Endeavour Silver Corp. (CAN) (EXK): A Must-Buy Silver Stock

The Canadian based silver mining company Endeavour Silver Corp. (CAN) (NYSE:EXK) engages in acquisition, evaluation, exploration and development of silver properties in Mexico and Chile. The company has two mining segments: Guanacevi and Guanajuato.

Endeavour Silver Corporation: going forward

Production guidance

In 2013, Endeavour expects its silver production to grow by 12%-18% to 5-5.3 million ounces. The gold production is expected to increase 19%-27% to 46,000-49,000 ounces.

Operating costs

Cash production costs are expected to grow to $9-$10, mainly because of an increase in production at the El Cubo mine and low grades being extracted at Guanacevi. Later on, the costs associated with the El Cubo mine are expected to drop in 2013 amid higher operational efficiencies.

Exploration budget

Endeavour Silver Corp. (CAN) (NYSE:EXK) plans on spending $19.3 million on exploration this year. The company has always focused on exploring new properties and converting them to production. This year, the company has plans to explore its new high silver discovery on the San Sebastian property in Jalisco.

Capital spending

In 2013, the company plans to invest $85.8 million on capital projects, out of which $44.9 million would be spent at El Cubo, $21.4 million at Bolanitos, and the rest at Guanacevi. Most of these investments would be made during the first six months of 2013.

Valuation

Endeavour Silver Corp. (CAN) (NYSE:EXK) is trading at a forward P/E (1yr) of 11.62 and has a mean recommendation of 2 on the sell side. We would generally value Endeavour Silver using the forward P/E (1-yr) of 11.2 for the silver industry. However, as Endeavour Silver is expected to outperform its peers in the coming years, we would value it at a 20% premium to the industry’s forward P/E.

Using high consensus estimates, we value Endeavour Silver Corp. (CAN) (NYSE:EXK) at $9.10, which depicts that it is undervalued by a mammoth 48%. This makes Endeavour Silver one of the best buys in the silver industry.

The silver industry’s other major players

Based in Idaho, Hecla Mining Company (NYSE:HL) , is a silver / precious metals mining company. The company has operations in two areas, Greens Creek and Lucky Friday. Hecla Mining is trading at a forward P/E (1-yr) of 12.59 and has a dividend yield of 1.80%. It has a weak PEG of 36.62 and a meager growth rate of 1.20%. A PEGY of 14.61 doesn’t help the cause either, and a mean recommendation of 3.1 on the sell side shows that it isn’t an attractive buy in the silver industry. As a result, we don’t recommend buying Hecla Mining.