Endeavour Silver has been one of the best stocks on the Toronto market this year, rising almost 195% as of Friday’s close.
The run has been fueled by a strong silver price, the countdown to the first production at its Terronera project in Mexico, and deals that have helped it grow.
Still, a group of analysts is warning people to be careful because the TSX stock’s rise may be faster than the company’s ability to meet deadlines and budgets.
The most recent rise has happened at the same time as a series of target moves that were more restrained than excited. The wider Toronto S&P/TSX fell 0.6% to 29,582.25 points, showing that investors were taking profits in resource stocks.
BMO raised its target for the U.S. dollar from $3.50 to $5.00, while Canaccord Genuity stuck to its Canadian dollar target of $6.50. Stifel also stuck to its opinion.
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Those calls acknowledged a cleaner growth story, but they also stressed that the company’s value now includes perfect execution at Terronera and steady performance at other locations.
This year, Endeavour has focused on growth capital. The company increased a bought-deal equity financing in April to $45 million and later revealed the full over-allotment exercise, bringing the total proceeds to $50 million.
The money helped it buy Compañía Minera Kolpa and improve its balance sheet before Terronera started operations.
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Those steps lower some of the uncertainty about funding, but they don’t get rid of the risk of costs or delays in a tight mining services market.
Management’s Mexico build is the main point of the bull case. Once Terronera is fully up and running, it will add a lot of ounces and lower unit costs. This will give Endeavour more operating leverage if silver prices stay high.
The TSX stopped just short of a record high as traders waited for signs of US inflation. This shows how expectations for interest rates still affect how people feel about commodities.
Industry analysts think the project will lead to production growth over several years, but new mines often have problems that can hurt cash flow in the first few months of operation.
In mid-tier mining, equity raises happen a lot, but they make existing shareholders less valuable and raise the bar for per-share returns.
Endeavour’s April raise made sense because the market was open to it, but it shows a common trade-off. If Terronera hits nameplate on time and on budget, the recent dilution will look like cheap money.
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If it drops, the stock’s rerating gives you less room to be let down.
The push and pull can be seen in broker notes, and target hikes are a sign of real progress, such as adding assets and getting a clearer view of new production.
Endeavour screens well right now compared to its own history and, on some metrics, compared to peers with larger, more diverse asset bases.
You can get that premium, but you need to start clean, keep your grades stable, and make sure that metal prices don’t drop just as new ounces come in.
The S&P 500 went up because Fed officials hinted at slower rate hikes. This made people more willing to take risks, but it didn’t do much to change the caution around miners who are too hot.
