Will Wall Street Discover Endeavor's Mines? Part II

| About: Endeavour Silver (EXK)

This is the 2nd part of a three part series on my tour of Endeavour Silver mining operations in Mexico.

Click here to read part one.

B. Guanacevi trip

Through the whole trip, the airplanes I flew since taking off from New York City had been getting smaller and smaller. It was Continental commercial jet from New York City to Houston, then Continental Express took over, a much smaller plane, that flew us from Houston to Guanajuato. At the end of the Guanajuato tour, Endeavour chartered a small but nice plane called Metroliner, which seated only 16 people, and flew us from Guanajuato to Durango.

The next day, the trip became even more adventuresome. From Durango, we flew on several Cessna planes which seated only 4 people and traveled from Durango to Guanacevi. They put me at the co-pilot seat, so that I could get a much better view while we flew for an hour through the beautiful mountains and forests in the central Mexico region. It was a much smoother flight than I expected, no wind at all. It was not quite the same situation in the afternoon, as you will see later.

Most of the silver produced currently for Endeavour is from the Guanacevi project, which has P&P reserves of 14 million ounces, M&I of 13 million and Inferred of 9 million ounces of silver. We toured the Porvenir mine on several tractors going through various tunnels (we didn't need to go down 180 meters underground this time). We made many stops along the way, and actually saw the workers drilling inside the mine.

Endeavour owns four main zones in this area, with drilling in fifth zone that is also promising. In the afternoon, they gave us a quick tour of the Guanacevi plant. In this process plant, visitors can actually see the last step of silver liquid being burned at a furnace, poured and cooled down in the mold, then we could actually touch the finished product of real silver bars. The bar itself weighs about 75 lb, so unfortunately they are a little too heavy to be carried around and run away with.

The plant has a recovery rate of 70% now, but has a target to reach over 85% by year's end. It processes 800 tons of ore at the moment, but Endeavour is in the process of improving to bring it to 1,200 tons per day; a 50% capacity increase. The 2008 capital investment in this plant is estimated at $7M. The Guanacevi project is located at the Santa Cruz vein, and in 2004, this was Endeavor's first acquisition, which has re-defined the whole company and re-shaped its business model.

Endeavour's business strategy has been to acquire old mines on the cheap, invest its capital to improve its standard and efficiency, and wherever successful, to continue to acquire more properties and expand in the nearby area along the veins. The Guanacevi project is a miracle from the start. They inspected the old mine in 2004, quickly made the decision to purchase the mine along with nearby properties and the old process plant with only a $7M initial payment.

Then they expanded the mining further along the vein into an un-mined area, discovered high grade silver, and started production in half year from the purchase, which is record time in the industry, and a proud achievement for Endeavour. They did all this in 2004, at the beginning of the current silver bull run - talk about perfect timing!

The afternoon flight from Guanacevi to Mazatlan was very bumpy. Our flight had to take off before 3 pm due to the gusty wind in the late afternoon, and the planes had to climb up quickly after taking off to fly over the mountain since the airstrip is right at the foothill. My plane was the 2nd one to take off, about 5 minutes to 3 pm. There was only one short unpaved dirt runway, and I was told sometimes people have to chase the horses and other animals off the runway before they can actually take off. Luckily that was not the case that day, otherwise we wouldn't have enough time.

I heard the last Cessna take off, barely beating the 3 pm deadline in the middle of a strong gust, and the pilot managed quickly and skillfully to maneuver between a couple of trees to finally reach a safe altitude. Half of the flight was as exciting as riding a roller coaster at Disney World due to the strong gust, but it gradually became calmer when we got closer to Mazatlan, a tourist city along the coast, which was the last stop of our exciting trip to Mexico.

In Part Three, I will discuss the financials of Endeavour Silver Company.