Endeavour Silver (Positively) Surprises Me

Oct. 9.13 | About: Endeavour Silver (EXK)

The Q3 production results are out

Endeavour Silver (NYSE:EXK) has just released its quarterly production results and although the company recently raised its production guidance for this year, I'm positively surprised by the Q3 production numbers.

The silver production increased by 63% to 1.855M ounces and the total gold output increased by 95% to almost 23,000 ounces, which is a very impressive result. Even though the silver price fell by 21% compared to the same quarter last year, the company was able to increase its revenue by 31% to $67.8M, thanks to the increased output.

My view on these results

I'm impressed with the production results, even though the company has recently raised its guidance. I think Endeavour Silver will be free cash flow positive in Q3 thanks to the increased production, and the production of "cheap" silver by "cleaning out the Las Torres plant" before returning it to the owner after the lease ended.

However, I would like to emphasize the Q4 production will be lower as the company has returned the Las Torres mill to its owner, which will reduce the total throughput capacity (fortunately, a part of the throughput loss will be compensated by the availability of the El Cubo plant). As such, I don't think we should be aiming for these production numbers to be repeated in Q4.

I do however now expect Endeavour Silver to beat its target of 6 million ounces of silver and 68,000 ounces of gold, as in the first nine months of this year, EXK already produced 4.74Moz of silver and almost 56,000 ounces of gold. As such, I expect the total 2013 production to come in around 6.25Moz and the gold production around 72-74,000 ounces of gold.

Conclusion

2013 won't be as bad for EXK as I originally thought, and I now think the company will beat its own upward revised production guidance. Keep in mind that the Q3 production contained the benefits of closing the Las Torres facility, and Q4 will be the first full quarter where EXK cannot rely on the Las Torres plant anymore.

Endeavour Silver will release its earnings on November 5, and I'm looking forward to glancing at the updated balance sheet.

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.