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Add Endeavour Silver as the Share Price Falls

- By Alberto Abaterusso

Due to the sluggish economy in China, which is the world's largest consumer of silver, the precious metal is downtrending.

Silver futures have declined 3.9% year to date, closing at $15.068 per troy ounce on Monday. The grey metal is down an average of $1.212 per troy ounce, or 7.21% year over year.

Meanwhile, the mining industry has been resilient over the same period as the Philadelphia Gold and Silver Index, which tracks publicly traded precious metals companies, gained 6.3% to close at $75.09 on Monday.


As long as China does not show any signs of a rebound, the price of the precious metal may continue to disappoint, suggesting investors in mining companies may need to rebalance their portfolios toward stocks that are expected to outperform the industry.

Wall Street released an overweight recommendation rating for shares of Canadian mid-tier miner Endeavour Silver Corp. (EXK), which means the stock is expected to top the benchmark index over the next 52 weeks. The average target price is $2.78.

The target represents a nearly 16% upside from the closing price of $2.42 on Monday. Regardless, I suggest investors wait for a significant weakness before buying shares of Endeavour Silver.

Though still not expensive, the stock is not trading at its cheapest. This is indicated by Monday's closing price being abundantly above the 200, 100 and 50-day simple moving average lines and 37.5% off the 52-week low of $1.76. The 52-week high is $3.35.

In addition, the price-book ratio of 2.17 is above the industry median of 1.62 and the enterprise value to earnings before interest, taxes, depreciation and amortization ratio of 13.44 is above the industry median of 8.71.

For 2019, Endeavour Silver guided production of approximately 8.1 million to 9.4 million ounces of silver equivalent from its three underground silver and gold mines, which are in Mexico. Production will be made at a consolidated cash cost of $8.50 to $9.50 per ounce of silver and an all-in sustaining cost of $15 to $16 per ounce, which will be slightly lower than in 2018.

The production target for the current year is roughly 7% lower than 9,494,593 ounces of silver equivalent produced in 2018.

Endeavour has several catalysts that could push its shares higher.

The first catalyst is the El Compas mine, which is, as of Monday, the company's fourth mine, as well as the Guanacevi and Bolanitos mines. These assets are expected to improve in 2019, contributing to a larger percentage of revenue.

The stock could also be boosted by any positive news concerning the advancement of the Terronera mine project, where Endeavour wishes to establish its fifth mine.

Endeavour's producing assets will absorb approximately $20.6 million in financial resources in 2019. The necessary cash will be taken from available liquidity, the divestment of short-term securities and operating cash flow.

The balance sheet is very solid. GuruFocus assigned a high financial strength rating of 8 out of 10.

The company is developing other mineral projects and exploring mineral properties in Mexico and Chile.

As of Dec. 31, Endeavour Silver had proven and probable reserves consisting of 46.98 million ounces of silver, grading 210 grams per ton of ore, and of 477,000 ounces of gold, grading 2.14 grams per ton of ore.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.