Endeavour Silver Corp (EXK) 2009 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Endeavour Silver Corp fourth quarter financial statement review conference call. I would now like to turn the meeting over to Mr Bradford Cooke, Chairman and Chief Executive Officer of Endeavour Silver Corp. Please go ahead, Mr Cooke.

Thank you, operator and welcome everybody to this conference call on Endeavour's year-end financial and operating results for 2009. Everybody I presume has seen the news release from yesterday. So, I just wanted to hit the highlights of our performance last year, go through and touch on the outlook for this year, and then we will simply open it up for questions. I have with me today, our CFO Dan Dickson, and also our Vice President of Exploration, Barry Devlin.

So without further adieu, Endeavour Silver Corp and the financial operating results for 2009. Obviously we had yet another great year, our fifth consecutive year of production growth, reserve growth, resource growth, it was also our second consecutive year of falling cash costs and those two factors combined with the rising precious metal prices resulted in our best ever year of financial performance. Cash costs were down a full 33% on the year to the $6 range, and actually Q4 they finished below $5 per ounce of silver produced net of the by product gold credit. And so our margins have never been higher, on an operating basis. Part of that of course is our rising gold production. In 2009, we saw on an operating basis, the plant throughput rise by 24%, combined with both operations. Ore grades were relatively constant for silver but up sharply for gold, 50% rise, resulting in obviously an increase in the recovered ounces of silver and gold. Recoveries were down a little bit on the year compared to 2008, but not materially so. Our cash costs obviously were down sharply.

On a financial basis our revenues jumped to almost $51 million, that's a 29% jump, operating cash flows never been higher at $21 million, we recorded our first ever positive EBITDA with earnings of $14.9 million before interest action taxes and depreciation. And while we still recorded a small net loss on the year, it was a significant improvement over the prior year's loss going from an $18 million loss in 2008 to a less than $2 million loss in 2009.

So, on the fourth quarter obviously we finished the year off with a bang. Revenues were up over 200% to $24 million on quarter alone, reflecting the increased production level due to last year's capital build out at Guanacevi and Guanajuato. Principally the gains made last year were in mine development opening up the north Porvenir section of our five year old Porvenir ore body at Guanacevi, where we not only have better thicknesses, but better grades than previously produced in 2008. We also opened a new mine, the Porvenir Dos mine, which is just a long trend to say the system at north Porvenir and that too has contributed to tons in grade at Guanacevi. At Guanajuato the capital spent on mine development really went into opening up, again, two new mines. They are related mines, the the new Lucero vein and the old Bolanitos vein, were drilled out in 2008, and so the Lucero/Bolanitos mine extension came into production last year as well. We did some work on the Guanajuato plant, a little bit of work, about a $250,000 to push the plant capacity up 20% to about 600 tons per day. And at Guanacevi we continued to do continued plant improvement type activity in and around the plant and tailings. The tailings, which we have been working on now for over a year, are nearing completion for a five to ten year mine life depending on how fast we grow.

With regard to our outlook for 2010, we are forecasting our sixth consecutive year of production growth with approximately another 20% increase in silver production to the 3.1 million-ounce range. Gold is going to come in around 15,000 ounces. So again a rising gold credit which should actually continue to cause our cash costs and production to decline probably to the mid $5 range although we did post a sub $5 quarter in Q4 and it looks like we are on track for something similar in Q1.

As forecast in the news release we do expect the first two quarters of this year to be steady state quarters, no growth in other words, while we launch into this year's organic expansion programs and Guanacevi and Guanajuato. At Guanacevi now this year, the main focus is actually back on the plant instead of mine development, with a new crushing circuit being added to the plant in Q1, Q2 and once that comes on in Q3, that should allow us to ramp up production from the current 800 tons per day to the year end target of 1,000 tons per day. The crushing circuit is really that's holding us back at Guanacevi at this time. At Guanajuato, we are proposing actually a new ramp access for this new Lucero and Bolanitos vein extension, largely because our drilling late last year has added a full kilometer or mineralized extent to those two systems. So rather than allowing the ventilation and access to become an issue, we've approved now a ramp development at the south end of the Lucero Bolanitos system patch, provides not only quicker and easier access, but better ventilation as we move into several years of production in those zones. So I think that's all I will highlight to start this call. What I would like to do now, operator, is turn it over for questions and answers.

Thank you we will now take questions from the telephone lines. (Operator Instructions) There will be a brief pause while the participants register. We thank you for your patience. The first question is from Haytham Hodaly from Salman Partners, please go ahead.

Good morning, everybody.

Morning.

Morning.

Dan I had a couple more questions I will throw your way. One is 3.1 million ounces of silver at $5.50 per ounce, is the $5.50 the guidance for the full year because the wording was a little bit strange, it said we're going to get down to the $5.50, I wasn't sure if that was a level you were targeting throughout the tail end of the year.

It is the average for the year, it is obviously a conservative average considering we are at $5 for Q4, but part of that is the peso has gone from 13 to 1 to 12.5 to 1 and just our budgeting process is a little more conservative than what actual typically will be.

So it is $5.50 or better is what you are saying?

Yes.

What gold price assumption are you using on your gold credit [conversion]?

A thousand dollars.

Perfect. Maybe a question for Brad, just at Guanajuato, what are you looking at in terms of your gold recoveries and your silver recoveries throughout -- sorry, grades and recoveries throughout 2010? Are they -- are we going to see more of what we saw in Q4 is the question?

Yes I think you are probably going to see as the volumes increase that the silver grade in particular will probably dip below 200 grams. I think we are budgeting what, 175, Dan?

At Guanajuato.

At Guanajuato, gold will continue two grams or higher, and there are actually zones in Lucero and Bolanitos where the gold is actually stronger than the silver.

Is that two grams, is that a good number to use for the full year sort of thing?

Two grams per ton?

For gold? Sorry, no it wasn't two grams, it was --

2.3 but we -- Okay, 2.3 grams. And then what about at Guanacevi? At Guanacevi, 1, because we are in the Provenir Dos area now and that's got higher gold, gold grades than the north Porvenir area. Then later on in the year we bring on Santa Cruz, that's similar to north Porvenir where it's about a little bit lower, about 0.6 grams per ton. And then at north Porvenir we are seeing at Porvenir Dos which is higher grams per ton, which is a 1 gram, 1.3 grams per ton.

So our blended gold forecast grades for Guanacevi will be a slight improvement over last year. What was last year, Dan?

0.8.

So we will probably do maybe 0.9 grams.

Okay. 0.9. What about on the silver? Are you still forecasting some where around the same as the fourth quarter? I think you were at 3.32.

Yes I think our budget for the year was 3.25.

Perfect. That's all I had for now. Thank you.

Thanks, Haytham.

Thank you. The next question is from [Bob Macleary] and he is a private investor. Please go ahead.

Good day, gentlemen.

Good day.

One question, could any of you comment on the acquisition front?

Good question. You saw the first result of our acquisition strategy for the year announced about a month ago with the option to acquire 100% interest in the San Sebastian vein district in Jalisco. That is obviously an exploration stage acquisition, but we are very excited by the opportunities there, largely because there's actually a small mine operating on a little kind of postage stamp hole in our property holdings. While we are in discussions with those owners to take an option on their property as well, it is such a small property it's not that material to us. What is important is that mine is operating at a very small rate but from a very attractive vain. And that vain goes right on to our property. So at least, these veins on these San Sebastian properties, these veins have really never been drilled. There was five different vein systems that go for kilometers each and the previous owner,IMMSA, tested one vein, they popped 14 holes into it as I recall. The property really does deserve a good test to explore, not only a long strike from that small existing mine, but the other significant vain systems that abort from that. So that is number one.

Number two, we have a couple more district scale Mexican vein districts that we a negotiating on. We are optimistic that we will acquire at least one of them. We also -- looking at things outside of Mexico elsewhere in Latin American and there's no certainly that we'll land an opportunity, but we are finally seeing some good opportunities, good exploration targets outside of Mexico, and so we are working on something like that as well. Two more aspects to our acquisition strategy this year related to our two existing mining districts, we always continue to make offers and acquire new lands in each district as we slowly, but surely, consolidate our land holdings in Guanacevi and Guanajuato. And so you will see more of that this year, some of the deals are small properties that have good potential and there's a couple of deals actually that are very large and material to us, but still exploration type of acquisitions.

Last but not least, on the M&A front we are not seeing a whole lot of new product if you will, new opportunities. And while we are currently looking at a couple of resource situations, it becomes much more a valuation exercise, what should we pay for it rather than an opportunity to grow something. And I love to grow whatever I buy. So we will continue to make these exploration type acquisitions until such time as the right resource or production opportunity comes our way.

Sounds exciting. Thank you.

Thank you for your question.

Thank you. The next question is from Chris Tompson from Haywood Securities. Please go ahead.

Hi, congratulations on a good quarter, a couple of quick questions. First one, Porvenir Cuatro, can you give any guidance when that's going to come into production?

Unfortunately our COO is not here. I can have him call you, but I can give you what I know, I am just not always the most -- I am not the authority on it, Godfrey would be. Right now we are ramping into Porvenir Cuatro with expectation that it would come on line in about Q3, the beginning of Q3.

Okay.

We expect it to hit --

We expect to hit the vein in June, our VP of Exploration just said.

So there will be both vein and mine access development on going through the second and third quarters, and we will make a decision in Q3 whether to accelerate the actual scope of development at Porvenir Cuatro or take that -- those men and equipment and focus on Santa Cruz instead. Both of those mines by the way, Santa Cruz and Porvenir Cuatro are currently being developed this year. As we get further into the development we will make a decision where the ore is going to come from.

Great, excellent. Just a quick one on the back of a question from Haytham, about recoveries at both mines, can you give any guidance?

I think our recoveries are going to continue in the high 70s for silver and mid- 80s for gold on a consolidated basis. But Q4 actually we had an increase in recoveries and I was just looking at the most recent weekly reports and even Q1 we are, at least for Guanacevi, seeing some significantly higher recoveries and we are thinking as we get deeper into both Porvenir Dos and north Porvenir we are seeing less influence of the service oxidation and that may, believe it or not, contribute to better recoveries in the [Leach] plant, because oxidation also brings manganese into the equation and manganese is a preg-robber for silver. So I think we are seeing less manganese and less preg-robbing and therefore better recoveries.

Excellent. Thank you very much.

Thanks.

Thank you. (Operator Instructions) There are no further questions at this time. I would now like to turn the meeting back to Mr Cooke. Please go ahead.

Thank you very much, everybody for participating in today's call. Short and sweet, that's the way I like it. If you do have any other further questions for myself or Dan or Barry, please feel free to call or e-mail and otherwise, stay tune for a good Q1. That's coming up in early May. Without further adieu then, we will conclude this call. Thanks, operator.

Thank you. The conference has now ended. Please disconnect your lines and we thank you for your participation.