As founder and CEO of Endeavour Silver (EDR-T, EXK-N), Bradford Cooke leads a company that has turned two small, defunct Mexican silver mines into large and profitable operations in just eight years.
With the purchase of a third underachieving mine, Endeavour plans to repeat the process — and potentially attract the attention of a silver major with its growing output and high-potential land packages.
So how did Endeavour achieve such success? Bradford Cooke and Endeavour president Godfrey Walton are a big part of the answer. So earlier this year, Mining Markets sat down with Cooke to get an idea of how a rural kid from Hinton, Alta., became a leader in revitalizing Mexico’s silver sector.
‘I got hooked’
In 1976, Cooke was in his final year of a B.Sc. in geology at Queens University. The markets were hot. Geologists were in such demand that near-term grads were flooded with job offers at Christmas.
Cooke got offers but none seemed right so he turned them all down, confident something better would materialize in April. That’s when Noranda interviewed the nascent geologist.
“With all the other companies I was going to be a joeboy, but Noranda said, ‘We want you to run the geological exploration program for twenty-four projects in northern Quebec,’” Cooke said. “So I said, ‘OK, I’ll do that!’”
Next, Cooke went to work for Shell Minerals mapping two big uranium projects in Labrador. “I commuted to work every day in a helicopter, flying through absolute remote nothingness and getting dropped on a barren, windswept peak with a date to be picked up eight hours later in a different spot,” he said. “I generated the first-ever detailed geological map of the region. That was very cool. I got hooked.”
He stayed with Shell for three years. When he saw the big oil companies tiring of mineral exploration, he convinced Shell to finance his master’s degree in geology at the University of British Columbia.
Looking for a job in 1982, Cooke found that the job market had cooled. He spent a summer with Chevron Minerals, running exploration projects alongside Walton, his old TA from Queens. Then a geological consultant with a dozen clients near the Hemlo gold discovery in Ontario contracted Cooke to work their projects.
“By the end of that summer it dawned on me that I was doing all the work and he was getting all the money,” Cooke said. “So the next year I hung out my shingle as a consultant. And I went through six months of absolute drought.”
Cooke went back to school to finish his master’s thesis and graduated in 1984. Things slowly improved and over the next few years Cooke Geological Consulting helped several clients discover high-grade gold deposits in British Columbia. When the share price of his main client hit $8 — from 40¢ when they started working together — Cooke had another light-bulb moment.
“There we were, three years later, and my paycheque hadn’t changed,” he says. “I decided I really wanted to figure out how these public markets worked.”
So it was that in 1986 Cooke and two partners, Brad Aelicks and John Robins, decided to start their own company. Aelicks, Robins, and Cooke became the ARC Resource Group, and in March 1988 they listed their public company Canarc Resource (CCM-T).
“We raised a whole $500,000 on the IPO and thought, we’re rich!” Cooke says. “But we were complete newbs. By July we were running out of money.”
Their listing property in California was a bust, so they surveyed the Eskay Creek region in B.C. One project stood out. It was called Tok and Kay.
Arc Resources sewed up the 400 claims surrounding Tok and Kay for a $10,000 down payment. Tok and Kay, however, were held by Consolidated Stikine Silver, a tiny company managed by a prospector’s widow. She needed $250,000 to settle the company’s debts. That was too steep a price, so they had to pass.
Another group soon bought control of Stikine Silver. Shortly after, legendary stock promoter Murray Pezim arranged for his vehicle, Calpine Resources, to earn 50% of the project by putting $1 million into the ground.
“Fast forward to October 1988,” Cooke recalls. “It’s the first-ever San Fran gold show and it’s my first-ever investment conference. We’re back living on our credit cards. We’ve already gone to Murray Pezim’s geologist, Chet Idziszek, three times with our claims and he basically chased us out of his office saying, ‘You don’t have anything.’”
When the markets opened on the first day of the show Stikine’s stock price had tripled overnight, Calpine had doubled, and Cooke’s phone wouldn’t stop ringing.
Idziszek was on the line. Suddenly he wanted to do a deal for Arc’s claims, which included fractions that cut through Tok and Kay. Cooke told him to put his news out first.
By Monday, the stocks had doubled and tripled again, and there was an announcement. Calpine had drilled five holes, and one of them returned 100 ft. grading an ounce of gold per tonne.
“So I go in to meet Murray Pezim,” Cooke says. “Now he was the absolute best and the worst of the business. He was the best promoter that Canada has ever generated in terms of penny stocks and he had an ego that would fill Carnegie Hall. But he was very good at what he did.”
Pezim’s team offered Arc 100,000 Calpine shares, $10,000, and a 2% royalty. Cooke countered with a four-part transaction: three cash, stock and royalty deals for 100% of the 300 claims surrounding Tok and Kay and a four-year cash, stock, royalty and work commitment deal to earn 50% of the 100 key claims surrounding and cutting through Tok and Kay, which he was putting into Canarc.
Within an hour, Cooke had a deal with Canada’s best promoter. The discovery at Tok and Kay ultimately became the richest gold-silver mine in the Western world in the 1990s, and the resulting mine operated for almost 10 years.
“That was really the launch of my public company career,” Cooke says.
Over the next decade Cooke, Robins, and Aelicks grew Canarc, soon gaining control of the dormant Polaris Taku gold mine in northwest B.C. They were advancing New Polaris towards development when the Bre-X Minerals scandal hit. The board told Cooke to lay everyone off. He did. For the next five years, things were pretty quiet.
‘Wherever gold goes…’
By 2002, the price of gold had started to climb but silver hadn’t yet budged.
“I said to myself, and then to my board at Canarc, ‘If you know anything about precious metals you know that wherever gold goes, silver will follow. I think we should take Canarc into silver.’ The board said: ‘Absolutely not.’”
The board did not want to lose Cooke, though, so they came to an agreement: Cooke would start a silver-focused company with Canarc as a seed shareholder. In 2002, Endeavour was born.
Cooke invited Walton to join him and they turned their focus on Mexico or Peru, both of which dominated the productionof silver worldwide. They chose Mexico because it is closer and part of NAFTA.
“We had identified the commodity — silver — and the place we wanted to look — Mexico,” Cooke says. “We dusted off some old contacts and ended up going to look at some pretty junky, tiny properties in the middle of the Sierra Madre. After a few mule-back rides and dehydration episodes we decided that wasn’t going to be the fast-track to success for Ende
Then they heard about a mine for sale in Sinaloa. The mine was too small, but its mine manager became their ace in the hole, a “charming and quite brilliant geological engineer who is still our number one employee in Mexico” named Miguel Ordaz. Cooke and Walton told Ordaz they were looking for something bigger, more advanced and more prospective.
“You want mines? I have mines,” Ordaz responded. “You want plants? I have plants. You want big? I have big.” A week later, a foot-thick courier package showed up at Endeavour’s Vancouver office. A few days after that, an even bigger one arrived.
“So Miguel and I went to look at nine projects in twelve days in November 2003,” Cooke says. “A number were interesting but when we walked through the gates at Guanacevi and looked at all of this fully built and permitted infrastructure, I turned to Miguel and said, ‘This is for sale?’ And he said, ‘Yes Brad, this is for sale.’”
It turned out Endeavour was not the first company interested in Guanacevi, located in Durango state. Pan American Silver (PAA-T, PAAS-Q) had just relinquished a six-month option on the site, which prompted Silver Standard Resources (SSO-T, SSRI-Q) to make an offer: $5 million over four years.
The mine owners gave Silver Standard a counter offer: $7 million. The company never responded. Cooke and Walton had their opening.
They flew to Mexico. At 9 a.m. on a Saturday morning they sat down with the owners. By 9:05 a.m., Cooke had sketched out how Endeavour would pay them $7 million over four years and hire them on as the mining contractor. By 9:30 a.m., they had a deal.
Twelve hours later, the initial paperwork was done. In the next months, Endeavour stock shot up to $2 (the stock more recently traded near $7 with 99.5 million shares outstanding) and Cooke raised $10 million to consummate the deal in May 2004. When the first drill arrived a few weeks later, Endeavour started drilling the next hillside along strike from the seemingly depleted Santa Cruz mine.
“We hit right off the bat,” he said. “Our first dozen holes were all high grade and we were off to the races.”
On the fast track
Endeavour hit those discovery holes in June 2004. By September, they had enough high grade to justify collaring a ramp and by December, they arrived in the heart of stope 101. The team had moved from discovery to production in six months.
“The normal mine development process is ten years from concept to production, if you’re lucky,” Cooke says. “The only two parts of that cycle that are both fun and profitable are discovery and production. Everything else is just slow, painful, and not good for the stock. So the realization that we’d just bought a fully built, staffed, and permitted infrastructure that only needed ore — and oh, by the way, we’re exploration geologists so we think we know where there’s ore — that was a revelation for us: Holy crap, we just cut out seven years of bullshit!” Using existing infrastructure to fast-track discoveries in historic mining districts to production became Endeavour’s modus operandi. Cooke, Walton, and their new team in Mexico transformed Guanacevi from an unprofitable mine sending 100 tonnes of old tailings a day through a 600-tonne-per-day plant into a modern operation sending 1,400 tonnes of ore each day through a 1,200-tonne-per-day plant to produce silver at a fraction of the silver price.
The process worked so well that in 2007 they bought their second operation, Bolanitos, in Guanajuato state.
“It was exactly the same scenario: tired old mine in an historic district, run out of ore and put up for sale,” Cooke says. “The exploration potential was not nearly as obvious but when you have an historic district — the second largest in all of Mexico by silver production — and there’s two dormant headframes separated by three kilometres of prospective land with not a single drill hole between them, that was the play.”
It took Cooke’s team a year to hit their first discovery, but today the company can boast five discoveries in five years from that 3-km belt. And they’re not even halfway through their targets.
Bolanitos turned around just as Guanacevi had. When Endeavour bought the mine it was producing 80,000 oz. of silver per quarter at a cost of US$32 per oz. Eight quarters later, Bolanitos was kicking out 200,000 oz. of silver per quarter and cash costs were negative.
“The secret of the Endeavour business model is discovery and production, discovery and production, discovery and production,” Cooke says. “Every year we try to make a discovery, fast track it to production, and expand.”
With Bolanitos up to snuff, Cooke is now focused on the company’s latest acquisition, El Cubo, also in Guanajuato. When Endeavour bought the mine last year, it was struggling to produce 65,000 oz. silver a quarter and cash costs averaged US$29 an oz. Three months later, in the fourth quarter of 2012, Endeavour had boosted production to 195,000 oz. per quarter. Cash costs continued to increase to a clearly uneconomic US$35.27 per oz., but it plans to transform El Cubo just as it did Guanacevi.
(See Endeavour reports record earnings, output in The Northern Miner.)
“That’s the process: understanding what’s wrong, understanding how to fix it, and then with good luck on the exploration end, finding something brand new that we can develop from scratch into an anchor asset for the mine,” Cooke says.
That’s what El Cubo is missing: an anchor asset. The mine has 43 million silver-equivalent oz. in reserves and resources, but miners at El Cubo are pulling ore from 90 different faces over an area of 4 sq. km.
Cooke says it was the same when they bought Guanacevi and Bolanitos, where Endeavour continued with that kind of scattered mining just until they could find and develop a big, new resource. Endeavour has not yet hit fresh silver at El Cubo but drills only arrived late last year.
Cooke is not worried. He has confidence Endeavour will find more silver at El Cubo. While his geologists pursue that goal, he will be looking ahead to another goal, one he and Walton have long kept in their sights: building a solid company that would interest a major.
“Godfrey and I didn’t set out to run a mining company for twenty years,” he said. “We’re very much focused on having fun, making money, and growing success. We’ve enjoyed eight years of growth now and I’d like to think that before we get to the tenth year somebody else will want what we’ve got.
“It’s easier to talk about that than it is to actually do it, but you have to recognize what the markets actually want,” he continued. “We are building something that, once it’s just a bit bigger and has a little bit more future potential, should be ready. For now, we have to finish the job at El Cubo and plug one more asset in — and then we might be ready.”
— The author is a senior staff writer with The Northern Miner.