully. But I have seen nothing thus far that leads me to believe a broader push of resource nationalization is afoot. As Argentina's largest taxpayer, and producer of a very strategic commodity for Argentina's growth interests, I think YPF must be considered a special case, and national policies toward it not necessarily indicative of the broader stance toward the extractive industries.

    But the precedent is a damaging one. I will continue to hold each of the stocks in my portfolio with exposure to production or development in Argentina, and will continue to watch the events unfolding with interest.

    http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/04/18/...

    http://www.marketwatch.com/story/battle-for-ypf-doesnt-favor...

    "Nationalizing YPF is nothing new. In fact, this latest action represents a move toward re-nationalizing a company that spent most of its 90-year history under government control. It wasn’t until the early 1990s that Argentina, seeking outside investment in its shaky economy, put YPF up for grabs in the private market."

    http://news.bbc.co.uk/today/hi/today/newsid_9714000/9714254....

  • Report this Comment On April 18, 2012, at 11:01 AM, hsolliday wrote:

    Chris,

    Looking at your map of the mining district it looks like a merger of Great Panther and Endeavor would make sense.

  • Report this Comment On April 19, 2012, at 9:45 AM, XMFSinchiruna wrote:

    Hsolliday,

    Investors have been urging that pairing for years, and of course the companies have had dialogue on the matter. They are neighbors, and enjoy a good rapport with each other. But I am not counting on such a pairing.

  • Report this Comment On April 19, 2012, at 12:45 PM, BullionBullsBoot wrote:

    This appears to be a good deal to me also, but for the synergies, not just the new mine. After a couple of e-mail exchanges with Hugh Clarke, here of some things that hadn't occurred to me.

    Endeavour isn't lacking for rock. They had months of unprocessed ore awaiting processing at Guanajauto. They had a few rate limiters last year which they openly discussed on their mine tour.

    They lacked power going to the Guanjauato mill, which they needed for another crusher curcuit. This was addressed, and have beginning to processi more ore. They were also near capacity at Quancevi for processing concentrate. Well, El cubo has a leach plant. So, they will have less concentrate to ship, and will be saving trucking costs (and can process more concentrate)

    They will be able to use the Las Tores plant until May of 2013 under the present contract. So they will also be processing more ore. I can only assume that there will be another contract established sometime in the future. All this, on top of the additional reserves, and 2 operations within a few kilometers in Gaunajuato. This for around 10-15 million shares worth of dilution to the shareholders? Accretive dilution to be sure, and minimal at that.

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