Endeavour Silver secures $50M, ups bid for Cream

Endeavour Silver (EDR-T, EXK-A) is topping up its treasury with a bought-deal financing worth $50.1 million.

Led by CIBC, and including Salman Partners, Haywood Securities and RBC, a group of underwriters have agreed to buy 8.2 million shares at $6.15 apiece, with an overallotment option for up to another 15%.

Endeavour intends to use the proceeds to finance its capital projects, potential acquisitions and for general corporate purposes. At the end of the third quarter, Endeavour had US$19.6 million in cash.

Endeavour is a small-cap silver mining company focused on Mexico. It owns and operates two high-grade underground silver mines, Guanacevi in Durango state and Guanajuato in Guanajuato state.

Silver production in the third quarter was 797,000 oz., up 20% over the same period a year ago, but off 4% from the previous quarter. Gold production of 4,607 oz. represented a 28% gain over a year ago and a 3% increase over the second quarter. Cash costs of $5.93 per oz. silver produced, net of gold credits, were 14% higher than a year ago but unchanged from the second quarter.

“Our cash costs were a little bit of a disappointment, largely because of the drag on production due to our capital projects,” said Bradford Cooke, chairman of Endeavour Silver, during a third-quarter conference call.

Silver production for the nine months to date totals 2.4 million oz., a 31% increase over the same period in 2009, while gold production is up 47% at 12,842 oz. “We are well on track to beat our forecast production numbers for the year,” Cooke said.

“Plant production should climb and cash costs should fall once again in Q4 2010 as our mining operations approach the 1,000-tonne-per- day capacity at Guanacevi and the 600-tonne-per-day capacity at Guanajuato,” added Cooke.

The company reported net earnings of US$127,000 on sales of US$20.1 million for the three-month period ended Sept. 30, versus a loss of US$1.5 million on sales of US$9.8 million for the same period in 2009. For the nine-month period, Endeavour shows a net profit of US$1.4 million on revenue totaling US$58 million.

Mine operations generated a cash flow of US$9.2 million for the third quarter, compared to US$3.3 million for the 2009 quarter.

“Endeavour Silver’s record financial performance in Q3 2010 can be attributed to our growing silver-gold production, improving cash costs and higher metal prices,” commented Cooke.

The company plans to invest a total of US$29 million on capital projects in 2010, with the continued focus on refurbishing and expanding the Guanacevi plant, as well as developing access ramps at both mines. Expenditures for the nine-month period to date total US$25 million.

In late September, Endeavour made an unsolicited takeover bid for Cream Minerals (CMA-V), with a cash offer of 12¢ per share, representing a 76% premium to the 10-day average trading price prior to the offer.

Endeavour revised and extended its takeover offer for Cream on Nov. 9 in response to a competing offer by Minco Silver (MSV-T). Endeavour raised its offer to 14¢ cash per share or 0.02575 of an Endeavour share for a Cream share. The bid is subject to at least 50.1% of the shares being tendered.

“It was really the strength of our stock and the requests of Cream shareholders that prompted us to go 14¢ cash or stock, and that is pretty much as far as we are prepared to go,” stated Cooke.

Cream’s main asset is its 100% owned Nuevo Milenio exploration gold-silver project in Mexico’s Nayarit state. The project contains an inferred resource of 271,000 oz. gold and 41.1 million oz. silver in 5.1 million tonnes averaging 1.66 grams gold and 251 grams silver per tonne.

Under Minco’s proposed deal, it would buy a 50% interest in the Nuevo Milenio project for $5 million cash and acquire an option for an additional 20% by spending another $5 million developing the project. Cream would hold the remaining interest.

Cooke explained that Endeavour’s amended offer for Cream was initially supported by a majority of the Cream board. However, that support was withdrawn a few days later after a meeting of Cream’s directors. Cream has made no recommendation as to whether its shareholders should accept or reject the Endeavour offer.

“If successful, our bid to acquire control of Cream is an integral part of our acquisition growth strategy,” said Cooke.

Endeavour Silver currently has 70.2 million shares outstanding. At presstime, the company was trading at $6.07 in a 52-week range of $3.05-$7.14.