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Summary

  • Endeavor Silver produced 2.6 million silver equivalent ounces in Q2, or a 6% year over year increase.
  • This is good news since production growth was essential to my investment thesis last August.
  • Endeavor Silver is an excellent company but it is priced for growth--wait for a pullback.

Endeavor Silver (NYSE:EXK) just announced its Q2 production figures. Silver production came in at 1.7 million ounces, or up 9% year over year. Gold production came in at 15,000 ounces, or down 24% year over year. Using a 60:1 gold:silver ratio this is about 2.6 million silver equivalent ounces, or up 6% year over year. Note that the decline in gold production was due to exceptionally strong gold production at the company's Guanacevi mine in 2013.

This production growth supports my initial investment thesis. Back in August I argued that Endeavor Silver wasn't necessarily a cheap silver mining stock, but given its decade-long track record of resource and production growth it was a stock worth owning. Since then the stock is up 24% while the price of silver is down 7%. This is due both to the growth I cite here and to the fact that the company has brought its production costs down considerably--all in sustaining costs fell from about $25/oz. last year to $13/oz. in the first quarter of this year, meaning that the company was able to turn a profit.

The stock has risen over the past 10 1/2 months it appears ready for a pullback, and I would not be adding at the current valuation. Investors should note that less than 2 months ago the shares traded at under $4 each and now the price tag exceeds $6. So even in a flat to slightly up silver market we can see the stock pull back 15% or so.

One last remark: we see in the press release that Endeavor Silver is beginning to deploy capital into exploration again, meaning that management is confident in the company's cash-flow potential and by extension in the silver market in the near-intermediate term. This seems risky but you are buying Endeavor shares because you believe in management's ability to generate value as demonstrated by its long-term track record.

Disclosure: The author is long EXK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Endeavor Silver Shows Q2 Production Growth