Wednesday, January 12, 2011

Investors Guru Small Cap Stock Observer

(TSX: EDV) Endeavour Mining - How To Buy Gold For $50 An Ounce


As Endeavour Mining Corp (TSX: EDV) transitions from merchant bank to gold miner, there is an opportunity to buy gold in the ground for $50 an ounce compared with a junior gold explorer average of $138 an ounce.

Why is a cash flowing, gold-producer with $165 million in petty cash trading at a discount to companies still fumbling around for permits?

The answer is clear: the market is struggling to absorb EDV’s business model transition – despite the improved balance sheet from the Youga gold mine in Burkina Faso.


No one can argue with Endeavour’s track record as a deal maker. It has brokered billions of dollars worth of deals in Canada, United States, Brazil, Colombia, Chile, Mexico, Angola, Burkina Faso, Côte d'Ivoire, China, Kazakhstan, Mongolia, Russia etc.

In Q4, 2010 EDV closed an $858 million deal for Baja Mining (TSX: BAJ) to develop a Copper/Cobalt deposit in Mexico. The negotiations displayed Endeavour’s trademark geological and financial sophistication involving off-take agreements and a consortium of Korean corporations. The same quarter EDV flipped its 43% stake in Crew Gold (TSX: CRU) for an $80 million profit.

But the market wants to know: what’s next?

Endeavour has been clear and vocal about its intention to become a mid-tier gold producer.


With $180 million in cash and access to a US$100 million Acquisition Debt Facility EDV has the ability to close deals. Their stated M&A acquisition strategy is focused on a relative P/NAV valuation metric. They are looking for projects that are undervalued due to financial or operational inefficiencies.

That’s a bit like saying a cat is looking for a comfortable place to sleep.

But what makes Endeavour’s ambitions worth noting is the intellectual capital it brings to its acquisition program. Operatives from EDV are currently inspecting gold production opportunities in South America and West Africa.

Will they succeed in finding a good deal and unlocking value for EDV shareholders? I don’t have a crystal ball. But I wouldn’t bet against them.

To put it bluntly, EDV’s financial and geological team are the Miami Heat of resource acquisition. With a $280 million war chest, they are driving hard to the net. I don’t know who or what is going to stop them.

The momentum around EDV is starting to build.

A November 18, 2010 research report from Canaccord Genuity raised the target price from $4.65 to $5.00 – almost a double from its current stock price of $2.85.

“EDV is one of the cheapest gold producers in our coverage universe,” states the report, authored by Nicholas Campbell, “Some investors have been hesitant in taking a position in EDV as the company transitioned into a gold producer”.

The report claims that “EDV is one of the cheapest gold producers in our coverage universe - trading at an EV (Enterprise Value) of only US$50/oz compared with the junior gold average of US$138/oz.

For resource investors looking for unlocked value, that’s worth noting: a gold producer trading at a 64% discount to the non-producer average. More at EndeavourMining.com .

Investors Guru Small Cap Stock Observer publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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Tuesday, January 11, 2011

Investors Guru Small Cap Stock Observer

(TSXV: CCY) Catalyst Copper - Copper Prices Electrify Investors


On December 31, 2010, copper continued its 2 year long ascent to a record high of $4.452 a pound as the global economy stumbled out of the most severe recession since World War II.

According to Barclays Capital, supplies of copper will lag demand by 825,000 metric tons in 2011, almost double this year’s deficit of 449,000 tons.

Copper inventories at the London Metal Exchange (LME) warehouses are down 26% in 2010 - the first annual decline since 2004.


Heavy bets are being made on the future spot price of copper. On November 24, 2010 the LME revealed that that a single unidentified trader owns about 70% of warehouse inventory – a $1.5 billion stake.

Introduction of Exchange Traded Funds (ETFs) may accelerate the depletion of copper inventories, according to Macquarie Bank Ltd.

Copper has tripled in two years on Chinese demand, the largest buyer of base metal. China consumes 40% of the world's copper production but holds only 6% of the world's reserves domestically.


With the copper supply / demand fundamentals looking so strong, big cap investors will be drawn to copper mining giants like Freeport McMoran (NYSE: FCX), BHP Billiton (NYSE: BHP), Xstrata (LSE: XTA) and Anglo American (LSE: AAL).

But with a collective market cap of about half a trillion dollars, those big trees are not going to triple in size any time soon. The serious money will be made investing in junior explorers proving up a mineable deposit who have the financial pedigree to raise the capital for a mine.

One company that fits these criteria is Catalyst Copper (TSXV: CCY) a Canadian junior that has just released an NI 43-101 compliant resource estimate at the La Verde copper project, Michoacán State, México.

Using a 0.2% copper cut-off grade, deposits at La Verde contain Measured and Indicated Resources of 2.1 billion pounds of copper and Inferred Resources of 1.3 billion pounds of copper.

The independent report indicates a potential for additional tonnage and recommends further delineation drilling around the perimeter of the deposits and at depth.

The CCY resource calculation is based on 596 drill-holes totalling 80,606 meters, conducted by previous owners. Results from these historic holes were verified with 11 diamond drill-holes totalling 6,319 meters plus nine definition drill-holes totalling 5,957 meters, completed by Catalyst Copper.

“These two deposits are exposed at surface and amenable to low-cost open-pit mining,” says Terry Hodson, Catalyst’s VP Exploration, “This, along with the excellent infrastructure that exists on site, should reduce future anticipated capital and operating costs for this project.”

Catalyst CEO John Greenslade just raised $823 million for Baja Mining (TSX: BAJ). He has staked his reputation on his assessment that the La Verde project is more straightforward (geologically and financially) than Baja.

Enterprise Value / lbs-in-the-ground comparisons with copper companies like Hana Mining (TSXV: HML), Redhawk Resources (TSXV: RDK) and Far West Mining (TSX: FWM) suggest that CCY has growth potential.


CCY is currently trading at $0.16 and has a market cap of only $35 million.

The surging price of copper and John Greenslade’s track record of developing mineable deposits, indicate that Catalyst is a company worth watching. More at CatalystCopper.com .

Investors Guru Small Cap Stock Observer publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.