Endeavour Silver Corp (EXK) 2010 Q2 法說會逐字稿

Hello, this is the Chorus call operator. Welcome to the Endeavour Silver Corp's second quarter 2010 financial results.

(Operator Instructions).

At this time, I would like to turn the conference over to Mr. Dan Dickson, Chief Financial Officer. Please go ahead.

Thanks, operator. And we would like to welcome everybody to our second quarter conference call, related to our Q2 production numbers, and our Q2 financial statements. The call is really designed to open it up for analysts and investors to ask questions, so I'll give just a quick overview of the quarter. And then we'll be able to open this up for questions.

As we released, silver production was up 41% quarter-over-quarter, and gold production was up 61%. And with that increased production, cash costs fell to CAD5.94 for the quarter. With sales of up 140% to CAD19.7 million, while our mine operating cash flows jumped to CAD9.4 million for the quarter. Our production is slightly ahead of schedule for the year, with increased production at Guanacevi. Our capital expansion programs at Guanacevi are slightly on plan. At Santa Cruz, the ramp extension is on schedule and on plan. At P4 -- Porvenir Cuatro, the ramp extension is on plan and on schedule, on budget.

At the plant, the Guanacevi crusher expansion -- was initially designed to be completed in August, where there's a little bit of slippage there. We're expecting a September steady-state, possibly late September. We'll see how that goes over the next couple weeks. So all in all, at Guanacevi, everything is on plan, with a slight delay at the crushing unit completion. At Guanajuato, another strong quarter with a CAD1.77cash -- negative CAD1.77 cash costs. And again, we've commenced the ramp at Lucero south extension during the quarter.

Exploration for the quarter, we spent what we expected to spend for the quarter. The exploration drill rigs have stopped at Parral, and with assays pending within the next couple weeks. And those drills move to Guanajuato and into San Pedro at Guanacevi. The other greenfield properties that we have, the Arroyo Seco project, the El Toro project, are continuing with their sampling and trenching programs, and expect us to see if we can get some drills on there, for the third quarter and fourth quarter. So with that, I think it's probably best just to open up for questions at this point.

(Operator Instructions).

The first question comes from Andy Schopick of Nutmeg Securities. Please go ahead.

Thank you. Dan, I wonder if you can touch upon the ore grades that are being mined at this time at the various locations, and what your expectations are, and really what your goal is, in terms of achieving a cost per ounce?

Sure. I'll start with -- the gold grades, and then silver grades at Guanacevi -- I think in the quarter -- well, in the quarter, we were about 332 grams per ton silver, and about 0.8 per ton grams gold. We expect to be similar grams per ton silver at Guanacevi. The gold grade was slightly higher than our proven and probables, and slightly higher than our mine plant. That was just the function of hitting high gold ore zone, and some purchased ore at Guanacevi. At Guanajuato, we expect our silver rates to come up a little bit from 166 grams per ton in Q2. So our plan is around 1.75 grams to 1.80 grams per ton, whereas gold's been averaging in the 2s, 2.1 area at Guanajuato, so we expect the same in Q3 and Q4 at Guanajuato.

Okay.

Other than a little bit higher silver grade. And the last part of your question, please, if you could repeat the last part?

What your general goal is in terms of cost per ounce of production. Where do you think it is reasonable to set an objective?

No, that's fair enough. At the beginning of the year, we forecasted we expect cash costs to be up CAD5.50 for the year. So far, you can see that we're slightly above that. In the first quarter, we were at CAD6.19. And in this quarter, we're at CAD5.94. With the completion of the plant expansion at Guanacevi, and some of the ore that we're going to get into at Guanajuato, we really expect those cash costs to get down to the CAD5.00, range for the third and fourth quarter, more or less the fourth quarter. So we expect to get closer to that CAD5.50 cash cost for the year.

For the year. And looking forward, do you believe it's realistic to achieve cash costs below CAD5.00 an ounce in 2011?

Well, yes, we do believe it's realistic to get just below CAD5.00, because if we hit CAD5.00 in the third quarter or fourth quarter, we'll just definitely try to drive that to just below CAD5.00. I mean, that's really, depending on where the peso goes, and where we forecast our production for 2011.

Okay. Also, I have a question about your capital structure. You have converts outstanding. I believe they are 10%. And there is a date coming up here later this month, which I believe you have the option to redeem or take some corporate action relative to converts. Now, that's expensive money, in view of where things stand today. Is there anything you can say about your intention regarding those converts?

Absolutely. The convertible debt you're referring to, which is 10% interest on it, is provided it's trading at CAD2.85 per share in Canadian dollar terms, we're allowed to force redeem those converts as of August 26. Okay. So we have to provide ten days -- we have to provide notice, which gives all the holders ten days to convert those debentures. We plan on exercising that option, provided we're over CAD2.85 in the next three weeks.

And those converts would be convertible into how many shares?

The outstanding balance as of yesterday, was CAD7.9 million, and that converts at CAD1.90 per share. Which is about 4- -- yes, 4.1 million shares, or 4 million shares.

Okay, and it is your intention to force redemption?

Absolutely.

Okay, thank you.

Your next question comes from Benjamin Asuncion, Haywood Securities. Please go ahead.

Hi, Dan. Most of my questions were answered already. I have just two things to touch on here. At the beginning of the year, we were looking at CapEx spend of just under CAD30 million.

Yes.

Where are we in relation to that, and are we still looking at CAD30 million?

Yes, CAD29 million was our original forecast. We've got, at the end of the quarter, we were just under CAD14 million spent, with about CAD2 million in prepaids and deposits. Looks like we're on budget and we're on plan, so we'll be right around that CAD28 million, CAD29 million mark.

Okay, and just one thing here just to follow up on, at Guanacevi, can you give me an idea of what drove the mining costs up from, I think it was about CAD88.00 to just over CAD100.00?

Yes, I was expecting that question actually. We actually have -- we pay a royalty to Penoles for the purchase of the land. That's been there, and relatively runs about CAD200,000 a quarter. In this quarter, we had a royalty back adjustment from 2005 to 2008 that we negotiated, and that worked out to about CAD4.00 a ton. We also had CAD4.00 a ton of maintenance -- unscheduled maintenance costs on the plant, in relation to the old crusher that we're changing out and just temporary changes. And then we also have about a CAD3.00 cost adjustment because of inventory adjustments at quarter end.

Okay, and I guess going forward, in order to hit that sort of CAD5.50 cash cost mark, what are you forecasting for an operating cost here at Guanacevi per ton?

Mid-CAD80.00's.

Mid-CAD80.00's, okay. Mid-CAD80.00's. All right. That's it for my questions. Thanks very much.

Thanks, Ben.

(Operator Instructions).

The next question comes from Haytham Hodaly of Salman Partners. Please go ahead.

How are you, Dan?

Not too bad, how are you, Haytham?

Are you on your own today, are you?

I have Godfrey Walton sitting here in the conference room with me.

Perfect, then, a question then for Godfrey. Godfrey, how have production and grades been tracking your budget levels over the last year?

They have actually been tracking quite close, Haytham.

In terms of percentages, are you above, below on each -- which do you foresee here?

Well, we're at Guanacevi, we're pretty well on target. And one of the benefits we have at Guanacevi, is we've got large stockpile there. We've got 68,000 tons sitting in front of the plant, so we can actually blend quite well and we're aiming to keep that pretty well on target. At Guanajuato, we've been down a little on the silver side, probably about 5% off. And that's really because we have no stockpile there. We have to take what we get at the face. Now, at the present time, we're building a stockpile. And with the access on that southern ramp extension, we expect to have a lot of ore becoming available to us, and allowing us to blend better so we can hit that, at our grades in silver and gold.

Okay. Can you -- I know Dan threw out some numbers earlier on. Unfortunately, it was a little too fast to write down. In terms of your second half of the year, what are you looking for in terms of grade for each again?

For grade, we're looking at Guanacevi, around 3.30 to 3.35 for silver, and I think around 0.7 to 0.8 on the gold. And at Guanacevi, we are looking at 1.75 to 1.80 in silver and around the 2.2 to 2.3 in gold.

And throughput similar to what we saw before?

Throughput should be up. Although the plant expansion at Guanacevi, isn't finished, we are hitting -- we are capable of doing 1,000 tons a day steady-state. So we have a portable crusher there that's helping us until we get the actual permanent crusher in place. So the tonnage throughput should be up at Guanacevi in the order of 10%, maybe 15%. And at Guanajuato, we've -- we did the expansion to 600 tons a day last year. We had some trouble actually getting there. And we've had some help from an engineering firm here in Vancouver, who have been providing us some guidance, and we're more consistently getting about 600 tons a day now. And so there should be a little bit of a pickup through the second half.

Okay, and with regards to the expansion, let's go back for a second at Guanacevi, you're saying that you will be at roughly -- it will give you a 10% to 15%, is that what you said?

Yes. So 10% to 15% will get you at what throughput level on a per day basis, a thousand? We should average a thousand, yes.

And that's going to be a little delayed beginning of Q3 sort of thing, maybe would happen towards the end of Q3?

Well, we should -- we've actually reached that point now. I think if you look at the numbers for Q2, we were averaging about 780 or 800. We should get pretty close to 1,000 for Q3.

Okay, and is there -- because of the slight delays, are you seeing any additional capital, or is it just -- I guess what's causing the delays?

It's mainly getting equipment to sites. Unlike some of the other places, we've actually had a lot of rain. And so getting the equipment from the border down to site has been delayed by just transport.

Okay, fair enough. Thank you.

Thank you.

Next question is from Howard Flinker of Flinker & Company. Please go ahead.

Will you please refresh me, what are your reserves and resources now?

I don't actually have those numbers right in front of me, but I think combined we're looking around 19 million ounces in reserves, and about 35 million in resources.

5 or 35, did you say?

35.

In addition to the 19?

Yes.

63 silver equivalent ounces.

Say that again. I'm sorry. I didn't hear you.

Sorry, it's 63 million equivalent ounces. It's available, yes, total. It's available off our website. I also don't have the breakdown in front of me.

Okay. Thank you.

Sorry, Howie.

That's okay. Thank you.

Next question is from Chris Thompson of Haywood Securities. Please go ahead.

Hi, guys. Just a quick question here. More on guidance than anything else. What's your guidance, again, for this year? And have you got a sense of what it's going to be for next year, production and cash costs? I might have missed it. I apologize.

Yes, we haven't provided guidance for 2011 yet. And we did provide guidance for 2010. and it was 3.1 million ounces of silver. We haven't adjusted that guidance. And there's no likelihood that we will adjust that guidance, until we know when we've completed all our expansion programs.

Great. And what's the gold there? Gold?

Gold is about 15,000 ounces.

Magic. Thanks, guys.

No problem.

There's a follow-up question from Andy Schopick of Nutmeg Securities. Please go ahead.

Thanks. Hey, Dan, I want to come back to the capital structure again. Right now, how many basic and fully diluted shares are outstanding? And would we simply be adding 4.1 million to the diluted share count, assuming the forced conversion or redemption occurs?

We've got -- well, we've got 63 million shares outstanding right now, about 5 million options. Most would be in the money. And then warrants, we have another 5 million warrants. So that puts us 73. So we're about 78 million fully diluted shares outstanding, which includes that convertible debt.

And it does include the probable 4.1 million shares that would be converted.

Exactly.

So it's the total of about 78 million diluted shares.

Yes.

Okay. Also I'm wondering if you could say a few words about future exploration, production plans, strategy for growth going forward beyond the current operations. What are some of the things that the Company would like to do, or is anticipating in that regard?

I'll touch on future growth plans of the Company. There's two ways that we can grow. One's through organic growth at our current operations, and the other organic growth would be exploration. We've consistently grown both Guanajuato and Guanacevi about 20% for the last three years. And although we haven't provided forecast next year, I think it's fair to assume that we're going to push for more growth at both operations. Through exploration, we've got a pretty aggressive exploration plan in place for 2010 at the Parral, which is northern Mexico. We've drilled that out in the first half, and just waiting for some assays. And then we'll go to preliminary assessment on it, depending on those assays.

And then we've got San Sebastian, Arroyo Seco and El Toro that we're doing some preliminary work on from an exploration standpoint. So from an organic standpoint, we're being quite aggressive and being quite aggressive with our budget. And then there's obviously an acquisition standpoint for the Company. And we've been quite inquisitive in the industry with regards to it, but that's always easier said than done. And you can never time exactly when you're going to acquire something that will help us get to that next level. Our goal is to get into that 5 million to 10 million silver ounce range. And obviously from our operations right now, our max capacity between Guanajuato and Guanacevi is about 4 million to 4.5 million ounces. So to get to that 5 to 10, we've either, a, got to find a mine through exploration, or acquire that mine through acquisition.

Okay, that's great. Thank you.

(Operator Instructions).

There are no more questions at this time. I'll hand the call back over to Dan Dickson.

Well, I want to thank everybody for attending today's call. If there's further questions, by all means, call the Company or e-mail Hugh Clark at Hugh@edrsilver.com. And thanks a lot for coming.

Ladies and gentlemen, this concludes this conference call. Thank you for joining, and have a pleasant day. Good-bye.