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Mexican Silver

Bob Moriarty
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Aug 6, 2009

One of the favorite theories of the silver bugs is that the world is out of silver and no one will ever produce it again so the price is going to rocket to $100 an ounce. It's a good theory but it ignores economics and after hearing ten years of it, the theory is getting a little long in the teeth.

Mexico has one mine that produces 30 million ounces a year and has several districts that have produced over 1 billion ounces in total. I visited one of those districts a few days ago. I can assure my readers that Mexico has barely been scratched. There is a lot of silver. If you want to see $100 silver, you need to be on your knees praying for the world to go back on the gold standard, that's the only thing that is going to make silver go up 500%.

Silver is not in shortage and hasn't been for decades. The US had a surplus of billions of ounces going into WW II. Only in the last few years finished dumping that silver. As a result, silver prices have been depressed for decades. It's called Economics 101 but few of the Silver Gurus ever passed the course.

There wasn't much silver being produced because the price wouldn't justify it. Someone told me recently that there are only 14 primary silver mines in the world and that sounds about right. Most silver is produced as a byproduct of copper production or lead/zinc production.

Silver is coming back. Prices above $10 an ounce encourage silver production and one day soon silver may even be profitable. I first wrote about an up and coming silver company called Endeavour Silver (EXK-NYSE:AMEX & EDR-T) back five years ago. The company headed by Brad Cooke had just picked up a mine and mill called Guanacevi in Durango.

Endeavour paid $7 million for the mill over 4 years. The district has a historical production of over 450 million ounces of silver. It's near a paved highway and has power from the national grid. Endeavour wants to consolidate the district for the first time in history. In 1980 at the peak of the silver bubble, there were over 50 mines in operation.

Endeavour has developed a resource of over 34 million ounces (39 million ounces silver equivalent) with production of 1.9 million ounces of silver per year based on a throughput of 700 TPD. Brad's goal is to upgrade the plant to 1200 TPD capacity and he anticipates 1000 TPD by year-end.

Endeavour has discovered four entirely new silver deposits in the past three years at Guanacevi. All three of these mines will be coming onstream in the second half of 2009. The 2008 drill program resulted in 20,000 meters of core and RC drilling and had intercepts of up to 3 kilograms of silver per tonne.

Brad has pursued an aggressive program of picking up additional assets and over the past three years has picked up a series of mines from Penoles at Guanajuato. Endeavour's drill program has proven up 9.3 million ounces of silver resource. (15.2 million ounces silver equivalent) With 450 TPD through the mill, they produced 485,000 ounces of silver in 2008. Endeavour is targeting production of 600 TPD by the end of the year.

In the 18th century Guanajuato produced as much as 1/3 of the silver in the world. The owner of the primary mine was supposedly the 2nd richest man in the world, only the King of Spain was richer. Historical production measured over 1.2 billion ounces of silver. The area has been mined for 450 years.

Endeavour ran an aggressive 22,000-meter drill program in 2008 and discovered an entirely new series of new veins never found before. The Guanajuato district has produced over 1.2 billion ounces and there is probably more still left in the ground.

Endeavour Silver has gone from 950,000 ounces of silver produced in 2005 to an estimated 2.7-2.9 million ounces and over 10,000 ounces of gold in 2009. Their silver equivalent resource has gone from 16 million ounces in 2005 to 62 million ounces of silver equivalent today. Brad estimates the cash cost of production will be in the $6- $6.50 range in 2009. The goal is production of 5-10 million ounces of silver. They may do it internally but Endeavour is always looking for silver opportunity in Mexico.

I will keep harping on the need to be buying into production stories. If you favor silver investment, Endeavour Silver offers a pretty low risk, high potential investment. With about $.30 a share in cash and a really tight share structure, Endeavour offers lots of leverage to the price of silver.

Endeavour is an advertiser and we are biased. As always we encourage potential investors to be responsible for their own due diligence and to feel free to contact the company for more information.

Endeavour Silver Corp
EDR-T $2.20 (Aug 5, 2009)
EXK-NYSE:Amex 52 million shares
Endeavour Silver website

Bob Moriarty
President: 321gold
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