Wednesday, August 3, 2016

Endeavour Silver - 2016 Forecast

Endeavour Silver is a predictable company. Its three mines, Guanacevi, Bolanitos and El Cubo, are well covered in the company's reports. Therefore it is quite easy to prepare the 2016 results forecast. The table below delivers all figures:

As the chart shows, assuming metal prices, metal sales and costs of production as shown in the table, in 2016 the company should deliver the EBITDA of $51.2 million.

Today Endeavour shares are trading at $5.03 a piece. At that price the company's enterprise value (EV) stands at $600.8 million so, if nothing changes, at year end the company should show a multiple of EV / EBITDA of  11.7 (today this multiple stands at 29.2).

Therefore it looks like in the medium - term Endeavour shares are not too expensive (the current high reading of 29.2 should hit 11.7 at year end).

However, the entire picture is not as bright as it seems. The company has quite a serious problem with production. This year it should produce less silver and gold than last year. Looking at operating profiles of its three mines I am confident that Guanacevi looks problematic:

Since 2014 Endeavour squeezes less and less from this operation (green line). For example, using today's prices of silver and gold, in 2014 it could sell one ton or ore processed and get around $160 for metals contained in this ore. In 2Q 2016 it was able to get only around $120 per one ton of ore. What is more, it looks like costs of production (red line) reached a plateau at around $70 - $80 per ton of ore. It means that margin delivered by Guanacevi is shrinking.

On the other side there is El Cubo:

Here everything is different (and better): metal value is going up and costs are stable or even going down.

I realize that the  management team is very busy to oversee its current portfolio - well, it is not an easy task. Fortunately, there are at least two projects, which in a relatively short time may go online: El Compas and Terronera , both located in Mexico (as other operations).

To be honest, if Endeavour does not open a new mine, the problems may escalate.

No comments:

Post a Comment