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(ALEX DOMANSKI)
(ALEX DOMANSKI)

Schizas’s Mailbag

Another gold miner, another sad story Add to ...

Mr. Schizas,

Could you please give your opinion on Endeavour mining?

This junior stock is so undervalued.

Thank you!

Jocelyne

Hey Jocelyne,

Thanks for the assignment.

This will be the first time that I examine the case for Endeavour Mining Corp. which produces 300,000 ounces of gold per year from mines in Mali, Ghana, and Burkina Faso. Management expects to see production reach 450,000 ounces per year by 2014 as a mill expansion and a new mine come onstream. The research conducted on your behalf indicates that the cash cost per ounce will reach $1,092 in 2013. Given that the price of gold has been under pressure since the fall of 2011 it sheds a light on the central force that has sent the stock into a steep decline. Another thing to keep in mind is that the forecast mine life at some of their sites is less than 10 years which suggests that the company is on a short leash.

More Related to this Story

A review of the charts will help identify the trend, support, and resistance that could come into play with EDV.

The three-year chart tells the tale of a stock caught in a vicious selloff. As the price of gold has weakened it has wrought havoc on gold miners. The 52-week high of $2.56 was reached on Oct. 10, 2012, after which investors were beaten, battered, and burned as the stock declined to a 52-week low of $0.84 on May 17, 2013. Worth mentioning is the death cross that surfaced in January of 2013 when the shares were trading at $2.00. To the informed investor a death cross indicates that it is time to seriously review the assumptions made in buying the stock.

Finally when the shares breached support at $2.00 in February of 2013 it was followed by fierce selling to the lows.

The six-month chart provides a close-up of the selling that has gripped EDV since February. The trend is down, and support has been breached multiple times during the decline. None of these factors suggest a speedy return to higher levels. The next test for EDV will be if it can break above the 50-day moving average at $1.06 and move through resistance at $1.10. As has been mentioned in previous posts related to gold miners there is a period of seasonal strength that comes into the metal between July and September which could provide a lift. However there is nothing at this point to signal a buying opportunity.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 
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