Endeavour Silver Corp (EXK) 2010 Q1 法說會逐字稿

Hello, this is the Chorus Call Conference Operator. Welcome to the Endeavour Silver reports first quarter 2010 financial results. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time I would like to turn the conference over to Bradford Cooke, Chairman and CEO. Please go ahead.

Well thank you, Operator, and welcome all to this conference call on our Q1 operating and financial results. Also want to thank you for being a little bit patient here. You actually have our entire Operating team, Management team, gathered together for our quarterly review and outlook in Guanajuato, Mexico, hence the little hiccup on starting the call. So what I'd like to do, as always, is just give a high level overview of the results compared to our expectations, our outlook for the next quarter and perhaps even for the balance of the year and then we'll open it up for Q&A. And because we have the entire Management group here, please feel free to ask any level or detail of question.

So you've all seen the news release. We obviously had yet another very good quarter in Q1. From a production point of view, silver and gold were both up sharply year-on-year, compared to Q1 of 2009. Pulled back a little bit from Q4 of last year, as scheduled, because the first and second quarters of every year are basically our capital expansion schedule for each year in order to complete the organic buildout of the two operations for expanded production. Silver equivalent production in the first quarter exceeded 1 million ounces and our forecast for the year is about 3.1 million-ounces of silver, 15,000-ounces of gold, or 4 million-ounces of equivalents. Safe to say that even though we don't publish quarterly guidance, we actually did beat our internal silver and gold production targets for Q1.

Cash costs are also down sharply from Q1 of last year, up actually from Q4 of last year, but again, that was as anticipated. Again, taking some men and equipment away from producing stokes to re-employ them in mine development as we expand principally Guanacevi, but also Guanajuato to develop new mines this year. And this year's capital expansion programs are intended not only for this year's production expansion but also to take care of next year's production expansion. We do expect cash costs to come down each quarter now for the rest of the year, and so we think they'll be below CAD6 in Q2 and heading to the CAD5 range Q3, Q4.

Obviously revenues, cash flow, EBITDA and earnings all of these responded sharply not only to our increased production and falling cash costs, but also obviously to the metal prices. And we've had a wonderful rally just in the last week on gold and silver as well.

Some color behind our plans for the year. We typically try and complete as much of our capital expansion plans as possible in Q1, Q2, so production is normally forecast to be flat for Q1 to Q2. And then we typically complete our capital programs in Q3 and you'll see production jump in Q3 and even more in Q4. A very similar pattern to 2009.

Maybe I'd like to move now to exploration. It's really an area of renewed focus for Management. We have had, obviously, good success at the organic growth of our two mining operations, Guanacevi, Guanajuato now for five years. And just recently, in the last six months or so, we decided that we would go and find mine number three if we couldn't buy mine number three. So we are currently very actively drilling not only in the two mines, but also in one of our two new exploration districts.

We've actually been in the Parral District of Southern Chihuahua now for three years but went dormant while we tried to buy some more land. We succeeded in doing that late last year. And we currently have two drill rigs working on our Parral project to try and increase the current 1.5 million-ton polymetallic resource that we've previously reported on Cometa through drilling the property next door called San Juanico. And there are other opportunities on that same polymetallic vein structure, the Estrella, Estrella's Esmeralda vein structure. And we're continuing to pursue opportunities to consolidate our land holdings in this Parral district.

By the way, Parral still has to this day two very large underground polymetallic mines. One of them is operated by a Grupo Mexico at Santa Barbara I believe 5,000-tons per day on vein systems very similar to Esmeralda. And also Frisco is operating at the San Francisco mine, something on the order of 3,000-tons per day. So these are big veins and that's our ambition here in the District of Parral is to expand the tonnage of the Esmeralda vein and also to expand our land holdings on that vein.

And last but not least we did acquire in February a very new and exciting silver-gold project in the State of Jalisco called San Sebastian. And while we haven't yet started drilling there, we've certainly commenced the mapping and (inaudible) necessary to define drill targets for later in the year, most likely Q4 and we're thrilled with the results so far. There's nothing yet to talk about but needless to say, we think that we'll have some very nice drill targets for later this year at San Sebastian.

I'll wrap up my introduction here by just commenting a bit about acquisitions. We do acquire and consolidate our land position in each of the two mining districts every year. For instance, in Guanacevi, we've basically bought new land every year and effectively made a new discovery every year in Guanacevi. So we have a great track record for expanding our land and expanding our resources and reserves at Guanacevi and Guanajuato. We do expect that to continue. There's other significant opportunities to expand our holdings in each of those two mining districts.

Outside of that, however, we have been one of the most acquisitive of the junior small cap silver mining companies and we do have a number of irons in the fire, nothing to report yet. But whether it's brand new exploration projects or resources that are -- we're pursuing on an acquisition or even possible mergers, needless to say Management is keeping itself very busy.

In terms of our financial condition, we did add almost CAD4 million to our working capital in Q1 which is I think -- it tells us that the operations are going very well and that we are generating a lot of free cash flow now. So on that note, I'll conclude my comments and just turn this over to the Operator for questions and answers.

Thank you. (Operator Instructions) Our first question comes from Haytham Hodaly from Salman Partners. Please go ahead.

Good morning, everybody.

Good morning.

Just a few basic housekeeping questions, I guess. Your cost per ton breakdown for Guanacevi and Guanajuato, could you give us what it was here so far in this quarter and what you're looking for for this year?

Yes, so far for Guanajuato, I reported CAD65.81 in the MD&A and the breakdown is essentially rounded up, or rounded down, CAD29 for mining costs, CAD20 for processing costs and CAD16 for indirect costs. At Guanacevi, mining costs of CAD35, processing cost CAD32, indirect cost of CAD21 for about CAD88 total cost per ton at Guanacevi.

Dan, how does that compare to your budget for the year?

It's relatively in line with our budget for the year from a cost per ton standpoint. We're-- we increased a little bit of it in Q1 from a cost per ounce standpoint, it was a function of grade. Our grades were down a little bit especially from a gold grade standpoint from Q4 2009 to Q1 2010.

Okay and so for 2010 for the remainder of the year if we were to still use for example Guanacevi CAD88, that's probably reasonable?

It is reasonable. You'll just have to pay attention to the peso to the US dollar exchange rate. Half of our labor-- half of our cost is labor which is in pesos and then another 20% of the cost is local direct supplies. So about 70% of our costs are in pesos. So as long as we see a consistent peso to US exchange rate, CAD88 at Guanacevi is probably a fair cost per ton.

What are you using in your forecast for the peso?

We used 13 in our budget for the year.

Okay and we're at 12 something right now?

12.6 or 12.7 the other day. I haven't looked today, Haytham.

Okay, fair enough. And your CapEx budget for 2010 of CAD29 million, you don't really expect any significant changes, you think you'll end up spending that full CAD29 million at Guanacevi and Guanajuato?

Yes, we're on track to spend the full CAD29 million. We don't see any change to that CAD29 million for the year thus far.

Okay. And in terms of looking outside of Mexico in terms of opportunities, Brad mentioned that they were doing certain things close to home. Is there any other areas you feel comfortable going, Brad, at this point?

Well, certainly Latin America is where we like to operate and the commodity mix we prefer is gold and silver. We won't kick copper, lead and zinc out of bed but they have to tag along with some significant silver and gold. Somewhere in Latin America.

Okay and sorry to jump back to Dan. Dan, for 2011 do you have a budget for your costs at each of the mines?

We do have a pretty high level budget at this point. We're expecting with the increased volumes to get about a 15% to 20% drop in our cost per ton. That's just a function of spreading all our indirect costs of the warehouse, camp, et cetera, across all those tons. So for now I'd just leave it at 15% to 20% across the board.

At both mines?

At Guanacevi.

And at Guanajuato?

Still very similar, it'd be right around the same range.

Same range as this year, sorry or same range as similar drop?

Pardon me?

Sorry, you're saying the same range as we're experiencing right now in terms of cost per ton?

At Guanajuato, yes.

Yes, okay. Perfect. That's it, thank you, gentlemen.

Thanks, Haytham.

The next question is from [Mr. Howard Slinker] of [Slinker & Co.]. Please go ahead, sir.

HI, guys.

Hello.

I got two questions. One, is your forecast for silver production, which I didn't hear clearly, four million-ounces this year or five?

That's four million equivalent ounces or 3.1 silver ounces.

Okay. And following up on the question of the previous caller, I wasn't clear of what you said about the drop in cost per ton. Is the drop going to be at both mines or 15% to 20% at one mine and the same cost per ton at the second mine?

It is at both mines because our plan is to increase tonnage at both Guanacevi and Guanajuato in 2011.

Yes, that's what I thought, but I didn't hear that. So down roughly 15% because of unit volume, the unit economies.

The big movement is going to be at Guanacevi as opposed to Guanajuato. Guanajuato what-- right now what we have in our plan to go forward, it would be to get up to 800 tons per day but that again coincides with us being able to find that ore to get to 800 tons per day. It's just something that we're looking at internally.

OKay and I actually have a third question. What is your D&A going to be for the year? Is it going to be around CAD15 million or is it going to be higher than that?

It'll be under CAD15 million. We're looking to come in between CAD12 million and CAD13 million.

It was three point what-- CAD3.3 million in the first quarter?

CAD3.3 million for the quarter.

So CAD12 million or CAD13 million for the year?

Yes.

Okay. Thanks.

Thank you.

(Operator Instructions) There are no more questions at this time.

Well, then I'll just make a concluding comment. Specifically what we're developing at Guanacevi are two more mines. There's currently two mines feeding the plant at Guanacevi, the original mine all the way back to 2004 is Porvenir North. And last year we developed a second mine, Porvenir Dos. This year we're actively developing Porvenir Cuatro in Santa Cruz. And it looks like we're actually ahead of schedule. And so while we may not draw ore from those two mines-- both of those two mines this year, we'll certainly be drawing ore from at least one of them this year and the other will be ready for next year's expansion plans as well. So that's where a good chunk of the capital is going into developing two new mines at Guanacevi this year.

Moving to Guanajuato, the capital is also going into the development of a couple of new areas. We have something called [New Cerro South] which is going to be subject to a ramp and ventilation shaft developments here in the next quarter or so. And that will then open up a whole new production area for Guanajuato, again, leading to an increase in production not only this year but next year.

We're also developing an area called Bolanitos South, and while we're drawing only a little bit of ore from Bolanitos South at this time, we do expect production to significantly ramp up at Bolanitos South over the course of 2010. So that's where the money's going, to expand production not only for this year but next year. And on that note I'd like to thank everybody for attending and we'll talk to you in a quarter. Thank you, Operator.

Ladies and gentlemen, the conference has now concluded. Thank you for joining and have a pleasant day. Good-bye.