Endeavour's Cream of the Silver Crop

The most memorable pairings often begin with an ounce of friction. Remember when Harry met Sally?

From where I stand, I can see sparks of chemistry flying between Endeavour Silver (AMEX: EXK  ) and acquisition target Cream Minerals, even if Cream is presently curdling with opposition to Endeavour's advances.

When I spoke with Endeavour chairman and CEO Bradford Cooke last month, he described a process -- already two years in the making -- to identify and acquire the asset that would become Endeavour's "mine No. 3." Following an exhaustive review of silver-bearing properties in Mexico, and after finding no workable pairings involving producing silver assets, Cream Minerals' Nuevo Milenio exploration property ended up at the top of Cooke's list as the apparent cream of the Mexican silver crop.

In a conference call Tuesday, Cooke acknowledged the cavernous gap between Endeavour's $10.3 million cash offer for the explorer -- representing a 76% premium over a trailing-10-day average of the preoffer share price -- and a decidedly optimistic allusion to potential multibillion-dollar valuations emerging from a member of the Cream Minerals board of directors during prebid discussions.

Cooke pointed out that even the existing inferred resource of 58 million silver equivalent ounces (SEOs) required some verification, in part because the estimate was prepared in-house rather than by an independent contractor. According to the stated resource, however, the addition of Cream Minerals would expand Endeavour's total resource portfolio by 75%, to some 134 million SEOs.

With an untapped silver resource of that scale, plus the specter of further exploration upside, Endeavour many indeed have found the launch pad for its desired transition from a junior producer to the club of midtier primary silver producers. From estimated 2010 production of 3.1 million ounces of silver, Endeavour is already targeting organic production growth of about 50% over the next two years from the company's two existing mines.

Achieving production at Nuevo Milenio would, in my opinion, lift Endeavour Silver to a strategic position wherein major producers like Coeur d'Alene Mines (NYSE: CDE  ) and Hecla Mining (NYSE: HL  ) may take notice of an attractive bolt-on acquisition opportunity. But as megaminers Barrick Gold (NYSE: ABX  ) and Newmont Mining (NYSE: NEM  ) discovered -- when they were deftly outmaneuvered by golden deal master Goldcorp (NYSE: GG  ) -- the deal is not done until the ink is dry. With or without Cream, however, Endeavour is one savory slice of the silver pie.

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 Coeur d'Alene Mines, Endeavour Silver, and Hecla Mining.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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