Endeavour Silver Corp.

EXK Details

Endeavour Silver Corp. (NYSE: EXK) is a mineral exploration and development company based in Canada that evaluates, acquires, explores, develops, and exploits precious metal prospects in Mexico and Chile. The Guanacevi Mine in Durango, the Bolanitos Mine in Guanajuato, and the El Compas Mine in Zacatecas are the company's three silver-gold mines in Mexico. It also owns three exploration projects in northern Chile: the Aida, Paloma, and Cerro Marquez.

Latest News:

• Released Sustainability Report: EXK released its 2021 Sustainability Report, titled "Bridge to the Future," on May 12, 2022. The report outlines its commitment to fully publish its objectives and performance while maintaining industry-leading corporate governance processes and delivering long-term value for all stakeholders while having a beneficial environmental and social effect.
• Targeted Drilling in Parral Project: The Company drilled 12 holes totalling 2,800 metres at Parral in Q1 2022 at USD 0.6 million, targeting various regions of the Veta Colorada vein. In a lot of ways, drilling verified predictions. In 2022, management plans to continue the exploration programme, to expand the resource.
• Acquisition of Pitarrilla: Pitarrilla will be sold by SSR Mining to EXK for USD 70 million-plus a 1.25% NSR royalty. It had earlier announced a USD 46 million equity financing to cover cash and a portion of the Pitarrilla acquisition price. The transaction is scheduled to close in Q2 FY22.

Q1FY22 Results:

• Robust Top Line: EXK posted net revenue of USD 57.7 million in Q1 FY22, up 67% from USD 34.5 million in Q1 FY21. The increase in revenue was driven by silver output, which grew by 176%, and the sale of the greater finished products inventory held on December 31, 2021.
• Increased Cash Flow: USD 20.6 million in operating cash flow before working capital changes, an increase of 293%. Mine operating cash flow before taxes increased 101% to USD 26.7 million.
• Liquidity Position: From December 31, 2021, to March 31, 2022, cash and cash equivalents grew from USD 103.3 million to USD 151.0 million. On March 31, 2022, the company had USD 168.4 million in working capital (December 31, 2021: USD 121.2 million), mainly attributable to net proceeds of USD 43.2 million from an equity offering and USD 21.7 million from operational operations.
• Q-o-Q Production and Cost Highlights: The following picture compares EXK's production increase in Q1 FY22 with Q1 FY21.

(Source: Company Filings)

Key Risks:

• Metals Pricing Risk: EXK is vulnerable to fluctuations in underlying commodity prices, any adverse move in silver prices could have a weigh on the EXK financial performance and stock performance as well.
• Foreign Exchange Risk: Foreign currency fluctuations are a risk for the company because of its activities in Mexico and Canada. Because many of the company's operational expenditures are paid in Mexican pesos and Canadian dollars, the volatility of the US dollar against these currencies will have an impact on the company's profitability.

FY 2022 Outlook:

 (Source: Company Filings)

Valuation Methodology: EV/Sales Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

EXK’s first quarter performance was strong, putting company on track to achieve our 2022 production guidance. High-grade ore at Guanacevi was a driving force and is expected to continue throughout the balance of the year, while production at Bolanitos remains solid.  Furter, elevated commodity prices in Q1FY22 supported company performance and underlying commodity prices are expected to remain elevated in short-term to mid-term which will further bolster the group’s performance in the upcoming quarter.

Considering the correction in stock price, robust top-line, operating improvements, associated risks, and current valuation, we recommend a "Hold" rating on the stock at the closing market price of USD 3.67, as of June 09, 2022.

1 Year Technical Price Chart (as of June 09, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.