Jaime Carrasco Endeavour Silver Corp. EDR-T BUY Aug 25, 2011

Great company. Great story. Well managed. Located in Mexico. They continue to add reserves and lower the cost of production. One of the lowest cost producers so will have leverage to silver going forward. His concern is that on production uptake how much can they actually continue to produce.

Broke support to fall below $8. Most of these things are a bit oversold right now and there might be an oversold bounce. The upside will be contained to $8 in a good situation but more like $7.

Has a collection of assets in West Africa. Very well run company. Production is probably in the order of 400,000 ounces a year. Good size company with critical mass. Costs are a little bit high on the spectrum. Their new asset has started up on time and on budget, and is delivering lots of cash flow. Probably not the best time to own this because most of that cash flow over the next 12-24 months has to go towards de-levering the balance sheet. (I have received an e-mail from a viewer that this info is incorrect, but my tapes are no longer available to verify what was said. West Africa is the problem. Please be aware that this info may be wrong. Thanks Bill).

They have huge debt loads they have to deal with. It does not intrigue him. Look at debt levels relative to revenues with companies you are looking to buy. It is on his watch list but is a minor player.

Silver. It is also an industrial metal so an improvement in the economy should put up the price of silver. The relationship to gold is still on the low side of their relationship to gold over the very long term. He would prefer FVI-T (Fortuna) because it is so much cheaper. (Analysts’ price target is $7.60)

EDR is flat this year. Market cap $841M. Valuation 29X earnings. Net cash is $60M. Following some weak years, EPS is expected to nearly triple this year and nearly double next year. The first quarter was solid with EPS 46% better than estimates. But  revenue did decline, and the company cited cost pressures and the rise in the Peso. Inflationary pressures of course are not unique to the company, but they are making investors cautious. We would consider it OK. The Terronera project is getting de-risked and looks better. Cash flow should be good. We would consider it a decent midcap for the sector. 
Unlock Premium - Try 5i Free

Silver has disappointed investors over the last 3 years; all are in the penalty box. He's attracted to silver. Portfolio comprised mainly of second-tier mines, and he prefers larger mines at the lower end of the cost curve. When the market turns around, and it will, EDR will participate.