The Lost Art of Patience Pays for Endeavour Silver

Christopher Barker, The Motley Fool
Updated

I'm told that Endeavour Silver (NYS: EXK) Chairman and CEO Bradford Cooke has a nickname around the office. They call him "the Captain," which fits nicely with the fact that the company was named after the famous vessel that carried Captain James Cook and his crew on their legendary voyage of discovery.

Under "Captain" Cooke's able command, Endeavour Silver has breezed its way through a remarkable campaign of organic growth at its pair of producing mines in Mexico. Aside from the consistent execution behind that successful growth trajectory, the achievement is remarkable for the lengthy period of research and careful deliberation that preceded this week's announcement that Endeavour will finally acquire its third producing mine. As revealed during my conversation with Cooke back in August of 2010, the company's tireless quest for mine No. 3 began more than three years ago!

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"Captain" Bradford Cooke, CEO of Endeavour Silver, standing near a display of drill core samples from the Guanajuato complex during a tour of the Guanajuato mines in October 2011. Photograph by Christopher Barker.


"Captain" Bradford Cooke, CEO of Endeavour Silver, standing near a display of drill core samples from the Guanajuato complex during a tour of the Guanajuato mines in October 2011. Photograph by Christopher Barker.

Like Ferdinand Magellan's three-year expedition, which yielded the first circumnavigation of the globe, Endeavour Silver's quest for a third silver mine ultimately led right back to the company's backyard. According to a definitive letter of agreement announced over the weekend, Endeavour will acquire the producing El Cubo mine from AuRico Gold (NYS: AUQ) that sits just a few kilometers to the east of Endeavour's complex of mines in Guanajuato, Mexico.

For total consideration of between $200 million and $250 million, including up to $100 million payable in Endeavour shares, Endeavour will launch straight into the mid-tier silver space with an instant 12% increase in projected 2012 output to at least 4.8 million silver ounces. The move will double Endeavour's proven and probable silver reserves while fueling a major 477% increase in gold reserves to 0.39 million ounces. Going forward, Endeavour hopes to tweak mill and mining operations, expand the resource through exploration, and capitalize on synergies with the nearby Guanajuato operations to reduce El Cubo's cost structure. As that occurs, AuRico Gold looks forward to joining the profitable expedition through a potentially sizable investment stake in Endeavour. The following map offers readers a helpful context for the relative locations of AuRico's El Cubo mine, Great Panther Silver's (ASE: GPL) Guanajuato mine, and Endeavour's neighboring mine complex of the same name.

With the addition of AuRico's El Cubo mine (at right) and a smattering of nearby properties (shown in blue), Endeavour Silver (whose pre-transaction properties are shown in red) becomes the dominant presence in this legendary silver and gold camp. Great Panther Silver's properties are shown in green.

Endeavour also nabbed AuRico's Guadalupe y Calvo development project in the deal, which I believe holds meaningful potential to blossom into a potential fourth mine through further exploration. I urged Fools to view the project as icing on the AuRico cake when offering that stock as my No. 2 gold stock for 2012, but now it sweetens the picture for Endeavour accordingly. With a preliminary assessment in hand that estimates a net present value of $93.4 million for Guadalupe y Calvo, Endeavour will now dig into this 55,000-hectare land package for further signs of golden promise.

As with First Majestic Silver's (NYS: AG) recent acquisition of Silvermex Resources, I believe investors can expect to find the full scope of added shareholder value coming into clearer view once Endeavour has had a little time to explore and further assess these promising assets. Eldorado Gold (NYS: EGO) , for example, enjoyed a double-digit surge last week after mapping out the growth from its latest acquisition, and as a shareholder of all three growth-hungry miners, I look forward to tracking the realization of acquired value going forward. To track their progress alongside me, please bookmark my article list or follow me on Twitter.

After nearly settling for the acquisition of a non-producing asset with the attempted acquisition of explorer Cream Minerals in 2010, the patience and restraint exercised by Endeavour in its lengthy quest for mine No. 3 resulted in a far larger and more attractive deal. With this pair of assets from AuRico Gold, Endeavour fulfilled its preferred objective of acquiring a producing mine, all while scoring an exciting addition to its development pipeline for a possible mine No. 4. Endeavour continues to exhibit a thoughtful and deliberate approach to its growth trajectory that has enhanced shareholder value every step along the way, and I see more of the same with this transformative transaction. My bullish CAPScall on Endeavour Silver has been in place since mid-2007, and I expect forthcoming gains in the years ahead to resemble those already enjoyed to date.

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At the time thisarticle was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of AuRico Gold, Endeavour Silver, Eldorado Gold, First Majestic Silver, and Great Panther Silver. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool'sdisclosure policyis the only surviving member of Ferdinand Magellan's global circumnavigation. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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