Synovus Financial Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 7 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. 3rd Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen only mode.

Operator

The conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Galina Malager, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone.

Operator

Before we

Speaker 1

get started, I ask that you view our MD and A for cautionary language regarding forward looking statements and the risk factors pertaining to these statements. Our MD and A and the financial statements are available on our website at edrsilver.com. With us on today's call is With Dan Dickson, Endeavour Solar's CEO Christine West, our Chief Financial Officer and Don Gray, Endeavour's Following Dan's formal remarks, we will open the call for questions. And now, over to Dan.

Speaker 2

Thank you, Galena, and welcome, everyone. I'd like to begin by saying that we navigated through a difficult Q3. Not only were we hit with challenging market conditions that caused a sharp decline in the silver miners index by nearly 20%, Our cornerstone mine, Quanta City had a difficult operating quarter. The impact of lower throughput, Significantly lower grades, non routine expenses related to repairs and maintenance and an increased operating development resulted in escalated costs on a per unit basis in Q3. Costs were further amplified by macro factors such as the ongoing industry wide inflation pressures While the headline for this quarter is our elevated costs, we've taken corrective measures to get Quanta City back on track and not have issues affecting productivity persist.

Speaker 2

Of course, nobody likes to experience a lackluster quarter, But it's an opportunity to learn and improve. Such was the case for us as our new VP of Operations has taken steps to sustainably improve Guanacevi's I'm pleased to tell you that we're seeing a significant improvement in mine productivity this quarter. Of course, during the past quarter, we continued advancing the Terronera project. Terronera provides a clear path to margin expansion, Repositioning the company to obtain significant free cash flow once the mine is in production. Let's discuss This year's or this quarter's production in more detail, consolidated Q3 silver equivalent production was down 14% year over year to 1,900,000 silver equivalent ounces, bringing us to 6,500,000 silver equivalent ounces year to date.

Speaker 2

While this quarter's results still puts us on track to be within this year's production guidance range, there is little room for setback in Q4. Guanacevi's production shortfall is due to a number of factors. If you recall, we discussed initiating changes to our mine plan and To address these conditions, we temporarily changed mine sequencing. This meant mining lower silver and gold grade stopes Until we sufficiently address the temperatures and the water inflows lower in our mine. Ultimately, these issues could have been better managed to prevent impacts Simultaneously increased sill development during Q3 to open more soaps further impacted Q3's mine output.

Speaker 2

Sequencing of still development will continue to be a focus for Guanacevi to ensure stable production schedule going forward near term and long term. While the temporary changes have lasted longer than we anticipated, conditions have improved and mine output has increased. With the conditions within the mine, management felt it was an appropriate opportunity for an extended plant shutdown to address areas within the plant requiring more time than our Considerable maintenance work is performed in all areas of the plant, including crushing, brining, thickeners in the filter press, With the plant maintenance completed in early October, both the mine and the plant are offering at or above capacity. The combination of these events during the Q3 results in quarterly silver and gold production decreasing by 22 Percent and 13%, respectively. It equates to a production shortfall of nearly 400,000 ounces of silver compared to previous quarters and our annual mine plan.

Speaker 2

But as I've said, we're back on track with Q4 expected to meet plan. The performance of our other mine, Bolanitos, remains steady. Increased gold production was offset by lower silver production in Q3. The Bellavitos operation teams continue to strong effort to meet or beat their targets, including mined and processed tons. Our safety programs and results have been outstanding at both operations.

Speaker 2

Moving to our financials, We reported revenue of $49,500,000 with cost of sales of $46,700,000 for operating earnings of 2,700,000 and mine offering cash flow of $10,600,000 After exploration, G and A and other investment expenses, we reported a net loss of $2,300,000 or loss a $0.01 loss per share. This quarter, our cost of sales increased 35% compared to the same period last year. While there are a number of drivers, including a strength in Mexican peso, higher labor, power and consumable costs and increased royalty costs, A significant part of the C3 story was low production at Guanacevi impacting costs on a per unit basis. Guanacevi delivered $6,700,000 of operating cash flow. However, after capital and exploration expenditures, Gwanaseke reported negative mine free cash flow of $1,300,000 It's been quite some time since has not delivered a positive free cash flow quarter.

Speaker 2

Year to date, Duananeseve has delivered $12,200,000 of Mine free cash flow and Bolan Hills remain slightly above breakeven. Regarding operating costs, we've seen pressures on several fronts. Our direct cost per ton were up 23%. The increase in operating development, paired with higher energy costs, increased labor due to reshifting the workforce An increase in cost from accepting more tolled ore had the largest effect this quarter. While the Mexican peso weakened in the latter part of Q3, it made High averaging 17:1 in the Q3.

Speaker 2

The peso has recently reversed course, but it's still 10% above our budgeted assumptions. Again, all these factors translate into higher costs overall. Quarterly cash costs and the all in sustaining costs are at $17.95 per ounce and $29.64 per ounce, respectively. On a year to date basis, We've reported a $13.08 cash cost and $23.41 all in sustaining costs, which are both above our original guidance provided in January. Looking to the rest of the year, contained costs will continue to be a focus as we work to improve the efficiencies of our operations.

Speaker 2

We are closely reviewing our purchasing practices to see where and how we can make improvements. At this time, while we expect cost metrics To improve, additional maintenance work related to the plant shutdown continued for the 1st week of Q4 and increased operating development is expected continue into Q4. Additionally, cost pressures related to macro factors will continue. However, management anticipates the As of September 30, we had cash on hand of $41,000,000 and working capital of $76,000,000 During the quarter, we raised gross Proceeds of $23,000,000 to the ATM and another allotment of $17,000,000 was raised subsequent to quarter end to ensure there is sufficient funding for the development of the Terronera project. On October 10, we executed the $120,000,000 Lloyd project Finance an agreement with Stockton and ING Capital to fund the Terronera project.

Speaker 2

As per requirements under the project loan, the company will primarily self fund development to cash on hand before drawing down on the facility. As such, the company expects to draw down on these funds in 2024. Based on the project spend schedule, it's anticipated we'll be fully committed on the project capital costs in early Q2 2024. Moving to more detailed information on the construction of Terronera, at the end of Q3, we reached 38% completion and we expect to be close to Crossing the halfway mark by year end, we spent $95,000,000 to the end of Q3 on direct development. Project commitments totaled $160,000,000 which is 69% of the $230,000,000 initial CapEx With the execution of the $120,000,000 senior secured debt facility, we are well positioned to satisfy the financing requirements of the project.

Speaker 2

During the quarter, we made notable progress in a number of key areas. Not only have we completed construction of our permanent Camp and now can fully accommodate our workforce, but we've also made significant progress on construction of our process plant, with surface construction now About 42% complete. If you're interested in seeing photos of the construction progress, I encourage you to visit our website under the Teranorant page. Let me recap some recent developments. Of note, with rainy season upon us during Q3, construction safety measures were modified.

Speaker 2

Focus was on visibility and project road maintenance. We are pleased the extensive improvements over the last year helped maintain the site roads, keeping them in Good condition and accessible. As a result, equipment access and material deliveries to site were unaffected during the rainy season. Additionally, visibility controls and measures were reinforced. On the recruitment side, the workforce continues to grow with on-site personnel having increased over 5 Deliveries for all major plants equipment will be completed by year end.

Speaker 2

During Q3, the request for bid proposals for the mill construction contract was nearly complete, which includes structural steel, mechanical, piping, electrical and instrumentation. Mine development remains our critical path. Quarter end, over 1300 meters have been completed and advanced rates are gaining momentum as Portal 2 and Cohort pass through the fault zone and ground conditions have improved. During the quarter, quarter 1 reached its design elevation allowing for mine development to advance now on forefront quarter 1, 2, or which is incline and decline directions. Plant site earthworks concrete work and rebar installation are underway.

Speaker 2

Concrete work and rebar installation continued in the SAG and ball mill grinding areas, quartz ore stockpile and flotation areas. Concrete work also began for the primary crusher and excavation work started in the tailings thickener area. And lastly, on the community side, We continue to focus on supporting the municipality with projects like upgrades to our roads, our local landfill and communication infrastructure. Looking ahead, our main focuses remain progressing our mine development, advancing concrete work for the mill platform On schedule with electromechanical contractor mobilization early 2024, which marks the next major phase of Construction for Terronera and starting excavation on the filtration and LNG power plant areas and the TSF. That wraps up my formal comments for today.

Speaker 2

Myself, Don, Gray and Christine are happy to answer any questions that you may have. Over to you, operator, for Q and A.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Heiko Ihle with H. C. Wainwright.

Operator

Please go ahead.

Speaker 3

Hello, everyone. Thanks for taking my questions. And It's nice to see an 8 figure mine operating cash flow and hold taxes figure, even though this was obviously a challenging

Speaker 4

quarter. Building on all

Speaker 3

of that, you had a production shortfall at LTV due to maintenance and changes required to focus on improved access and ventilation. Some of the maintenance there was completed in September, it's now November as per your release. So building on all of

Speaker 5

that, which is any of the effects From the line sequence and changes, should we anticipate

Speaker 3

to last through the remainder of the year or maybe even into 2024? How you think differently, I guess more simple, is your expectation for Q4 change from what it was 2 months ago and are there

Speaker 5

meaningful impacts that we should model out?

Speaker 2

Sorry, Heiko. It's good to hear from you. Just your question got muffled there a little bit at the end. I'm not

Speaker 3

sure I heard it properly. The question ultimately is building on the changes that we saw in Should we anticipate them to last through the remainder of the year or mostly impacts from them gone? And then I phrase it Has your expectation for Q4 for the site changed from where it was about 2 months ago?

Speaker 2

Yes. It's a very fair question. It's nice to hear from you Heiko. Ultimately, our through the designs of the changes that we put through is to Through ventilation and improve our water the management of our water, we're getting more inflow down in the Alcoa concession than necessarily was expected about a year ago. And we're making those changes and ultimately our throughputs and our mine output have increased here in Q4 and we That's mostly work that we did in Q2 and Q3 would be lasting.

Speaker 2

So not only do we expect Q4's production throughput, Production output from the mine and ultimately throughput through the plant to meet plan, which is effectively around 1200 tons per day. Those changes should help benefit us for 2024 and beyond. I say some of these things are preventable, the fact that we could have managed it better Last year, we made sure that we were advanced on our ventilation program and our water inflow program. It's something we didn't do, we can be better on. It's just that all this came kind of all at once and ultimately impacted our production here in Q3.

Speaker 2

And With that impact on production in Q3 really showed in our financial results and ultimately our cost metrics at Guanacevi. I wouldn't say it's completely behind us. We're still working on Ventilation and Water Management, we expect that to be done here in Q4, but ultimately Our output is up. So with our output up, we'll at least meet our production plan.

Speaker 3

I think that's a very fair answer and really Completely different thing. Your whole summit visit to Terronera and 2 weeks, we're obviously excited to attend. Construction progress at site is 38% complete as courier released today, Octafamidis site. Just going through the last release you had on the site, it stated that procurement efforts are on schedule with most Long lead major equipment anticipated to see by year's end. It was a week and a half ago.

Speaker 3

What exactly is So missing and where exactly is it? Is it customs on a ship? Is it the suppliers? Anything that's concerning you or maybe should Sorry, I assume the answer is no, but just wanted to make sure.

Speaker 2

No, there's always things that concern us. I mean, the big thing that comes to mind right now is Some delays in key houses, those weren't expected. I wouldn't necessarily call them critical items, but they're important items because every piece And parts matter to get the plant up and going. As I say, all our key components for the mine and key components for the plant We're ultimately ordered quite early on and most of that's being delivered this year. There's smaller equipment now that we're going through.

Speaker 2

Right now, we're going through ATCs on steel. That's going to be kind of delivered out to suppliers and that expectation is going to come. But Over the next year, until we get into production or start of the plant, there will be always little things and our job is to manage that. And There's always unforeseen items that we have to manage. And right now, it's been fine.

Speaker 2

So there's been nothing critical, but Something will come up and it will be our job to manage that.

Speaker 3

And you've done a successful and good job of that kind of stuff in the past. So

Operator

The next question comes from Lucas Pipes with B. Riley Securities.

Speaker 4

My first question is a follow-up on Guanacevi. And as you look out to 2024, what do you think could These measures you've taken mean when it comes to production and cost profile? Thank you very much. Yes.

Speaker 2

For us for 2024, we'll put out guidance in January, but going to see we've been there 18 years. The Plant capacity is 1200 tonnes per day. I mean, now it's pretty easy to make the assumptions that we'll be able to do 1200 tonnes per day for 2024. Ultimately, the measures we've taken in Q3 ensures that we can have a 1200 tonne per day operation. If we can maintain our production profile and it will allow us to meet guidance from a cost Our all in sustaining cost is expected to be between $19 $20 this year.

Speaker 2

That's probably going to be a little bit higher next Because of the inflation factors, but we'll come out with that guidance in January.

Speaker 4

I appreciate those comments. And then a question on Terronera. In terms of kind of your minimum cash and liquidity targets While you do the development there, anything specific we should keep in mind as we model kind of cash flow over the Coming quarters, I would appreciate your perspective. Thanks.

Speaker 2

Yes. I think it's important that we Maintain a certain level of liquidity. Right now, we're sitting on $76,000,000 of working capital, and that's what we look to when we're looking at our liquidity, Especially during this development cycle that we're in with Terronera. I think it's important to know that we do have to Spend our cash first before we can draw down on our debt facility and we expect to draw down our cash Not to 0, but to a certain level, probably $20,000,000 $25,000,000 before we draw down on that facility. And once we start drawing down that Hopefully, our cash builds with performance at Guanacean and Volumes, and we'll see that in 2024.

Speaker 4

Got it. Okay.

Operator

The next question comes from Trevor Ward, the Private Investor. Please go ahead.

Speaker 6

Yes, good morning. I'm calling from Hawaii. I'm relatively new in terms of purchasing common stocks And I bought a substantial and Martin anyway, a substantial position in Endeavor, so I'm currently holding 40,000 shares at an average price of $3.10 What I'm curious about is all this jargon and the numbers for me the bottom line is In terms of let's say over the next year and then looking forward, when do I expect to actually see Endeavor actually turn a profit and show a dividend.

Speaker 2

Well, Trevor, you're lucky that you're sitting in Hawaii right now. We're here in Vancouver. It's beautiful day, but ultimately pulled. So I do wish I was where you were. For Endeavor Where we are right now from a growth profile standpoint is we're investing in our Terronera project.

Speaker 2

And Terronera is going to take us from 9,000,000 ounces of silver equivalent to 16,000,000 ounces of silver equivalent production per year. Having that scale is going to improve our earnings. And we've had positive earnings over the years. This quarter in itself, of course, we lost a penny. Obviously, we don't want to be in that position.

Speaker 2

We want to be making money no matter what Price of silver is or what price of gold is and I think Terronera is going to do that for us. As far as dividend because of Terronera, That's going to be in the future. I would say in the near future because we also have the pizzeria project coming in behind that. Our goal is to advance Cuturia. Cuturia would be a significant scale project that we still have a lot of work to do on, but we are feeling confident with it.

Speaker 2

But again, any capital and cash flow that comes from Terronera, we're probably going to reinvest in the company. So unfortunately, if you're looking for a dividend from Endeavour Silver, It's probably not going to come in the near future, but with what can happen in the silver price and ultimately if you're investing in Deverest Silver, you're investing in the price Silver, that could change and I hope it does. But like I say, currently right now with where we're at with $23 silver, I don't see a dividend in the near future until we fully invest with and exploit what we have with piteria, Pharrell And our other exploration programs.

Speaker 6

All right. So just a couple more quick questions without having to do all

Speaker 3

that. Sure.

Speaker 6

So just a little while ago, I So I watched a interview with yourselves and your projection and your assumption at that time was that So by the end of 2023, silver would hit $30 an ounce. And just to quickly what brought And also in terms of maybe a quick brief explanation of how the international silver market works. And then the last question before I say goodbye is, what is your current position and can you tell me since you've been in this position, What is your current holding of stock and when was the last time you bought or sold the stock?

Speaker 2

Sure. And there's a lot of questions there, the overall market and my personal position. My personal position, I believe I hold about 400,000 450,000 Shares of Endeavor, my holding price would probably be between $4 $5 and my carrying price would be. The last time I bought stock would have been last year, about May or March of 2022. But that's probably enough about me.

Speaker 2

With regards to me saying that silver price would have been $30 I couldn't tell you when which YouTube Or which interview you listen to, but I have said that in the past and ultimately that would be based on where gold price is. And if you look at the history of gold to silver ratio, The last 35 years has averaged about 35:1. Right now, gold sitting just below 2,000, maybe at that time gold was at 2,100. So to get to a ratio right now, I think we're sitting 86:one to get to a ratio similar to what we've seen historically, that would push silver up into the high Ultimately, dollars 30 We hit $29 silver a couple of years ago now and we've really come off of that. I mean, it's been a very uncertain time.

Speaker 2

And with rising interest rates, silver price has not performed. But funnily enough, gold has held on considerably well. I think that's a positive thing for the silver price. I think if gold pushes up through 20,02100, silver always Eventually follows, it's just that there's a lag time in the lag period and sometimes that lag period is 6 months and sometimes that lag period is 1 year. So With me procrastinating or projecting that silver is going to be $30 I don't think I've never not said that.

Speaker 2

So I like the data and it will be based on where gold price is. And then ultimately how the silver market works in the world, that's a huge question. I mean, it's a large market. There's over 800 That are produced and sold. It's sold through different exchanges in the United States, China, Across everywhere, so I don't think I'll get into that right now, Trevor.

Speaker 2

But happy to answer those questions to our

Speaker 3

The

Operator

next question comes from Craig Hutchison with TD Securities. Please go ahead.

Speaker 5

Hi, guys. I was wondering if you guys can give us an update with respect to Pizzeria, what some

Speaker 2

of the milestones are? I know

Speaker 5

you had some issues around ground control, but Any kind of milestones in terms of the exploration work there and potential for an updated PEA?

Speaker 2

Yes. Noah, it's a great question, Craig. Thank you. Ultimately, we wished we were drilling at Pittoria this quarter. As you touched on, we had some ground issues.

Speaker 2

The fault that we're getting through, we supported, but ultimately there's continue to be rock falls in the old adit that was there. So We are doing a parallel add it and we've taken that drill program and ultimately put it into an add it's advance this year. So We will not be drilling piteria until January, possibly February of next year. Still allows us to do PEA or start doing economic We'll be studying on pizzeria next year, but we want to make sure we get that out of complete, get the drilling done on what we think is some feeder zones and then ultimately Look at this project is potentially next development project after Terronera and that would be, like I say, starting to make those economic studies Hopefully mid year to end of next year.

Speaker 5

Okay, thanks. And just one other question for me. Just with regards to the debt funding, There's a stipulation that you'll need a cost overrun funding in the form of cash or letter of credit Up to $48,000,000 How should we think about that? Is that a requirement would that effect become Like a restricted cash requirement you have to hold for a certain period or how do we just understand that $48,000,000 requirement?

Speaker 2

Yes, it's a very good question, fair question. It's actually broken into 2 tranches. So the first $60,000,000 $120,000,000 is available to us with costs Over on funding of $24,000,000 Ultimately, it wouldn't be restricted. However, it It's almost treated like restricted cash. And then of course, when the next $60,000,000 funding comes at $120,000,000 another $24,000,000 required.

Speaker 2

Now we'll look at where we are from a project construction standpoint and whether the full $48,000,000 of overfunding is required and we'll do that with the independent engineers. So we'll come to that Sometime, I guess, mid year in 2024. But in your question, is that restricted? Possibly, yes.

Speaker 5

Okay. And maybe just as a follow-up, I guess, it would be fair to say you have more to do on the ATM facility this quarter just to kind of get cash position up ahead of that drawdown?

Speaker 2

Yes, it's very possible if the market allows it. Obviously, Guanacevi didn't perform as That impacts our balance sheet. Now I think our balance sheet is in great shape. We have over $41,000,000 of cash at the end of the quarter and $76,000,000 of working capital. There are some levers on our long term.

Speaker 2

We have EVA about $18,000,000 related to Terramera that hopefully we can get to current In relatively short order, so that gives us more funding that's available, almost $96,000,000 of working capital if we include that EBITDA. So I think we're in really good shape, but it's something that we have to be mindful of while we're in development and with these markets. So we will be and I think we're doing a good job managing that.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks.

Speaker 2

Thanks, operator, and thank you everyone for joining our Q3 call. Again, I think it's important to know that Management is working to resolve some of these cost issues that we have. I think that's going to be done through getting our output up to where we expect it to be and on plan. Good day, everyone. I look forward to having our Q4 call and financial release for 2023 And talk to everybody again in March 2024.

Speaker 2

Thank you.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Synovus Financial Q3 2023
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