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« Silver versus Gold? | Main | Silver Wheaton: Approaching Buying Opportunity »

Endeavour Silver Corporation: A Silly Season Buy?

Endeavour at Amex 31aug07

We have twice bought into Endeavour Silver Corporation at higher levels than the stock can be bought for today. So is this stock now the bargain of the silly season?

First we need to recognise the reasons for the stock being sold off. As with most precious metals stocks it is a victim of the market sell off brought about by the wobble in subprime mortgage sector. This wobble sent investors rushing into cash in order to cover their positions so anything that could be used to raise cash was used regardless of fundamentals.

Should we buy today you ask? Well there are a number of considerations; firstly we need to take a look at the cash position of this company. Take note here, if your favourite company is shying away from this issue then dig in and make sure that you understand what their cash position is. Borrowing money for exploration and development projects carries risk and the premium for that risk is normally higher in times of uncertainty such as these.

To alleviate the concern over cash Endeavour issued a statement yesterday to clarify their position, quote:

“The Company currently has US $30 million in working capital, including US $25 million in cash, cash equivalents and marketable securities. A total of US $4.8 million of the US $25 million is held in three Canadian structured investment trust notes, also known as asset backed commercial paper ("ABCP").”

So we can see that the lions share of the working capital is in cash and therefore safe.

The statement goes on to say:

”These notes are rated R-1 (high) AAA by Dominion Bond Rating Service and mature in September but the current liquidity crisis for all ABCP has impacted the liquidity of these notes. The Company's broker-dealer advises that the current crisis is one of liquidity, not quality, that most of the debt collateral to the notes constitutes high quality bonds and only about 4% of the debt collateral is in the sub-prime mortgage market.”

“So the ABCP liquidity crisis has no impact on the Company or its operations at this time or for the foreseeable future.”

This explanation in our humble opinion dispels any fears that we may have had regarding Endeavours cash position.

Now lets take a peek at the chart:

Endeavour Chart 31aug07

We can see that the share price has been battered, however having compared it to a number of other charts in the silver mining sector we find that they all pretty much in the same boat.

The technical indicators are bouncing along the bottom of their respective ranges, which is a buy sign to us. The stock price is going sideways in an attempt to consolidate at around the $3.25 level. If and when the 50dma crosses the 200dma it could be negative for the stock, this is not a rule that is cast in concrete but some chartists act on it regardless of other considerations.

This cross over will probably take place in the next week or two, so we will be able to observe the effect on the stock price. The stock is now so low that the effect of this cross over may be insignificant, which we suspect it will be.

In conclusion we are prepared to wait a little longer while the current market oscillations work themselves out. At $3.25 this stock is definitely a steal and we may miss some of the rise by waiting which we are prepared to forgo. The next ten days should be very interesting and we will keep our reader of the FREE Silver Prices Newsletter posted if we decide to make a move. If this stock is one of your favourites then buy it now as we are hoping to pick it up at ‘giveaway’ prices.

Endeavour Silver Corporation trades as:
EJD: DBFrankfurt

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