Endeavour Silver: What It Is All About

| About: Endeavour Silver (EXK)


I have maintained a buy rating on EXK.

Q3 results are out.

A discussion of production and financials.

Endeavour Silver (NYSE:EXK) is a name that I have wrestled with for some time, but have maintained a buy rating on, even though back in May I thought you should be taking SOME profits, considering the meteoric rise the stock had experienced. You know I was really surprised at first when the company decided to slash production entering 2016; however, upon further consideration, I concluded the long-term survival of the company took precedence and so saving cash was key. That said, since the company has been cutting its output in accordance with its plan, I want to take a look at results of Q3.

Production and finances are the focus of this piece. Considering the rebound we have seen for metal prices, it is a slight shame that production is being cut. That said, I had no real expectations for output, and truthfully the production numbers impressed me because they surpassed the company's planned production. Endeavour churned out silver production that was down (expectedly) year over year at 1,284,646 million ounces for Q3 2016. That, of course, is a 29% decline from last year. Gold production came in at 14,364 ounces, a 6% decrease year over year. Using a 75:1 ratio for silver to gold, it is important to note that for the quarter, silver equivalent production was 2.4 million ounces. Of course, this is down from last year in line with guidance. Gold sold was up 3% to 14,228 ounces while silver ounces sold were down 35% to 1,483,790 ounces.

So what is going in terms of finances? Well, as you can imagine with the production cuts and fewer ounces being sold, there was obvious pressure on earnings, although the company delivered a beat versus expectations. Factoring in sales, revenue was down 1% to $42.1 million year over year. It declined only slightly thanks to higher metals pricing. Realized silver prices were up 31% to $19.16 per ounce while gold prices were up 25% to $1,340 per ounce sold. That is solid. What is more, cash costs decreased 35% to $5.27 per silver ounce while all-in sustaining costs were $11.47. Taking into account the expenses and the generally strong revenues, net earnings came in at $5.6 million or $0.04 per share. This is a nice improvement from last year's loss of $14.1 million or $0.14 per share. One hell of a turn-around. Speaking on the quarter, CEO Bradford Cooke stated:

"Our financial performance in the third quarter was much improved thanks to higher metal prices and lower operating costs. Having successfully minimized our all-in sustaining costs and boosted our free cash flows in recent quarters, management continued to focus on optimizing near-term production and long-term growth in Q3, 2016. As a result of our growing cash position in recent quarters, we elected to increase our exploration and development budgets in H2, 2016, which means our AISC should rise in Q4, 2016. Notwithstanding, we are well ahead of our production targets and below our cost targets for the year so we expect to readily meet our guidance on both in 2016. We currently have 12 drill rigs working on six projects to grow our resource base. With the recent acquisition of the Parral properties to our project pipeline, Endeavour now has one of the strongest organic growth profiles in the silver mining sector."

So the planned production cuts will continue to go forward, but given the strong results the company raised production guidance nearly 13% for 2016. It now sees 2016 production of 9.0 to 9.8 million ounces of silver equivalent. On top of that it increased its capital expenditures budget to $17.4 million and bumped the exploration budget to $10.1 million. This is a clear result of lower production costs and higher metals prices. I continue to be bullish on the name, but of course, it's all about the price of the metals.

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Disclosure: I/we 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.