Update: Endeavour Silver Announces Its Widely Expected Resource Updates But Outlook Disappoints
Jan. 29, 2015 1:32 PM ET
The Investment Doctor - Seeking Alpha
Endeavour Silver increases its total resources, but the cost guidance for 2015 disappoints me a bit.
EXK will be FCF negative at the current silver price and I was hoping the company could have done better than this.
The investment thesis remains unchanged, as Endeavour Silver will still be free cash flow negative.
Endeavour Silver (NYSE:EXK) has announced the updated resource estimate for its most important mines in Mexico. The total amount of silver in the updated estimate stands at 127 million ounces (of which 60% is located in the reserve categories as well as the measured and indicated category). The update is quite positive as the reserves and M&I categories show an increase in the total amount of silver ounces (by approximately 5 million ounces). This is an important fact as it shows Endeavour Silver is effectively able to replace the ounces it mined out, and that's exactly what the market wants to see.
There's only a slight decrease of 1% in the inferred resource category, but as that's just 0.5Moz, I'm not worried at all about that. In an updated production guidance, Endeavour Silver expects to produce 9-10.1 million ounces of silver-equivalent this year which will consist of 5.8-6.4 million ounces of 'pure' silver as well as 47-52,000 ounces of gold. All-in sustaining costs should be in the $18-19/oz region and this means that Endeavour Silver will still be free cash flow negative at the current spot price of silver (which is trading at around $16.75/oz), even if you'd exclude the non-cash items. That's actually bad news as I was secretly hoping Endeavour Silver would have been able to reduce its cost profile even further. Unfortunately that's not the case and it will be another tough year for the company if the silver price doesn't improve.
I honestly expected Endeavour Silver to be in a position to release a better guidance, but it looks like we're headed for another year of losses and negative free cash flow. The situation isn't horrible and the net cash outflow should definitely be manageable, but Brad Cooke will have to continue to run a very tight ship.
Higher silver prices would prove very useful. $20.00 or higher would be great! We should get there soon.
