Friday, December 10, 2010

Investors Guru Small Cap Stock Observer

(TSX: EDV) Endeavour Mining - Canaccord Genuity Reports On Endeavour Mining

Endeavour Mining Corp (TSX: EDV) is a company in transition.

In September, Endeavour sold its 43% stake in Crew Gold (TSX: CRU) for a quick $80 million profit. EDV also advised on the $858 million project financing for Baja Mining Corp, which closed a couple of weeks ago.

But Endeavour is changing its focus to gold production.

A November 18, 2010 research report from Canaccord Genuity raises the target price for EDV from $4.65 to $5.00.

The report, authored by Nicholas Campbell, states that “EDV is one of the cheapest gold producers in our coverage universe. EDV is trading at an EV of only US$50/oz compared with the junior gold average of US$138/oz”.

Endeavour is a junior gold producer with a 90% interest in the Youga gold mine in Burkina Faso, an 85% interest in the Agbaou gold project in Cote d’Ivoire and a 40% interest in the Finkolo gold project in Mali.

The company is currently producing about 80,000 ounces of gold per year. Canaccord Genuity expects this to grow to 175,000 ounces of gold per year by 2013.

“Endeavour ended the quarter with US$187.8 million in cash and equivalents, US$22.4
million in long-term debt with an undrawn US$100 million acquisition facility in place,” states the report, “Endeavour has been vocal about its intention to use its substantial balance sheet to grow its production through acquisition. Investors continue to wait and see what the company intends to make a bid on and how much it pays to add new production ounces to its platform.”

Apparently size does matter.

Expressed as a multiple of Net Asset Value (NAV), the valuations given to intermediate gold producers are significantly higher than juniors.

So there are two big accelerants to EDV’s market cap and stock price:
1.) The long-term upward trend in gold prices,
2.) Higher valuation of the company as it moves into a new class of gold producer.

The power of this twin-engine jet is causing Canaccord to predict a 75% increase in stock price over the next 12 months.

But if the market is “always right” – then why is EDV such a screaming bargain?

The answer to this question may be buried in the Canaccord report: “Some investors have been hesitant in taking a position in EDV as the company transitioned into a gold producer.”

Moving from this business model to operating gold mines in Africa is a big leap. Too big to provide comfort for the market, however the early data out of the Youga mine – which Endeavour is now operating - suggests the operational expertise is there.

The Youga mine had a solid quarter of operations, producing 23,173 ounces of gold at a cash cost of US$598 per ounce.

“EDV is a cash flowing, producing gold company with organic growth and a substantial balance sheet,” summarizes the report, “for those interested in holding or building a position in gold equities, ”.

The market’s conservatism around business model transformation may have created a buying opportunity - for those who believe that Endeavour will thrive as a gold producer.

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Thursday, December 9, 2010

Guru Trader Video - Today's Small-Cap Breakout Stocks

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