Endeavour Silver Reports Initial Assessment of El Compas Mine

The project was found to be economically robust

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Endeavour Silver Corp. (EXK, Financial) (TSX:EDR, Financial) announced Monday it has completed an initial National Instrument 43-101 Mineral Resource Estimate and a Preliminary Economic Assessment for its El Compas project in Mexico.

According to the assessment, the project is economically robust and the company decided to proceed with mine development. Management stressed this decision was not made purely off the results of the assessments however. Rather, the company based its decision on the fact it has successfully developed similar mines in Mexico, the total capital required is low and it has enough experience to build and operate a mine of this size.

Bradford Cooke, Endeavour's CEO, expressed the company's excitement for its new mine, which will be its fourth. He highlighted El Compas and El Orito, another one of its projects, are relatively shallow and high grade, indicating they will be profitable.

"The operation is very scalable if we discover or purchase additional mineral resources in the Zacatecas district and refurbish the second ball mill to double the plant capacity to 500 tonnes per day (tpd)," Cooke said. "With the low capital investment of $10 million funded by existing cash and the short timeline of only six months to initial production once we receive the explosives permit and tax clarity, the El Compas mine has the near-term potential to become a healthy contributor to our consolidated cash flow.”

Endeavour has 100% interest in the El Compas mine. It is a gold and silver deposit located in the Mexican state of Zacatecas.

The company plans to process 200 tonnes of mineral per day at the mine or “will process 300,000 tonnes over the 4.3-year mine life grading 86.4 grams per tonne (gpt) silver and 6.3 gpt gold." Â The total life of mine production will be 583,000 ounces of silver and 49,400 ounces of gold.

In regard to the project's economic valuation, considering an average price per ounce of silver of $18 and an average price per ounce of gold of $1,260, the project is estimated to have an internal rate of return (or IRR) of 42%, a net present value of $12.6 million and a payback period of 2.1 years.

Usually when a project has an IRR of 30% to 35%, it is considered to be a financially robust operation. Therefore, we can find a valuation of the El Campos project using the following net present value (NPV) calculation to see how much this project can add to the value of the stock.

The preliminary economic assessment estimates a NPV of $12.6 million and a 5% discount rate. Considering the company has 127.08 million shares outstanding, we can calculate the net present value per share as: $12.6 million divided by 127.08 million shares, which equals 10 cents per share.

Assuming analysts' average target price for Endeavour is based on a valuation model like the DCF, if we add 10 cents to the average target price of $4.31, we will get a new target price of $4.41 per share. This new target price represents a 41% upside from the current share price of $3.13.

Recently, another analysis firm began covering Endeavour Silver and released a buy rating. The current recommendation rating is 2.8, which ranges between 1.0 (Strong Buy) and Sell (5.0).

Endeavour Silver is currently trading with a price-earnings (P/E) ratio of 2.59 and a price-book (P/B) ratio of 2.98. The EV/EBITDA ratio is 9.93.

Disclosure: I have no positions in Endeavour Silver.

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