Weekly chart: High C$11.24, Low
$2.35, Last Trade $5.61
Today Endeavour presented its fiscal year (ending 30 June) performance showing
a substantial margin of $56.5 million net income on revenues of $108 million.
It reported shareholders� equity of $12.38 per share. With only 30.5 million
shares outstanding (39.8 million FD) its price to book ratio is a heavily
discounted .50 times.
With working capital of $315 million and a share price not seen since January
2006, the company is aggressively buying back its own shares. It is also
increasing its monthly dividend by 100% to $0.03 per share ($0.36 per share per
annum), to provide a current 6% yield to shareholders. It announced expansion
of its highly lucrative and much in demand specialist advisory services and
products, with an increasingly global reach.
During the year Endeavour arranged seven resource transactions which totaled,
in the aggregate, some $14 billion in the copper, gold, and uranium sectors. In
the face of challenging economic circumstances, its merchant banking activities
yielded $60 million in investment income.
In a better market comparable companies on the TSX like Quest Capital (QC-TSX)
or Pinetree Capital (PNP-TSX) traded at 1.5x book and 2x book respectively. In
the U.S. merchant banking companies have recently traded up to 12 times book. At
.50 times book Endeavour offers a steeply discounted opportunity.
Company Review
Our initial report on Endeavour was issued in May 2004 just as the price of
gold re-tested the US$378 technical support area. Endeavour had just suffered a
dramatic sell-off as many junior-sector resource stocks experienced lower
liquidity, sporadic panic selling and the apparent capitulation of latecomer
investors suffering rapid and severe losses � not dissimilar to the current
environment, except that commodity prices are now significantly higher.
In July 2007 Endeavour Mining Corporation acquired 100% of sister company
Endeavour Financial Corporation, a privately-held investment banking firm. The
two businesses had already operated successfully in parallel for many years,
but the merger simplified the Endeavour brand. The merged company provides
investors and industry players in the resource sector with one-stop integrated
merchant banking services. It also ensures that the entire Endeavour team is
committed to maximizing value for shareholders through their ownership of
approximately 25% of the combined company (much higher fully diluted).
Endeavour has $308 million (fair market value at June 30) invested in a
portfolio of mostly client securities. Its newly combined business, coupled
with a focused merchant banking approach, has proven to be a very effective
business model. Endeavour finances many companies at their initial formative
and pre-growth stages, and has a compelling record of shepherding them to
ultimate success � often by way of takeover or merger.
As such, Endeavour�s publicly traded shares offer investors de facto access to
well-selected ground-floor junior mining companies without a need to be
accredited investors, or to make the connections necessary to access such
timely opportunities. Most retail investors don't have the time, desire or
expertise to select and follow a portfolio of small-cap resource stocks. We
therefore view Endeavour Financial as a core holding for aggressive
growth-oriented portfolios.
Despite the volatile nature of the sector, Endeavour has generated 49-per-cent
annualized growth in Shareholders� equity (51% including dividends) since its
inception in 2001. This reflects both its early call on the resource secular
bull market and the timing and success of its involvement in multiple
specific-resource-focused vehicles.
The Endeavour team has been associated with some big success stories over the
years, including Bema Gold, Bolivar Gold, Northern Orion, Oriel Resources, Peak
Gold, Silver Wheaton, UrAsia Energy, Wheaton River Minerals, and of course
Endeavour Mining itself. Endeavour Mining's reliance on Endeavour Financial's
advisory services steadily increased over the years as the resource market's
growth accelerated, and their 2007 merger offered compelling synergies, now
well evidenced after a full year of combined operations.
Proven leadership, market savvy
Endeavour benefits from having two advisors � Frank Holmes� US Global Investors
and Frank Giustra�s Fiore Capital � to identify, develop and implement
investment opportunities. Endeavour�s Chairman, Frank Holmes, heads up the top
performing US Global Investors (GROW- Q), website: http://www.usfunds.com
Former Endeavour chairman Frank Giustra continues to apply his golden touch to
Endeavour�s deal-making through his Fiore Capital advisory services. Last year
Mr. Giustra announced he�s giving away $100 million and one-half of his future
mining earnings to the Clinton Giustra Sustainable Growth Initiative, earmarked
to fight third world poverty through sustainable development. This venture
bodes well for both the mining industry and the countries in which they�ll do
business, and it should also benefit Endeavour�s shareholders. While Frank
Giustra and his team have never needed any help putting together some of the
industry�s biggest and most successful deals, it doesn�t hurt that countries
targeted for resource acquisitions and concessions realize such deals come
complete with potentially millions of dollars in development aid.
Endeavour�s investment strategy is focused on high quality assets with strong
management teams, and with clear potential for high returns through their
structured investments. When Endeavour finances mining companies to fund their
project development, strategic initiatives and growth, we benefit from a
management team that has done their homework for us and structured its
investment exposure appropriately. This generally means a compelling and timely
entry price (downside protection), and better than average upside potential.
Conclusion
Endeavour offers us the built-in advantages of diversification,
cream-of-the-crop selection, sophisticated professional management, exceptional
deal-flow and access to global institutional and industry contacts. Given this
premise, we only need concern ourselves with the timeliness of our exposure to
the resource and precious metals sectors to determine the appropriateness of
owning Endeavour shares. It would be difficult if not impossible for investors
to consistently match Endeavour�s ability to select winners and realize on
their potential.
Post-merger, Endeavour has proven it can efficiently deliver continuing and
increasing investment opportunities, and attract, retain and motivate key
members of their team through equity incentives. The Endeavour team includes
mining legends Frank Giustra and Neil Woodyer. Combined with Frank Holmes as
the visionary front man, the company should be able to go forward and build its
brand as a powerhouse in the mining finance sector. It�s shares are an
excellent proxy for investment exposure to the continuing secular bull market
in commodities.
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