Tuesday, April 4, 2017

Endeavour Silver - Terronera

Yesterday Endeavour Silver announced the results of the Pre-Feasibility Study on Terronera. Well, the problem is that the detailed study will be available within 45 days from the announcement. However, on the first sight the project is not impressive (at least for me).

Firstly, net present value of the project (I assume the company means the after-tax NPV) is $78.1M (base case scenario):

Recalculating this figure on a-per-share basis it means that Terronera should increase the company's value by $0.61 a share so investors reacted on the news and started aggressively buying Endeavour shares. At the time of writing this post the shares are up by $0.46 per share since the announcement so...it looks like the initial impulse is going to dissipate quickly. But you know, markets are crazy so...who knows.

Other measures, IRR and payback period, are not impressive as well (especially the payback period of 4.3 years is quite extended).

Another point - the total cost of production (mining, processing, administration and royalties) is estimated at $72 per ton of ore. Well, it is a very low cost. For example, the lowest cost mine in the company's portfolio, Bolanitos, has been producing its metals at the average costs of production (2012 - 2016) of $75.4 per ton of ore.

Further, it looks like the company omitted the external dilution factor, which, for the cut and fill mining method stands at 15%. Here is an excerpt from the company's  reserves estimate (point 7):

"Dilution factors for mineral reserve estimate calculations averaged 29% for Guanaceví, 21% for Bolañitos, and 30% for El Cubo. Dilution factors are calculated based on internal stope dilution calculations and external dilution factors of 15% for cut and fill mining and 30% for long hole mining"

If I am correct, the total life of mine production  should stand at 19.2M ounces of silver (instead of 22.6M) and 157 thousand ounces of gold (instead of 185 thousand). Expect my additional comments when the PEA is available.

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