Silver's Increasingly Profitable Endeavour

Like piping-hot potatoes, silver miners have not been much fun to hold onto lately. But with a timely reminder of the underlying profit potential of the best-run operators, Endeavour Silver (NYSE: EXK  ) handed investors an oven mitt dipped in a soothing salve.

Thanks to a meaningful 21% increase in first-quarter production yielding nearly 1.4 million silver-equivalent ounces (SEOs), Endeavour's adjusted earnings rose 35% to reach $19.6 million. Repeating the same winning strategies employed during the fourth quarter of 2011, the company again took the logical step of timing metal sales within this volatile price environment to score an average realized silver price that outperformed the average spot price. And yet again, the company ended the quarter with a sizeable metal inventory of about 1.15 SEOs after holding back some production as prices weakened toward the end of the period.

The company was not immune to some of the cost escalation that has plagued the entire industry of late. Citing increasing labor costs and currency conversion effects, Endeavour saw cash costs creep 35% higher to $6.26 per ounce. Ongoing capital improvement projects, particularly at Guanacevi, where some downtime occurred, also pressed those costs higher. As those initiatives are completed during the second half, Endeavour expects costs to moderate as production ramps higher.

Silver investors will recall that Fortuna Silver Mines (NYSE: FSM  ) suffered a rather dramatic surge in costs at its Caylloma mine in Peru during the fourth quarter, and Great Panther Silver (AMEX: GPL  ) is now battling to bring its production cost back beneath $10 per ounce. Endeavour's first-quarter cost, meanwhile, is right in line with that of much larger operator Coeur d'Alene Mines (NYSE: CDE  ) . Earlier this week, Coeur reported an 11% increase in adjusted profit (reaching $41.5 million).

Aside from the company's fine execution and robust profitability, the item that really caught my eye was Endeavour's indication that -- in addition to the deal struck with AuRico Gold (NYSE: AUQ  ) to purchase the El Cubo mine and the Guadalupe y Calvo development project -- "some exciting new property acquisitions elsewhere are now being evaluated." Endeavour's development pipeline is already shaping up very nicely, but I consider the prevailing impairment of valuations throughout the sector a perfect opportunity for further enhancing shareholder value. My bullish CAPScall on Endeavour Silver, in place now for nearly five years, will of course remain untouched, just like my real-life holding in the stock. I invite you to watch Endeavour Silver using My Watchlist, and to track my ongoing coverage by bookmarking my article feed or following me on Twitter. In the meantime, keep your oven mitts on and hold these hot silver potatoes.

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, Fortuna Silver Mines, and Great Panther Silver. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 10, 2012, at 11:20 PM, SN3165 wrote:

    Every time I think of selling EXK (to DCA my other beaten down positions) I always stop myself... :-)

  • Report this Comment On May 11, 2012, at 11:10 AM, StopPrintinMoney wrote:

    if silver price wasn't manipulated by the big guys, it'd be much higher by now. On the side note, technically speaking, silver is trending down. I sold my SLV positions, but hold on to the SLW for now.

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