By Jeffrey Hirsch
Stock Trader's Almanac Investor
Even as we made our bullish forecast for the beginning of 2010 in on December 16, 2009 in the 2010 Annual Forecast, we were emphatic about our concerns for a stock market decline later in 2010. Since the end of March we have been pounding the table even louder. The sovereign debt calamity in Europe continues to unravel. The bear market in China has gone relatively unnoticed. The economic recovery seems to be decelerating. Midterm election mudslinging has commenced. And Mother Nature is still on the offensive with the Gulf of Mexico oil spill and Icelandic ash clouds.
No wonder gold logged new all-time highs last week. We already have two gold concerns in the portfolio, Etruscan Resources (EET.T) and African Aura Mining (AUR.V), but want to increase our exposure with this undervalued gold-producing/investment-banking hybrid. It is precisely this fusion that has created the value. Endeavour Financial (EDV.T) is the largest shareholder of Etruscan, holding a 55% stake. Endeavour also has a 43% stake in the considerable junior producer Crew Gold (CRU.T).
Endeavour has changed dramatically over the past year, morphing from a merchant bank for mining and resource producing concerns, collecting fees; to a major investor and stakeholder of junior gold producing companies. It has become, or is becoming, a hedge fund or closed-end fund of sorts that invests in junior gold producers and other natural resource concerns. But primarily this company is a gold fund for gold investors, run by an experienced, talented, well-connected management team.
As Chief Executive Officer Neil Woodyer puts it, "Our gold strategy has had a successful start and its success has transformed our company. Over the last 12 months, our net tangible assets have grown from US$165 million to US$479 million and 88% of our capital is now strategically invested in gold producing companies. Endeavour's Advisory team remains active and has generated US$11.2 million of fee revenue so far this fiscal year. This team provides the manpower, skills and market & industry intelligence to drive the primary gold investment business. We will continue to focus on implementing the gold investment strategy to build shareholder value."
While Mr. Woodyer is a seasoned, heavy-hitter with over thirty years in the mining, financing and trading arenas, the company's advisor, Frank Giustra is quite an asset. After a stellar career in the 1980s and 1990s financing resource companies, he founded the successful filmmaking company, Lions Gate Entertainment. Mr. Guistra is also buddies with former President Bill Clinton and involved in the Clinton Foundation and the Clinton Global Initiative. So not only is Endeavour well run, it is well connected.
Here's a few relatively conservative numbers, at least for junior gold producers. With approximately 140 million shares outstanding fully diluted at C$2.20 EDV's market cap is about $300 million. EDV's stake in Crew and Etruscan is worth about $340 million and EDV has only begun their new gold investment strategy. EDV's goal is to be a 1 million ounce producer. They are well on the way with the over 150,000 combined ounces they own via Crew and Etruscan.
Buying a share of Endeavour is akin to buying Etruscan and Crew at a discount with a kicker of the next potential blockbuster strategic investment. The prospects for gold and resources continue to be bullish and the sagacious Endeavour team is unsurpassed. EDV is currently trading at about C$2.55. We like it on a dip to support. Buy Limit: C$2.18."
Disclosure Note: At press time, officers of the Hirsch Organization did not hold a position in any of the stocks mentioned in this article.
Editor's Note: Jeffrey Hirsch is editor of the Stock Trader's Almanac Investor, published by John Wiley & Sons, Inc., 111 River St., Hoboken, NJ 07030. Monthly, 1 year, $299. www.stocktradersalmanac.com.
