Overview: Endeavour Silver Corp.

Endeavour Silver Corp. [NYSE.EXK, TSX.EDR] is increasing production from three historic mines originally built by Spanish colonists about 450 years ago, and several veins they recently discovered in the legendary silver district of Guanajuato, Mexico. At the end of October I visited Endeavour’s operations in Guanajuato for a tour of their modern underground mining operations and the mill expansion they just completed. The company is also producing silver at Guanacevi in the state of Durango, and looking to expand their resources by exploring three other projects in Mexico. They have optioned two district scale bulk-tonnage silver prospects near Copiapo, Chile as well.

Endeavour Silver is led by accomplished management at their corporate office in Canada, and projects in Mexico and Chile. The company also has an excellent corporate structure with no debt and approximately $145 million in working capital. Trading near $12.00 per share with just 87.3 million shares outstanding and their market cap is currently around $1.05 billion. Because the company has potential to expand their mineral resources through exploration while they also forecast increasing production at both of their mines, Endeavour Silver should continue rapidly growing shareholder value for the foreseeable future.

Management

Endeavour Silver’s Chairman and CEO Brad Cooke is a professional geologist with 34 years of experience exploring, acquiring, financing, and developing mineral deposits for Noranda Mines, Shell Minerals and Chevron Minerals prior to co-founding Canarc Resource Corp. and Endeavour Silver Corp. President and COO Godfrey Walton is also a professional geologist with 34 years of experience with INCO, Chevron Minerals, and Hemlo Gold Mines, plus Canarc and Endeavour.

The company’s Vice President of Mexico Operations David Howe is a professional geologist with 22 years of experience exploring, starting, and operating mines across Latin America, and was previously VP Operations and General Manager of Hecla Venezuela’s La Camorra and Isidora mines. VP Exploration Barry Devlin is a professional geologist with 30 years of experience, and was previously Hecla’s worldwide Manager of Generative Exploration. Mexico Projects Director Miguel Ordaz is a geological engineer with over 30 years of experience in Mexico, and became one of the company’s first employees after introducing Endeavour’s founders to the Guanacevi project in 2003. The Guanajuato mines and mill are managed and operated by Mexican nationals with the work being completed by regional contractors and local employees the company trains.

Yellow head frame of Endeavour’s 600 meter deep Cebada mine

Guanajuato Site Visit

The silver mines at Guanajuato, Mexico were discovered over 450 years ago and are still some of the richest producers in the world. Evidence of the tremendous wealth dug from these mines has endured for centuries in the form of Spanish colonial era castles and cathedrals that were built around the area’s numerous mine shafts. Nestled in the Sierra Madres, this colorfully painted city’s historical architecture forms a maze of narrow alleyways that wind along the hillside such that it is recognized as a UNESCO World Heritage Site, and hosts a vibrant arts scene. The Universidad de Guanajuato is focused on the sciences and is one of the two main colleges in Mexico that awards degrees in Mining Engineering (with the other in Mexico City), while it also boasts acclaimed architecture and arts programs. Our post-Silver Summit analyst tours also coincided with the annual 3-week long International Cervantino Festival that is named after the famous Spanish author of “Don Quixote.”

In 1548 the original Guanajuato area silver discovery by the Spanish occurred near La Luz mine-castle-cathedral, and today Endeavour holds the mineral rights here. Combined, the company’s mines along La Luz vein system and their neighbor Great Panther Silver’s [AMEX.GPL, TSX.GPR] mines along the parallel Veta Madre have made this Mexico’s most productive silver district after Fresnillo in neighboring Zacatecas State. During the 1700s the Guanajuato mines were the largest in the world, and they have poured about 1.2 billion ounces of silver and 6 million ounces of gold. Other than brief interruptions during the Independence War in 1810 and Mexican Revolution in 1910 these mines have continued to operate for over 450 years, and continue expanding with ongoing efforts.

In 2007 Endeavour acquired most of the major historic mines to the west of Guanajuato city from the major Mexican mining company Penoles, who remains a major claim holder in the district. Starting with limited historic silver resources but an abundance of expertise and growth potential this Canadian based company used surface and underground mapping, soil geochemistry, and core drills to find the NI 43-101 compliant resource they published in December 2010. Guanajuato’s current total resource contains of 14,899,000 ounces of silver and 201,100 ounces of gold, with about half in each of the indicated and inferred categories. These resource estimates will be updated in early 2012 with results from their ongoing exploration program. In addition to the aforementioned resources, the company’s proven and probable reserves are 1,364,000 ounces of silver and 18,400 ounces of gold.  Because the company has successfully used the traditional “drill for structure and drift for grade” method to develop these underground vein mines, their mineral inventory and cash flow should continue expanding in this district.

The veins at Lucero South typically dip from 55 to 65 degrees so they will mostly be mined using modern rubber tire cut and fill mining methods with both long-hole open stopes and shrinkage stopes. A jumbo drill is being used to quickly develop the downward spiraling haulage ramp while jackleg drills are used to mine along the veins. This new mine has a large modern fan system for ventilation that is connected to the local power grid. Their miners also (“mineros”) undergo equipment and safety training similar to any other significant international underground mining operation, and safety bonuses are awarded for employee performance. Notice the minero pictured is wearing full Personal Protective Equipment (PPE) as he is preparing to drill and blast a round of ore from their new Daniela vein.

Initially the company worked to resume production in the Guanajuato district from the extension of ore shoots beyond historic workings at their Bolanitos, Cebada and Lucero mines, which are currently feeding the mill. Ultimately their discoveries at the Lucero South extension and its parallel Daniela and Karina veins were made by pursuing untested structures with modern geochemistry and core drilling. This implies that this world class silver district still has a lot of hidden and under-explored potential. The company’s new rubber tire decline ramp at their Lucero South mine is now developing access to these 3 new parallel veins. The bonanza grade drill intercepts and underground vein samples found in this new mine are important geological evidence they are starting at the top of the veins, which have minimal outcroppings and have not been eroded. Consequently their rich silver mineralization is likely to continue at depth similar to other big ore shoots that have been mined in the district over the past 450 years.

Expansion of Endeavour’s Bolanitos Plant from 600 tpd to 1,600 tpd was just completed this September in preparation of more ore coming online from the 3 new veins at Lucero South. As shown in the adjacent picture, Endeavour’s modern plant is built next to the original Bolanitos mill foundation from the Spanish colonial era. The new crushing and screening circuit shown below is currently processing about 1,000 tpd.

Core from drill hole DN-21 at the gold-rich Daniela vein shown in the box below exhibits classic epithermal mineralization across a true thickness of 7.14 meters, with grades averaging 170.0 g/t silver with 7.73 g/t gold.  At the front of the picture a high grade 0.65 meter interval of core assayed 1,195.0 g/t silver and 32.5 g/t gold starting at 219.20 meters down-hole, as announced in the company’s September 19th news.

In addition to growing the lifetimes of their existing mines by increasing mineral resources with modern geological mapping and exploration drilling, Endeavour is investing in the future of the district by helping improve the lives of the local people. While they have provided over 400 jobs at their Guanajuato operations the company is also making a difference in the community by helping support recreational sports teams, giving scholarships to ambitious local students, and donating some needed construction materials plus classroom supplies to local schools.

Endeavour has also partnered with Gordon Holmes in support of his “Wines for Wheelchairs” program, which helps provide mobility to people around the world. During our site visit last month their Mexico Project Director Miguel Ordaz and Lana McCray of Corporate Communications helped Mr. Holmes’ organization donate wheelchairs to people needing them in Guanajuato, including the local boy in the picture (courtesy of Endeavour Silver).  Mr. Holmes is the publisher of Streetwise Reports and owner of the Lookout Ridge winery, and gave a presentation about his program as the featured banquet speaker for the 2011 Silver Summit in October.

Guanacevi and Endeavour’s Other Opportunities

While Endeavour’s Guanajuato mines are helping the company rapidly grow through exploration and production, most of their current silver production actually comes from their four producing underground mines at Guanacevi in Durango State. Guanacevi is the company’s most advanced project with a larger total resource of 43,795,000 ounces of silver and 86,500 ounces of gold. The company is also actively exploring at their Parral project in the state of Chihuahua, and they list reserves and resources for all of their properties on their website.

Endeavour continues to search for more silver at their two producing operations mines with three drills turning at Guanajuato and three more at Guanacevi. Because they are also looking for other district scale deposits in Mexico with near term production potential they have a seventh rig currently working at San Sebastian in the state of Jalisco. Their eighth drill just started testing Lomas Bayas in northern Chile, which is one of two silver prospects near the large mining town of Copiapo with interesting bulk tonnage surface mining potential that the company recently optioned.

As demonstrated by their operations at Guanajuato and outlined by their Q3 2011 production and exploration results, Endeavour Silver Corp. is positioned to continue steadily increasing shareholder value.