Endeavour Silver Corp: Patience and Profits
COMMENTARY-ProspectingJournal.com-Silver is a volatile metal; it isn’t a secret and there isn’t much that can be done about it. But then again, some at Vancouver based Endeavour Silver Corp. (TSX: EDR)(NYSE: EXK)(FRANKFURT: EJD) would beg to differ. Endeavour Silver has just announced record earnings for the first quarter of 2012 that are as much a token to its innovative policies as they are to its efforts at expanding production. The end of 2011 would mark Endeavour’s seventh consecutive year of increasing gold and silver production. Its net earnings were posted at $18.8 million, marking a recovery from the previous year’s losses and effectively boosting revenues by 48 percent. Bradford Cooke, Chairman and CEO, noted, “Endeavour delivered yet another year of record financial, operating and exploration performance in 2011…the company has never been in a better financial position…[with] no debt, falling cash costs, rising silver production, record reserves and resources and higher precious metal prices”. It is a token to rapidly expanding exploration efforts that silver production for 2012 is set to reach 4.3 million ounces, indicating a 16 percent increase from the year prior. But amidst the record breaking numbers comes another story, the real eye catcher. Endeavour has approached the market in such a manner as to render the typically sweat-inducing volatility of silver prices irrelevant.
To begin, 2011 was a year that epitomized the unpredictability of the market. Silver prices reached $50 in April, bounced around until September where they stood at $40, before eventually dropping miserably to cap the year off at $28.18. So what did Endeavour do when they had to sell their silver inventories in 2011’s fourth quarter? They didn’t. Instead they heeded the advice of Eric Sprott, gold and silver investor and chairman of Sprott Inc., and, according to the company’s press release, “elected not to sell a significant portion of its metal production on the basis that the gold and silver prices were experiencing a major correction and the company would be better served to hold the unsold metal in inventory until such time as the metal prices rebounded”. Simple and effective. Endeavor Silver ended up selling that portion of its metal production in February this year, when prices regained momentum and reached $37. The strategy, one that effectively ensures higher prices, bodes well when combined with expanding production and high numbers of proven reserves. It is a recipe for improved investor confidence and one that, at the very minimum, will ensure share prices hold their value.
And the strategy is particularly effective in a market that comes close to guaranteeing long-term price inflation. Silver is used in a growing number of modern day applications and is particularly resolute because there are few substitutes for it. It is perceived as a safe method of storing wealth, particularly in today’s day and age where currencies cannot be depended on. The metal is an effective conductor of electricity and is widely used for having such properties. It also holds far-reaching applications in everything from alternative energy and automobiles to electronics and industrial capacity. Demand for the metal is only poised to rise rapidly. According to a report commissioned by the Silver Institute last year, silver’s industrial demand is set to grow by 36 percent by 2015. So with consumption set to increase enormously, expectations that the price of silver may even exceed $150 an ounce within the next decade do not seem so improbable.
It comes as little surprise that silver is fast becoming a necessary addition to any portfolio. Investors will be looking for the producer with expanding reserves and greater stability. So when companies like Endeavour Silver innovate in a manner that allows them to overcome the voracious volatility of silver prices, they become particularly enticing as an investment prospect.