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Good News for Trilogy Metals,
a Setback for Endeavour Silver

By Kuen Chan
The Complete Investor

Trilogy Metals (TMQ) (formerly NovaCopper) has moved a step closer to gaining permission for a road providing access to Alaska’s remote Ambler mining district where the company owns a potentially world-class copper mine. The U.S. Bureau of Land Management has published a notice of intent to prepare an environmental impact statement (EIS) for the proposed 211-milelong industrial road to the district, which in addition to the copper mine contains other untapped mineral resources as well. While production is still years off, the apparent support of federal and state agencies for the project, which would create jobs and promote growth, is encouraging. We continue to view Trilogy Metals as one of the best speculative bets on copper with immense upside potential for the patient investor. Trilogy Metals is a buy up to $2.50.

After Endeavour Silver (EXK) reported disappointing fourth-quarter results, its share price fell steeply. Revenues were $28.7 million compared to expectations of $32.5; earnings showed a net per-share loss of 4 cents vs. expectations they would break even. The company blames the shortfall on its decision early in 2016, when metal prices were languishing, to cut capital spending. Though it did an about face later in the year when metal prices rallied, it was too late for production to catch up.

Compared to 2015’s fourth quarter, realized silver prices were 14 percent higher, while the realized gold price was up 3 percent. But the company’s silver production for the quarter was 37 percent lower, and gold output 26 percent lower, translating into a sharp 44 percent drop in silver sold and 28 percent drop in gold sold. Though the company had warned about the production decrease its impact on financial results still spooked investors. The 3.7 percent drop in silver prices on the same day the company released its figures, a bit of unfortunate timing, was another blow contributing to the nearly 25 percent plunge in the shares in a single day.

But we think the selloff was excessive and see the long-term outlook as remaining intact. For 2017, Endeavour expects to produce between 8.9 million and 9.7 million silver-equivalent ounces, with silver production slightly increasing and gold output slightly decreasing. Given that fairly flat short-term production profile, the company’s developing mines will be leaned on heavily for growth. There are three new mines with significant potential – two recently acquired at low prices, as we’ve noted previously – slated to come online by 2019. Their progress will have a lot to do with Endeavour’s growth and hence its stock price. We’ll be following their course closely; for now, despite the stock’s slide we see no compelling fundamental reason to adjust our suggested buy-up-to price of $5.50.

Editor’s Note: Kuen Chan is portfolio editor of the Small-Cap Portfolio in The Complete Investor, P.O. Box 248, Williamsport, PA 17703, 1 year, 12 issues, $199. For more information visit www.completeinvestor.com.


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