To The Moon

Stocks had a rare down week across the board, with a strong labor market and Fed officials casting doubt on the future path of rate cuts. The best-performing concepts are silver, precious metals and coal & consumable fuels.

Considering the different perceptions of the stock, this time TigerPicks chose $Endeavour Silver(EXK)$ to have a fundamental highlight to help users understand it better.

$Endeavour Silver(EXK)$

Endeavour Silver Corp has emerged as one of the best-performing precious metals miners this year amid the ongoing surge in the price of gold and silver. Shares have more than doubled from their Q1 low, rebounding sharply compared to the volatile and challenging 2023.

We see room for the momentum to continue with several catalysts to propel EXK higher. Notably, the expectation of the company's new "Terronera" mine to come online later this year is set to drive significant growth. In our view, EXK is a must-own stock in the silver mining space.

Terronera Set to Begin Production By Q4 2024

The bigger story here is the anticipation for the initial production of Endeavour's newest "Terronera" expected by Q4 this year. The latest update is a 43% construction completion with a larger portion of the $170 million capital commitment already spent in what has been a 10-year planning process.

In our view, the project represents a game-changer for the company, expected to nearly double the current production by adding 7 million AgEq ounces in annual output. Keep in mind that the company has other assets in development with future growth potential.

EXK metrics

source: company IR

The other dynamic here is that Terronera at capacity is set to deliver exceptionally low cash cost of production relative to Endeavour's global silver miners peer group. The life-of-mine site all-in-sustaining costs "LOM MAISC" is estimated to be $2.15 per ounce, highlighting the significant profitability impact that can be expected into 2025 and beyond.

EXK metrics

source: company IR

What's Next For EXK?

EXK is in a good spot considering its planned production growth precisely as the prices for silver and gold are breaking out higher. Gold above $2,300/oz is at its highest level on record and silver currently trading above $27.50 is at a three-year high.

From a technical perspective, we believe the $30/oz milestone is on the table for silver this year which could kickstart a bigger wave of momentum retesting levels going back to its run in 2011.

According to the "Silver Institute" industry group, the forecast is for a global supply deficit to extend for its fourth consecutive year through 2024 as a fundamental tailwind for higher prices.

We can point to recently stronger economic data including from out of China as adding to the demand side of the equation while silver continues to play an important role in high-tech and industrial applications as a demand driver.

There is also a component here related to macro uncertainty between the direction of inflation and the next steps in Fed policy. In many ways, the current action in silver reflects its traditional role as a store of wealth or as a flight to safety asset.

EXK metrics

source: finviz

Naturally, Endeavour Silver is well-positioned to benefit with higher prices directly driving its revenue and earnings potential. Notably, shares trading at a 3x EV to sales multiple is at a discount compared to the 3-year average for the valuation multiple.

Chart

Data by YCharts

This metric reached as high as 7.5x back in 2021 highlighting the upside potential assuming the rally in precious metals continues. We'd also say that the EV to EBITDA multiple closer to 13x on a forward basis is compelling considering the production ramp-up expected by next year.

From the stock price chart, EXK traded as high as $4.50 in Q2 2023 which we believe can work as an upside target reflecting a strong metals pricing environment.

EXK metrics

Final Thoughts

We rate EXK as a buy, with industry-leading exposure to silver. The company appears to be moving beyond some of its operational and financial challenges faced in 2023 with a positive outlook for strong production growth.

In terms of risks, beyond what would be a disappointing reversal in metals prices, it will be important for Endeavour Silver to deliver on its guidance. Monitoring points over the next few quarters include performance metrics like quarterly gold and silver output, cost levels, cash flows, and profitability margins. We also want to see favorable progress toward the completion of Terronera.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 4 Wall Street analysts offering 12 month price targets for Endeavour Silver in the last 3 months. The average price target is $3.68 with a high forecast of $5.50 and a low forecast of $2.76. The average price target represents a 30.04% change from the last price of $2.83.

Resource:

https://seekingalpha.com/article/4682479-endeavour-silver-terronera-mine-will-be-game-changer-exk-stock

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