Endeavour to Build a High-Grade Silver Machine


With its existing silver machines beautifully tuned and properly honed, reliable growth provider Endeavour Silver (NYSE: EXK  ) laid out its plans this week to assign its signature stamp of impeccable quality onto the newly acquired El Cubo mine.

Mere days after delighting shareholders with year-over-year production growth of 22% for silver and a thrilling 59% for gold in the second quarter, Endeavour has laid out its plan to yield nearly 7 million silver-equivalent ounces during 2012 now that El Cubo has entered the fold. It's clear Endeavour has identified fundamental efficiencies it can bring to the El Cubo operations and that the mine will soon yield far higher production grades than it did under management by AuRico Gold (NYSE: AUQ  ) .

In a nutshell, Endeavour intends to tweak the El Cubo operations to reduce dilution of the high-grade ore by right-sizing equipment and extraction methods to the ore veins as they present themselves underground. The proposed transformation is very reminiscent of the recent improvements executed by Brigus Gold (NYSE: BRD  ) at its Black Fox mine in Canada's Ontario province. Both transformations involved retraining of mine personnel to adapt to the geological characteristics of the orebody, improving control of production grades by field geologists, increasing the number of stopes available for production, and matching the right equipment with the underground tasks at hand.

Simultaneously, Endeavour has issued an initial resource estimate for El Cubo that takes a decidedly more conservative and grade-focused approach to the asset. The result is a resource with "significantly fewer tonnes at significantly higher grades," and a property that retains excellent promise of future expansion through continued exploration drilling. Relative to AuRico's last resource estimate for El Cubo, the revised estimate yields a remarkable 78% improvement in reserve grade for silver, and a 51% grade-increase for gold. Even with the reduction in tonnage of ore, the addition of El Cubo increases Endeavour's estimated global resource by 44% to some 149 million SEOs.

Tossing that all into a revised mine plan that includes substantial improvements to the mine's El Tajo mill facility, Endeavour expects El Cubo to yield more than 1 million SEOs during the second half of 2012 alone. The revised consolidated forecast of 6.74 million to 6.92 million SEOs places Endeavour's expected volume ahead of Silvercorp Metals' (NYSE: SVM  ) realized output for its fiscal 2012, and keeps Endeavour out in front of the industry's fastest-growing producer: Aurcana (OTC: AUNFF.PK).

I have witnessed first-hand how Endeavour's meticulous pursuit of growth and quality turned its Guanajuato mine (now renamed "Bolanitos" after the El Cubo acquisition) into one of the best-run operations in the business, and as a shareholder I am excited to see the value Endeavour can add to El Cubo through its top-notch management team. I have retained my bullish CAPScall on Endeavour Silver since mid-2007, and I have every intention of keeping that pick open for many years to come... just as I will guard my own shares closely.


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 Aurcana, AuRico Gold, Brigus Gold, and Endeavour 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 has a disclosure policy.


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  • Report this Comment On July 16, 2012, at 3:55 PM, maxbentley wrote:

    Hi Chris,

    AUN or AUNFF will declare Shafter commercial production at a run rate of 3.8 million oz silver-without the 11% AU credits that were showing in the first poured bars.

    La Negra should be ramping up to 2,500 tpd now or within weeks as that is the near term stated goal with the project now running at 2,200 tpd+.

    That is then a run rate of 3.2 million oz eq.

    Without the considerable gold credits AUN have been pulling at Shafter AUN will be running at 7,000,000 oz Ag Eq. between the two projects.

    Of course,both projects are then to have further increases in production as the infrastructure for 2,500 tpd production is already in place at Shafter now.

    Additionally,Lenic has stated they will take LN beyond the 2,500 tpd production rate in 2013.

    Thanks for your hard work and excellent articles.

    Matt

  • Report this Comment On July 17, 2012, at 12:26 PM, maxbentley wrote:

    To clarify my initial statement:

    La Negra mine is now milling at a rate greater than 2,200 tpd.

    The mill upgrade expansion to 2500 tpd is currently in progress and will be completed well before the original expansion date of 2013, with minimal capital expenditures.

    Shafter is now in the ramp up phase and will produce 1,500 tpd capacity upon announcement of commercial production.

    Ramp-up expected to be completed later this month, July, 2012.

    http://www.aurcana.com/s/NewsReleases.asp?ReportID=536302

    LN is operating at 2.76 million oz eq on an annualized basis as per Q2 record production.

    2,200 -2,500 TPD is another 300 tpd expected in production or 13.5%.

    That is 3.12 million oz eg eq from LN expected this quarter with Shafter running at 1,500 tpd or the 3.8 million oz production rate in July.

    If we tally in the 11% gold content shown in the first pours at Shafter we are safely over the 7 million oz annual production rate.

    If high grade Block 3 ore is being accessed/processed now we can expect AUN to better the EDR maximum 2012 production projections this month or in the very near future.

  • Report this Comment On July 21, 2012, at 12:07 PM, Troy2008 wrote:

    EXK is and has been falling all year. It's a toad.

    http://finance.yahoo.com/echarts?s=EXK#symbol=exk;range=ytd;...

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