Endeavour Silver Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. 1st Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

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

Speaker 1

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

Speaker 1

Now over to Dan.

Speaker 2

Thank you, Galina, and welcome, everyone. 2023 is off to a strong start. Not only was it a good quarter for our operating mines, but we also attained a significant milestones towards building the long term future of the company. Consolidate Q1 silver equivalent production was up 18% year over year to 2,400,000 silver equivalent ounces. Ultimately, this performance puts us in great shape to achieve this year's production guidance of between 8,600,000 to 9,500,000 silver equivalent ounces.

Speaker 2

Once again, from a production standpoint, Kaunasvi had a positive quarter, driven by robust silver and gold grades. However, our mill performance was impacted due to the Extended maintenance of our on our mill liners and concentrate filter cloth changes in February. While throughput returned to plan levels in March, It was down 13% quarter over quarter, averaging 11 38 tonnes per day for the quarter. The The performance of our other operating mine, Bolanitos, remains steady. There is increased silver production offset by lower gold production.

Speaker 2

We continue to evaluate opportunities to increase mine life at Bolognaos and are cognizant about Bolognaos in the current landscape. Their operating team has done a good job meeting their targets. Moving to financials. We reported top line revenue of $56,000,000 with cost of sales of $40,000,000 for mine operating earnings of $16,000,000 After exploration and G and A, We reported net earnings of $6,500,000 or $0.03 per share. At the site level, Guanacevi delivered mine Free cash flow of $9,000,000 and Bolanitos contributed just under $1,000,000 for the quarter.

Speaker 2

Regarding operating costs, we've Seeing pressures across several inputs driven by foreign exchange and inflation. So our direct cost per ton were up 14%. Specifically, the Mexican peso strengthened substantially, up 7% from year end and 9% from Q1 2022, which increased our local cost and U. S. Dollar terms.

Speaker 2

Additionally, Guanacevi and Bolaninov continue to see increased labor costs, Power and consumable costs in steel and processing for items such as cyanide and zinc. Lastly, we sourced more production from Royalty concession areas, which result in increased royalty fees. The combination of these cost pressures has placed both the quarterly cash Costs slightly above the upper bounds of our guidance at $11.12 per ounce per cash cost and $20.16 per ounce for all in sustaining costs. While inflation is an industry wide issue that's expected to persist throughout the year, We're closely reviewing our purchasing practices to see where and how we can mitigate this impact. Containing costs will continue to be a key focus as we work to improve the efficiencies of our operations.

Speaker 2

The higher than planned ore grades continues to offset the higher direct cost per tonne. And with the recent strengthening of the gold price, we benefit from a higher byproduct credit on a per ounce reporting metrics. But to be clear, cost improvement continues to be a focus. As at March 31, we had a Cash on hand of $62,000,000 and working capital of $93,000,000 Cash decreased as $12,000,000 was spent on development activities at Terronera And prepaids went up to account for deposits and payments on various items. As mentioned earlier, we announced an exciting milestone In March sorry, in April, Board approval to formally proceed with the construction of an underground mine and mill at Terronera.

Speaker 2

The green light comes on the back of a financing commitment for $120,000,000 in senior secured debt from SocGen and ING Capital. Overall, I'm very pleased with the terms and details of the project loan. We worked very hard to secure favorable terms to protect the upside of the project for our shareholders. The facility has a term of 8.5 years at a secured overnight financing rate of +3.75 percent Once the project is in full production, the loan has a 2 year grace period during the construction phase, and there are no hedging requirements on silver production. That said, there is hedging program for foreign exchange and then for up to 68,000 ounces of gold over the 1st 2 years of production at Terronaire.

Speaker 2

Given the additional cost pressures that the industry has faced, we updated our development plans and initial capital costs for Terronera. The last feasibility study was completed almost 2 years ago. The updated mine plant increases the initial CapEx to $230,000,000 from 175 while the processing plant capacity increased to 2,000 tonnes per day from the 1700 in the feasibility study. The updated plan provides increased operating flexibility, includes inflationary cost estimates and brings forward capital investment. Life of mine sustaining capital estimates decreases to $88,000,000 compared to $106,000,000 in the feasibility study as those costs have been included in initial CapEx.

Speaker 2

The current plant design optimizes the recoveries while the construction schedule is 21 months with initial production expected in the Q4 of 2024. With a seasoned development team in place, we are committed to delivering on time With significant early works already underway, we've spent $58,000,000 to date on direct development. If you're interested in seeing photos of the construction in progress, I encourage you to visit our website under the Terronera page. Let me recap some of our recent developments. The full mobile mining fleet is now on-site.

Speaker 2

We ordered all the major equipment, plant equipment and expect most of that to arrive this summer. Upgrades to the access road totaling almost 7 kilometers is nearly complete. We're nearing completion of the permanent camp. We are nearly finished excavating the plant site, and we are advancing underground mine access. Supported by these results, Our main focus now is progressing mine development, finalizing earthworks and pouring concrete for the mill platform before the rainy season.

Speaker 2

Through all these operational milestones in ADASCOs, we continue to demonstrate our commitment to responsible and sustainable mining. To learn more about these and other efforts, I encourage you to read our latest sustainability report, which we released yesterday. The report captures our efforts in 2022 to This past year, we started executing our 2022 to 2024 Sustainability Strategy. I'm pleased with how our team delivered on our priorities, especially in areas like health and safety and embedded ESG practices deeper into our operations. Let me highlight just a few examples.

Speaker 2

We continue to achieve commendable safety performance in 2022 as part of our 4 year downward trend with our reportable injury rate dropping to 0.8 7. We recycled over 90% of water used in our operations, minimizing our fresh use of water, And we performed climate scenario analysis to assess potential climate related risks and impacts and prepared our inaugural climate report line to TCFE Framework. Lastly, I want to touch on the recent development of the new Mexican Mining lots. Of course, this has been a topic with a lot of uncertainty and unfortunately moved swiftly to the Mexican government. From an operating standpoint, our expectation is the new law Increased compliance requirements, specifically around water use and reclamation activities, but don't expect a disruption of our operations or construction activities.

Speaker 2

There is still uncertainty of the details, but unfortunately, these new laws could discourage future investment into Mexico's exploration sector. You will see these new laws challenged through the courts and ultimately have more clarity in the coming weeks months with regarding its impact. I think that wraps up my formal comments for today. Myself, Dawn Gray, our COO 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. Our first question comes from Craig Hutchison of TD Securities. Please go ahead.

Speaker 2

Just a question on the inflationary pressures. On the labor front, are there any more pressures you see there over the next sort of 12 months? Have you have any labor negotiations to Come here? Or is that largely wrapped up in just more of a broader inflation kind of theme? Yes.

Speaker 2

Right now, that's wrapped up. We finished that Typically in February, sometimes both into March, and we gave a 5% increase to the unions of Guanacevi and Bolognese. Really, where the impact hurting us from a labor standpoint really comes down to foreign exchange. So about 33% of our costs are incurred in Mexican pesos And with the appreciation of the peso this past quarter, obviously, the impact was right to the bottom line. And I think short term, we see some strength in the peso, but hopefully long term, it reverts back to what we've seen for the last 20 years, and that's kind of depreciation against the U.

Speaker 2

S. Dollar. Okay. And how about on the energy front? Are you seeing any pressures kind of coming off on that front?

Speaker 2

Or is that still So similar to the levels you guys experienced in Q1? Yes. I think we're going to see similar costs and most of our power, obviously, We come through CFE's electric commission in Mexico. Our expectation is it's going to stay where we're at from Q1. But as we've seen, the last kind of 5, 6 quarters, inflation has been a factor.

Speaker 2

And if The next government or the commission decides to increase rates, that will obviously impact us. For us, most of the power costs impact us through a plant standpoint and then pumping water pumping at Guanacevi as well. So again, hopefully, we see that kind of Flatten out care and maintain where the levels are. Okay. Maybe just one last question for me.

Speaker 2

I wanted to be Yes, it looks like you're tracking already kind of above the guidance. When you kind of expect maybe an inflection downwards in terms of grades Or do you expect maybe lower throughput? Should I try to model through the kind of midpoint of your guidance? I just assume it comes down at some point, Otherwise, you guys look like you may exceed, but just curious in terms of any kind of color on grades and when you make sure it's even sort of bouncing a little bit. Yes.

Speaker 2

I mean, we've seen elevated Because of Alcoa over the last 2 years, and obviously, we've been quite conservative in our reserve estimates on Alcoa. Frankly, we should see our tons per day come up with Wannancy. We had a tough February just with some maintenance requirements, mainly on the liner, Some clockwork that we had to do on the tailings dry stack tailings facility. So ultimately, our expectation is our tons come up, Which hopefully drives down our cost per tonne. As far as grades, like I say, we for the last 2 years, we've kind of exceeded what we've had in reserves.

Speaker 2

I do essentially and then us being conservative see that kind of come back to what we have in our plan. We just had a nice area in Encourta, and we seem to continue to get these. So maybe it stays elevated. And if It does. We'll come into the upper range of our guidance.

Speaker 2

If not, maybe B. But if we revert to what's in the mine plan, then we end up Being where we are, so we're not at this point really changed guidance at Guanacevi and ultimately consolidated. Okay. Thanks guys. No problem.

Speaker 2

Thanks for the questions, Craig.

Operator

Our next question comes from Matt Taylor of PI Financial. Please go ahead.

Speaker 3

Hey guys. Thanks for that. Just asking about a couple of questions on our end. The spending at Terronera this quarter is a little lower than expected. Are we going to expect should we expect The ramp up through Q2 or would it be likely later in the year?

Speaker 2

No. Now that we have formal construction decision, I would expect that ramp up. Everything is kind of running now. And like I say, with the Board's approval, the quicker we can move, the better, Obviously, I mean, I think if we can stay on time, we can stay on budget. And sometimes for things out of your control, we build contingencies on that time line.

Speaker 2

And I guess we'd like to have spent a little bit more in Q1, meaning we moved along. But at the same time, without having that formal construction decision, we tried to So we're just looking at early works. As far as expenditures between now and the end of 2024 when we get into kind of production, I would say it's going to be relatively homogeneous payments over that kind of next 7 quarters. And Again, hopefully, things wrap up relatively quickly here in Q2.

Speaker 3

Perfect. And then just switching over to Bolanitos. Should we expect an uptick in gold production later this year? I saw in Q1 it was Slightly lagging to what?

Speaker 2

Yes. Yes, for sure. I mean, absolutely, Bona'u has moved into kind of a gold operation. Our expectation It's going to be more gold, less silver. And this quarter, we thought kind of silver grades came up and gold grades come down.

Speaker 2

Similar to Guanacevi, I mean, we expect that to revert to our mine plan. So on a proportional basis, I'd expect gold to come up and silver to slightly come down. Partly that's going to be getting to certain areas within our mine plan and like anything with the underground vein mining, sometimes there's areas that Allow more ore tonnes to be able to come out and things that are in resources are actually not even in our mine plan that are there. But ultimately, if we follow mine plan, Expectations are gold comes up, silver comes slightly down.

Speaker 3

Okay. Thanks a lot.

Speaker 2

Thanks for the questions, Matt.

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

Well, thank you, operator. It's been an interesting quarter with regards to the changes in the Mexican mining law where we're seeing silver and gold prices. I think today's reflection of questions maybe just comes down to what's happening in the marketplace. You see silver kind of flipping all over the place and It was up to start today, now it's down. And then I see some the results in our share price just were down.

Speaker 2

I think it's early in the year. And Our goal is to get our costs in line to where our expectations and where our guidance is, and ultimately, we'll be working from that from an operation standpoint. But I think it's an Exciting year for Endeavor. I think moving forward with the Terronera projects, we're going to significantly change the profile of the company over the next 2 years, and It's something we're excited for, and I look forward to next quarter's conference call to be able to give an update on where we're at with Terronera and hopefully continued good performance at Guanacevi and Bologna. Thank you everyone for attending today and talk soon.

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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Earnings Conference Call
Endeavour Silver Q1 2023
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