A Must-Buy Silver Stock
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The Canadian based silver mining company Endeavour Silver Corporation (NYSE: EXK) engages in acquisition, evaluation, exploration and development of silver properties in Mexico and Chile. The company has two mining segments: Guanacevi and Guanajuato.
Endeavour Silver Corporation: going forward
In 2013, Endeavour expects its silver production to grow by 12%-18% to 5-5.3 million ounces. The gold production is expected to increase 19%-27% to 46,000-49,000 ounces.
Cash production costs are expected to grow to $9-$10, mainly because of an increase in production at the El Cubo mine and low grades being extracted at Guanacevi. Later on, the costs associated with the El Cubo mine are expected to drop in 2013 amid higher operational efficiencies.
Endeavour plans on spending $19.3 million on exploration this year. The company has always focused on exploring new properties and converting them to production. This year, the company has plans to explore its new high silver discovery on the San Sebastian property in Jalisco.
In 2013, the company plans to invest $85.8 million on capital projects, out of which $44.9 million would be spent at El Cubo, $21.4 million at Bolanitos, and the rest at Guanacevi. Most of these investments would be made during the first six months of 2013.
Endeavour Silver is trading at a forward P/E (1yr) of 11.62 and has a mean recommendation of 2 on the sell side. We would generally value Endeavour Silver using the forward P/E (1-yr) of 11.2 for the silver industry. However, as Endeavour Silver is expected to outperform its peers in the coming years, we would value it at a 20% premium to the industry's forward P/E.
Using high consensus estimates, we value Endeavour Silver Corporation at $9.10, which depicts that it is undervalued by a mammoth 48%. This makes Endeavour Silver one of the best buys in the silver industry.
The silver industry’s other major players
Based in Idaho, Hecla Mining (NYSE: HL), is a silver / precious metals mining company. The company has operations in two areas, Greens Creek and Lucky Friday. Hecla Mining is trading at a forward P/E (1-yr) of 12.59 and has a dividend yield of 1.80%. It has a weak PEG of 36.62 and a meager growth rate of 1.20%. A PEGY of 14.61 doesn’t help the cause either, and a mean recommendation of 3.1 on the sell side shows that it isn’t an attractive buy in the silver industry. As a result, we don’t recommend buying Hecla Mining.
On the other hand, Silver Standard Resources (NASDAQ: SSRI) is trading at a forward P/E (1-yr) of 36.79, illustrating the fact that it’s almost three times more expensive than the average silver stock. It has a mean recommendation of 2.1 on the sell side and has a PEG of 0.83. This shows that Silver Standard Resources is an undervalued stock with upside potential. Silver Standard Resources is one of the better buys in the silver industry, but not the best.
In 2013, the biggest catalyst for Endeavour would be its new El Cubo mine. Once the company starts to extract substantial volumes of silver from the El Cubo mine, its production costs will be lowered due to high operational efficiency. With the El Cubo mine operating at its full capacity, the extraction of lower grades would be reduced at Guanacevi. This would further decrease the company's production costs. Furthermore, Bolanitos is still not operating at its full capacity; however, its production can be raised when needed. Going forward in 2014 and 2015, Endeavour has further plans of growing productions at all three mines.
As the demand for industrial silver is expected to grow in 2014, silver stocks are bound to fly high as well. Moreover, with steel prices still hovering around $29, it’s the best time to buy silver stocks. Having a great production outlook for 2013, Endeavour Silver Corporation is certainly one of the best buys in the silver industry. We recommend buying Endeavour Silver Corporation.
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