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Endeavour Mining Capital
A Look at the Company and the Warrants
One of our favorites but perhaps overlooked
companies is Endeavour Mining Capital
(EDV), a public traded mining merchant banking company.
To quote from the company’s
website :
“We are a merchant banking
company focused on the global natural resources sector.
The company originates and invests in transactions where we can
generate value through our business approach and investment strategies.
Our success is derived from the unique ability to unite the disciplines
of mining finance (debt & equity) with aggressive business
talents to build companies and create value.” In our
opinion and that of many other analysts, EDV is doing an excellent
job.
Since Frank Holmes has taken
the helm, the stock performance of the Company has greatly improved
from trading at a steep 30 – 40% discount to only 5 –
10% discount even trading at slight premium for a few weeks. The
liquidity and distribution has increased, share price has become
a more stable and communications with shareholders has dramatically
improved. Frank Holmes has said several times he believes
a company like Endeavour should trade at a multiple to book value
versus a discount. Last NAV as of June 30th was
recently published at $8.23 – only 7% from its highs vs.
many indices down 20%+!
The appointments of Frank Holmes
and US Global as advisors implemented a much more disciplined
trading strategy in their positions. During the run up in
April/May the company sold stock to sit on 30% cash or near $60M
CDN dollars. Timing is everything in this market and this improved
trading practice will continue to give explosive upside and limit
the downside exposure.
Here is a chart of Endeavour
NAV and relative share price.
Endeavour posts its NAV (net asset value)
to its website each month and the latest as of June 30, 2006 reflects
a NAV of C$8.23 (US $7.40). The stock now trading at C$7.43
is therefore trading at a discount to NAV of 10%.
To us, Endeavour is trading similar to a
closed end mutual fund and current price is not reflecting the
true value of its underlying assets.
History does say that during
the summer is the best time to revisit the Endeavour story if
you look at a
4 year chart. (You would have made a killing buying in the
summer and selling in March – May).
We leave the decision with the investor as
to which investments to make but assuming that you like the Endeavour
Mining Capital story; we would like to take this decision one
step further.
Since warrants are our business and knowing
that Endeavour has a warrant currently trading on the TSX, we
thought we would share our analysis with you.
Terms of Warrant:
Symbol:
T.EDV and
T.EDV.wt
Expiration Date:
10-Nov-2008
Exercise Price:
C$5.50
So, what this means to investors is that
we have the right, not the obligation, to purchase the common
stock of Endeavour Mining Capital at C$5.50 until 10-Nov-2008.
Is this a good deal? If investors are expecting a rise in
the price of the common stock, what will happen to the warrant?
Let’s take a look using our summary analysis based on July
19th, 2006 closing prices.
Projected
Prices of Endeavour’s common
C$10.00
C$14.86 C$18.00
C$20.00
Common price (July
19, 2006) C$7.43
Profit
C$2.57
C$7.43 C$10.57
C$12.57
ROI
(Return on Investment)
35%
100% 142%
169%
WARRANT:
Closing price (July 19, 2006) C$2.46
Minimum Value of warrant
C$4.50
C$9.36 C$12.50
C$14.50
Profit
C$2.04 C$6.90
C$10.04 $12.04
ROI (Return on Investment)
83% 280%
408% 489%
LEVERAGE
2.4:1 2.8:1
2.9:1 2.9:1
Conclusion:
From the above analysis, if the common stock
of Endeavour was to double from current levels to C$14.86 for
a 100% gain, the warrant would be worth a ‘minimum’
of C$9.36 for a gain of 280%. We would have to conclude
that if an investor is considering the purchase of Endeavour Mining
Capital common that they should also take a serious look at the
warrant. There is sufficient time remaining on the warrant, 10-Nov-2008
and the warrant provides great upside leverage over the common
stock. We are confident that whether you choose to
purchase the common stock or the warrants of EDV, you will be
greatly rewarded within the foreseeable future. This is
a story that only gets better and better.
Cautionary Reminder: warrants are about leverage and while we
are trying to increase our return on investment warrants do not
come without some risk; if the price of the common stock is below
the exercise price of the warrant on the expiration date, the
warrant will expire worthless. Also, for most warrants as
well as many of the Canadian mining shares, there is a thin market,
meaning only enter LIMIT BUY ORDERS.
July 20, 2006
Dudley Baker – Owner/Editor
Guadalajara/Ajijic, Mexico
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants
Dudley Baker is the owner/editor of Precious Metals Warrants, a market
data service which provides you with the details on all mining
& energy companies with warrants trading on the U. S. and
Canadian Exchanges. As new warrants are listed for trading we
alert you via an e-mail blast. You are provided with links to
the companies’ websites, links to quotes and charts, tips
for placing orders and much, much more. We do not make any specific
recommendations in our service. We do the work for you and provide
you with the knowledge, trading tips and the confidence in placing
your orders.
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Disclosure/Disclaimer Statement
PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.
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