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November 9, 2006

By: Don Hansen

SILVERAXIS.com

In the past four years, my financial advisor and I have examined various strategies for investing in silver mining companies. All of the approaches we have followed have been successful but most have relied upon the continued increase in the silver price to realize our goal of a high investment return.

In recent months, we have developed a “value strategy” that involves investing in companies that do not rely on an increase in the silver price, or the good fortune of a major discovery, to have the potential for high returns. In other words, situations where we believe unrealized value already exists which when discovered by investors will result in high returns for those who own the shares now.

This provides the initial criteria for selecting a company but they must also have good management, minimal to no debt, a track record of increasing production, be primarily a silver producer, have demonstrated increasing ore reserves, and have a market capitalization of under US$200 million.

Of course, there are a range of companies that allow us to participate in the silver markets from the most speculative start-up explorer to the senior producer and everything in between. For you to make a high return with an explorer ultimately relies on them discovering a major new silver deposit, and one which is potentially profitable to mine. If you decide to invest in these companies you have to diversify over many companies and hope that a few get lucky. For you to make a high return on a senior producer depends upon the price of silver increasing and significant production increases. Also, these companies are well followed by analysts and mutual funds and are as a result fully valued relative to the smaller silver miners that are not yet traded on a major stock exchange.

So, the bottom line is we believe our “value strategy” involves significantly less risk than investing in explorers, and much greater appreciation potential than the senior producers.

Four companies that qualify for our strategy as noted above are the following:

Endeavour Silver (EDR in Toronto, EDRGF on Pink Sheets)

First Majestic Resources (FR in Vancouver, FMJRF on Pink Sheets)

Great Panther Resources (GPR in Vancouver, GPRLF on Pink Sheets)

Impact Silver (IPT in Vancouver, ISVLF on Pink Sheets)

To illustrate our method, I will present the data and process applied to Endeavour Silver.  The historical data and forecasts shown were obtained by personal interviews with company management, company publications and presentations, the Internet, and annual reports. This information is for illustrative purposes only and should not be relied upon by anyone to make an investment decision. Although we strive for accuracy, it may contain errors and more updated information might be available at the time of publication.

Endeavour Silver

All $ amounts shown are in US$ millions.

Our estimate of US$490 million market value in December 2007 for Endeavour Silver is the average of the 2007 and 2008 market multiples shown above. We used a multiple of 15 on mine operating profit to estimate market value, and we believe this to be a conservative method. We took the average of 2007 and 2008 because markets look ahead as well as behind to put a value on a company, so we incorporated 50% of the 2008 results in the market value. The current market cap of Endeavour Silver is about US$150 million, so we anticipate a valuation of more than three times the current level within one year, assuming the silver price averages $12 per ounce. 

Other factors which we believe make Endeavour Silver a good investment opportunity right now include the following. 

• The $38 million in cash in bank is much higher as a percentage of current market value than for many other miners, especially when compared to what funding is required to produce the projected output. This means little or no dilution beyond the exercise of some warrants in the next two years and the potential to make acquisitions of new resources without dilution.

• The company expects to be traded on the AMEX by the end of 2006, which should give a boost to the share price, increase liquidity and trading volume and attract more U.S. based institutional investors.

• The company has a close working relationship with Penoles, the largest silver miner in Mexico. In addition, Penoles owns 5% of Endeavour's stock.

• The management team has combined mining experience of over 250 years. They are neither promotionally challenged nor shy about sharing their achievements.

• Resources (which include some reserves) are at 14 million ounces of silver and on target for 25 million by the end of this year. The company expects resources to grow to 35 million in 2007.

• The ore from the company's Guanacevi mine yields a concentrate that is over 90% silver, something which is very rare. Many companies which claim to be engaged in silver mining actually produce less than 50% silver by value with the average being about 60%. Silver Wheaton is the only company whose revenue is 100% from silver and Endeavour is the closest you can get to that.

A comparable analysis -- which we plan to provide in future installments -- for the other three companies on my "value strategy" list shows similar appreciation opportunity to Endeavour. There may also be other companies worthy of consideration in the future using our criteria, but these four appear to be the most mature, proven successful junior silver producers out there, and therefore we believe they may be the least risky while still possessing high return potential in the near term.

**

Don Hansen is a retired entrepreneur who has been investing in silver mining stocks since 2001.

Disclaimer: We hope others will find this approach interesting and useful in making their investment decisions but we caution all investors that this is not an investment recommendation and that each investor must consider his or her own investment criteria, horizon, suitability and other factors before making an investment in these or any other stocks. Inexperienced investors should consult with a registered investment advisor. Information contained herein is believed to be accurate but we make no guarantees to that effect. We are under no obligation to correct errors or update any information, which is only timely as of the date of publication. Forward-looking statements and estimates are the author's own opinion only and any information obtained directly or indirectly from the company is protected by safe harbor laws. Furthermore, all viewpoints expressed herein are solely those of the author and do not necessarily represent the opinions of www.silveraxis.com. The author and persons associated with www.silveraxis.com own shares in all of the companies mentioned and therefore are biased in their favor. No compensation was received from the companies mentioned nor was the author asked by anyone to produce this commentary.

Copyright © 2006 Don Hansen - contact www.silveraxis.com for reprint permission