What happened
Shares of Endeavor Silver (EXK -0.73%), a precious metals miner with exposure to both gold and silver, fell as much as 14% on March 16. Gold and silver prices were both under pressure today, which clearly didn't help investor sentiment. But the real driving force of the decline was probably an after-the-close news release from Endeavor on March 15.
So what
In January, Endeavor Silver agreed to buy the Pitarrilla project in Mexico from SSR Mining (SSRM 1.96%). The $70 million price tag was to be paid half in Endeavor stock with the remaining $35 million to be paid in either stock or cash, at SSR's discretion. In addition, SSR gets a royalty right on the project, which remains to be built. Yesterday's announcement basically means SSR chose cash, with Endeavor looking to sell shares in order to come up with the money.
Image source: Getty Images.
There's a couple of problems for investors here. The most obvious is that the $4.95 price at which Endeavor agreed to sell the shares was notably below the $5.37 per share at which the stock was trading hands at the end of the day on March 15. Given that the miner is selling over eight million shares, a discount isn't shocking or the least bit unusual. But investors normally react to such news by selling the stock down toward the issue price. On top of the price difference is the dilution that will come with the new shares, something else investors tend to worry about when sizable stock sales come about. So, while Endeavor is clearly investing in the future by acquiring a mine project, that doesn't change the impact of its actions in the here and now. So the stock decline makes sense.
Now what
Silver and gold miners tend to be fairly volatile as a group. Endeavor, with a roughly $850 million market cap, is also one of the smaller precious metals names, which adds to the volatility issue as well. Although long-term investors should probably pay more attention to the prospects of the new investment than one day's stock action, this really isn't a stock that most conservative investors should be looking at.
