Endeavour Silver Corp (EXK) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Endeavour Silver Corporation third-quarter financial statement review conference call. I would now like to turn the meeting over to Mr. Hugh Clarke, Vice President, Corporate Communications. Please go ahead, Mr. Clarke.

Thank you, Melanie. Good morning, everybody. It is Hugh Clarke, and we are going to have a very brief intro to today's teleconference call. I'm just going to touch on some of the highlights that were announced in the news release from Friday. Then we will have a couple of general comments from our president, Godfrey Walton, who is here and I may throw in a couple comments, too, and then we will open it up for questions and answers. Those always are the most informative portions to these conference calls I find.

So some of the highlights from the third quarter. Silver production was 627,000 ounces, up 9% over the third quarter last year and up 21% over the second quarter of this year. Mineral sales in dollar terms were $10.6 million, up 38% over last year, and up 5% from the second quarter of this year. Total for the year of mineral sales is over $31 million.

Cost of sales is up 11% to $7.6 million in the quarter over last year and up 5% from the second quarter. Mine operating earnings were $400,000, up from a loss a year ago but down from a $1.9 million gain in the second quarter. Total mine operating earnings was just a little over $5 million.

Cash costs were $9.52 an ounce, down 11% from last year and this is a critical point; saying it is very important and down incrementally from the second quarter of this year. We will touch on this as we get into the discussion.

Working capital at the end of the quarter was about $10.9 million, about half of which is cash, cash equivalents and marketable securities and we have no debt. The consolidated mine output, plant throughput and silver production, grade and recovery were all higher compared to the second quarter of this year and the third quarter of last year except for a minor drop in the silver grade from last year. So good progress in all those areas.

The mine output at the Guanajuato mines in Guanajuato state continued to ramp up during the third quarter, averaging close to 400 tons a day. Up 24% from the third quarter of last year, and up over 55% from the second quarter of this year. Keeping in mind in the first quarter of 2008 the production from Guanajuato was about 100 tons a day. So we've made some great strides there.

Exploration drilling extended three new high-grade silver discoveries in the San Pedro area near the Guanacevi mines project and also we've identified four new mineralized zones in Guanajuato so far this year. You would never know it from the share price, but all in all Endeavour has actually had a pretty good year this year in terms of implementation of our capital improvement programs, exploration success, production increases. We've had some decreases in our cash costs. It has not been a bad year.

Unfortunately we have been hit by this liquidation event which has not helped anybody. I mentioned earlier that cash costs are a big concern. I talk to people all the time, both retail investors, institutional investors and two of the questions I get most often is, what is your cash position what is your debt position? And what are your cash costs doing? And we are still not happy with our cash cost numbers at and a bit. But they are heading in the right direction.

This is a function of a lot of different things including these capital programs are starting to kick in. We are getting better efficiencies, better recoveries and better improvement all around. We've had a gift in the form of the Mexican peso in that it has depreciated against the US dollar in the last three quarters, especially in the last little bit here. Pardon me in the first half of the year it appreciated, and last quarter it has depreciated and that has been very beneficial to us. Because our revenue is in US dollars, and our costs by and large are in pesos; I think roughly 80% of our costs are in pesos.

So those things have really helped the cash cost numbers. I compare that to some of the other gold and silver companies and their cash costs are sharply higher, so we are certainly going the right way and I think this trend should accelerate as we get into the fourth quarter and on into 2009. Further, we have been very conscious of our cash we have in our treasury. We've deferred some programs. We've postponed programs such as exploration programs, development programs and other initiatives. We've had a reduction of staff; so far that is around 100 people. We are never happy about that, but that is part of the cost savings measure.

We are looking at a reduction in our smelting costs, which has been a big issue in that one of the major smelters in Mexico, Penoles, has sharply increased their smelting cost to all the producers down there. Keep in mind Penoles is a large shareholder of Endeavour. They own about 6% or 7% of the stock, and notwithstanding that nice relationship they almost doubled or close to tripled their smelting costs. We are taking some measures there to eliminate or reduce that as best we can.

And I'm going to turn this over now to Godfrey. He can perhaps expand on that last point a little bit and bring up the other points that I've missed here before we go to questions.

Thanks, Hugh. This is Godfrey Walton. The focus right now is really making sure that we continue to drive our costs down, which will make sure our cash costs come down as well. The peso is probably one of the big items that will help us bring our cost down further below what they were in the third quarter. So we are expecting some change, and we expect the US dollar to peso exchange rate to continue to be volatile this quarter.

The refining costs that Penoles charges, is something that is hitting our concentrate sales from Guanajuato. It is happening to all the companies operating in Mexico. What we have done, we did a lab test where we processed a small amount of material at our leach plant in Guanacevi. That worked extremely well, and we have now just done a plant scale test. We've done 30 tons through the Guanacevi plant, and we are just waiting for the final recoveries but it looks very encouraging, and that should reduce our costs for processing concentrate significantly because then we will be selling as dore bars.

So we are looking for a good reduction in cash costs coming in from Guanajuato, and also a reduction in cash cost from Guanacevi. As some of the other cost-cutting measures that we are looking at, we have reduced our staff in Mexico and in Vancouver. And we are also reducing activity in exploration. We've slowed all that down and deferred it till next year, and management of course has taken a salary reduction, as well. We are looking at making sure that we conserve the cash that we've got, and we will continue to do any new programs that we know we have cash to cover. That's about it, Hugh.

Before we turn it over to questions, one of the things I wanted to mention, too, is this company was built on acquisitions. And despite what has happened in this market over the last six months, our acquisition efforts have increased substantially during that period. In that, during that same time if we were to look at acquisitions in the public sector and by using our stock as currency as one method of payment, this recent share price meltdown across the board has been extremely advantageous to us and that certainly our share price is much lower, but relative to our peer group and also the larger producers our share price is the best performer.

So if we were to make an acquisition or a merger again using our stock as currency, that is much to our favor. And again, efforts have been -- a lot of effort has been expended on that over the last three or four months and that will continue. We are looking for continued growth with this company. That's about all I have. If there is anybody out there wishing to ask some questions, we would be more than happy to try and answer them for you.

(Operator Instructions) Bob McQueary, a private investor.

Good day. Two-part question. One, could you expand any currently on potential acquisitions that you are looking at? Number two, has there ever been any consideration given by the company to selling rounds or bars directly to shareholders?

Yes, firstly on the acquisition front, I can't be too -- we can't be too specific about that, Bob, for obvious reasons. I can tell you that over the last several months we have done extensive due diligence on three primary silver companies that you would recognize. We did make an offer on one, didn't quite work out. On a fourth company due diligence is underway in terms of mutual site visitations, trading of technical data, things of that nature. I can't be more specific than that. I'm sorry.

In terms of the rounds, yes, that has been a very common question as of late, as well, and it is something we've actually kicked around before. Something we probably should have implemented a little sometime ago to take advantage of this premium in the cash market, and we will ultimately do that. As those one ounce rounds, 10 ounce bars and wafers, 100 ounce rounds and wafers, ultimately we will get there but whether or not we are in time to meet this premium I am skeptical.

I'll tell you one thing we are doing for the near-term is that we do have some dore in now, plus for the dore that we get from Guanajuato if that does indeed prove to be successful. We are going to try and experiment this week to see if there is a market in the physical market for that kind of silver. We have -- we always get inquiries from fabricators around the world looking for silver, usually they want 99.9% pure silver or Sterling silver which is 92.5%. Our dore is roughly 96, 97, 98% silver plus a little bit of gold, and we have had some direct inquiries looking for that product.

So on a test basis we are going to market 300 ounce bars sometime in the very, very near future probably through the silver site of Peter Spina called SilverSeek; or maybe even eBay. And if that proves to be successful and we do get the premium we are looking for, that will certainly be of benefit, to us well.

Thank you very much.

(Operator Instructions) [Dale Hinchoy], a private investor.

Good afternoon Bob and Godfrey. I am calling you from Vermont. I just want to compliment you on your report and what appears to be a very nice position in terms of the overall credit crisis which is impacting the industry around the world. I, too, am interested in the rounds, and I guess Bob has pretty much asked the same question I would have asked. The premium is very interesting. I have been looking at the price of silver which has been trading between $7 and $8 per ounce, and it is being sold I guess on the market generally around $14, which is a 100% difference over what the market is.

So I am certainly gung ho on whatever you might be doing in relation to bringing silver to the market. I see that you have about $2.9 million in inventory of silver and so I am very interested in that, too, and I just wanted to second Bob's question. Thank you very much.

Thank you for the comments, and yes, we will give that a long look. I'm not sure if the premiums are quite that high but they certainly are substantial and certainly worth examining, if we can generate additional revenue from our silver sales that is all the better for us. And again, thanks for your comments and just a remark there is that these have been very trying times for everybody over the last few months. And we are very fortunate with our shareholder base in that I get typically calls like that from Dale, where people are certainly not pleased about the share price but are very, very supportive in our efforts to make this a bigger and better company. And speaking for the whole group, both here in Vancouver and down in Mexico, we all really appreciate that. Thank you, Dale.

Haytham Hodaly, Salman Partners.

A couple quick questions for you. I just took a quick glance through the quarter and I don't see the realized gold and silver prices in the quarter. Do you have that handy somewhere?

Yes, I do. I don't have them right here. Can I get back to you on that?

You bet. I'll ask another question. Just in terms of your CapEx schedule going forward for the second or for the last quarter of this year, what do you see in terms of expenditures so far? Required expenditures, that is?

We are looking at about $1.6 million.

And next year's budget you are still working on; is that right?

Yes.

So $1.6 million, what is that $1.6 million for?

Mine development, plus a little bit of Guanajuato.

So the breakdown would be how much on each?

It will be about $1.2 million to Guanacevi and $400,000 at Guanajuato.

Okay, perfect. And I guess the next question would be just with regards to your cost per ton; can you give us an idea of what your cost per ton looked like on a mining processing G&A for each of those two mines?

Third-quarter cost per ton, $32.82; and processing $30.34.

And you are talking at Guanacevi?

Both.

Sorry.

That was Guanacevi. Consolidated it was $28 mining costs and $32 processing cost.

Maybe actually when I chat with you I will get a little bit more detail on those. Just some intricate information on those. The next question I guess would be just based on the current gold price and gold credit; what would you forecast your fourth quarter cash costs to be at this point?

We expect it to drop quite a bit because of the reductions that we've been looking at and also the peso. So I expect it to be right around $8.

Perfect. And is there anything else you can see doing that would bring that down further from these lows?

Once we've settled on the concentrate processing I think that will help bring it down further.

Okay, perfect. Thank you.

(Operator Instructions) There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Clarke.

Okay, Melanie. Thanks very much and thanks for all those folks that phoned in today. Before we do ring off is there one last question or two out there before we hang up? I have had people say, gee I wish I had the chance to ask that question. If not, we will say goodbye from Vancouver and again, thank you for participating in today's call.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.