Reasons Why Endeavour Silver Has Slid And Why It Might Have Upside Potential

| About: Endeavour Silver (EXK)

Endeavour Silver Corp. (NYSE:EXK) is a well-established gold/silver producer in Mexico. Since 2004 the company has posted eight consecutive years of growth. It currently has three operating mines, Guanacevi, Bolanitos, and El Cubo. All produced silver and gold in three different Mexico locations. On top of the three producing mines, there are seven exploration projects, one of which is located in Chile. EXK takes underperforming mines and turns them around to create new production from those mines.

In this article i will describe possible reasons in an EXK pullback. Some of these reasons indicate possible upside potential for EXK.

1) Back on October 17, 2012 AuRico Gold Inc. (NYSE:AUQ) sold its position in EXK. This was an 11% stake totaling 11 million shares. Cdn$8.60 was the price per share, equivalent to Us$8.63. So a pull back in share price is understandable. This liquidation of equity was 3 months after AUQ and EXK signed an agreement finalizing the aquisition of the El Cubo mine by EXK. Hopefully there is no monkey business involved here. Does AUQ know something about the mine that EXK doesn't? Why would AUQ sell shares in a company after that company just bought a mine that AUQ previously owned? That sounds fishy to me. An important note would be to watch El Cubo's production numbers. Any faulted in numbers might be a sign to get out of EXK.

2) Short positions

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
1/15/2013 494,521 1,077,810 1.000000
12/31/2012 698,689 891,296 1.000000
12/14/2012 639,512 1,106,343 1.000000
11/30/2012 701,844 1,060,940 1.000000
11/15/2012 436,163 1,324,191 1.000000
10/31/2012 679,976 1,333,474 1.000000
10/15/2012 1,269,112 973,506 1.303651
9/28/2012 1,055,434 1,556,058 1.000000
9/14/2012 1,087,422 1,490,356 1.000000
8/31/2012 1,056,476 1,107,219 1.000000
8/15/2012 911,730 796,200 1.145102
7/31/2012 1,113,676 955,469 1.165580
7/13/2012 1,449,674 1,130,365 1.282483
6/29/2012 1,478,656 1,261,877 1.171791
6/15/2012 1,607,684 1,231,822 1.305127
5/31/2012 1,143,119 1,498,262 1.000000
5/15/2012 784,175 1,273,232 1.000000
4/30/2012 1,464,440 1,032,355 1.418543
4/13/2012 1,736,298 1,293,513 1.342312
3/30/2012 1,025,548 1,363,807 1.000000
3/15/2012 519,520 1,342,715 1.000000
2/29/2012 615,948 1,428,176 1.000000
2/15/2012 751,360 1,113,835 1.000000


This chart of short positions shows very little reason to worry. The short interest/daily volume remains around 1 or lower. The lowest ratio being approximately 0.5. The stock is not heavily shorted by any means and has just seen its lowest short interest of 494,521 shares on January 15th.

stock chart


When looking at the chart of shorts and a chart of the stock price, very little correlation is seen. The short position ratio was around 1 for most of 2012. After October the ratio went even lower. The stock price did the same. Now we are at the lowest level of shorting in the past year and the lowest share price in the past year. With the combination of little shorting and 52-week lows, an upside seems very likely.

3) EXK is a sliver producer after all! Volatility in silver will lead to volatility for EXK.

stock chart


This chart shows how close silver and EXK follow each other. They turn away from each other towards the end of November 2012. This could indicate a nearing upside move if EXK tries to follow silver again. Silver by its nature, in economies like today, will go up in value relative to currencies. Hopefully EXK will follow.


I have reviewed the sale of EXK stock in October 2012, the level of short selling, and the correlation to silver. The sale of the stock by AUQ is a temporary attack on the share price. Little short selling and (just recently) the lowest short selling in the past year indicate investors don't think EXK is going to fall any farther. FInally, EXK is a silver producer and their share price does follow the silver spot. When silver slumps, so will EXK, which is not an indication of fault within the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.