EDV - Pick of the MonthEndeavour Mining Capital (EDV, TSX) Pick of the Month
For those of you who are new subscribers to our newsletter and may be wondering which one resource stock offers the best opportunity for growth with the least risk, my pick would be Endeavour Mining Capital.
Endeavour provides strategies and financing to developing mining and oil & gas companies with the objective of growth for their clients and shareholders alike.
The key to developing upstart companies into tomorrow’s high profile success stories is matching the right mix of management personnel with high potential projects and then providing the capital to make it happen. Endeavour has proven their abilities to do this time and time again.
One of their first client’s was Wheaton River, which went from obscurity to one of the most actively traded mid tier gold and silver producers on the TSX and AMEX exchanges.
Endeavour offers investors a distinctly unique way to invest in developing and growth oriented mining and energy companies at the very earliest stages by virtue of you being a shareholder.
Since Endeavour creates many of their deals from the ground floor, they receive “cheap” paper or options which they can sell into the market at much higher prices. The results of their accomplishments may not be apparent every quarter in terms of revenue because they don’t necessarily have to sell their stock, options, or warrants.
Since Endeavour doesn’t reveal how much paper they hold on any given company at any given time, the best way to get a feel for how well they’re doing is by looking at the Net Asset Value of the company.
Recently the EDV announced their 2004 year-end results which ended August 31st. Income was US$ 14.7 million or $ 68 cents per share (about 89 cents CDN). The stock is currently trading below $4 with a conservative 4.32 PE (price/earnings) ratio. In addition, shareholders get an annual dividend of 7 cents per share (3.5 cents every 6 months).
All in all that looks good but it doesn’t give investors the real picture and true value of how this company is building wealth for their shareholders.
Consider this. As of October 31st Endeavour’s Net Asset Value was $4.70 and it’s trading at about $3.65 right now – a dollar less then its NAV!
The NAV of the company has been growing strongly. From the 2002 year end to the 2003 year end, the company’s NAV grew by 55%. From 2003 to October 31st 2004, the NAV has increased by another 26%.
In view of the bullish resource market, particularly gold which is starting its next upswing; the prospects for Endeavour’s NAV to grow again in 2005 look very promising.
BMO Nesbitt Burns gold research reported earlier this year that gold companies as an industry have a premium of 16% to NAV. That breaks downs to a 4% premium for junior producers and a 31% premium for senior and intermediate producers.
Let's go with the more conservative 4%, even though the bulk of EDV holdings is probably (because we never know) intermediate producers like Wheaton River, Bema Gold, Oxus etc. Given Endeavour’s NAV of $4.70, then their stock would warrant a valuation of $4.88. At 16% premium the stock would be at $5.45.
From my own research I see that management is sowing the seeds of even higher profitability. EDV has done a lot of super cheap financings with penny stocks, grooming them for when they find big blockbuster assets. I see some EDV people going on the board of several small companies, and then those companies announce big financings - so I assume EDV is getting lots of that super cheap financing paper, plus their trademark warrants. Typically these companies will vend in quality assets, such as a producing resource project or one which could be ramped up quickly as a producer. That in turn gives those companies higher valuations - and therefore for EDV as well.
Conclusion
The brain trust of Endeavour Mining is an international team of mining, investment, and banking professionals who have the worldwide contacts and know how to bring profitable mining deals together.
As opposed to investing in a typical resource company, EDV can provide in depth intelligence of the market as a whole, provide financial management, and capital to help guide deals to a profitable conclusion just like we saw with the Wheaton/Luismin deal. This is quite a bit different then waiting on drill results and mine expansion to provide growth.
I believe in the very near future Endeavour shares will be trading at a premium to their net asset value. Market pros also hold a significant portion of EDV’s shares. Norm Lamarche, one of the most respected resource fund managers in Canada, has made Endeavour his number two holding within the CIBC precious metal fund.
www.jameswinston.com
www.endeavourminingcapital.com
Happy reading, live long and prosper.
The Gold Editor