Endeavour Silver Corp (EXK) 2010 Q3 法說會逐字稿

Hello, this is the Chorus Call Conference Operator. Welcome to the Endeavor Silver reports third 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, sir.

Well thank you very much.

And welcome, everybody to this conference call with regard to Endeavour's Q3 financial and operating performance. I'd also like to point out that it's been an action-packed week and we've had two other significant news announcements pertaining to our revised take-over bid for Cream and also the bought deal financing announced late Wednesday. So I'm actually going to start my presentation and those two subjects and then we'll move through a brief review of the financials and open it up for Q&A. By the way, on the call with me today is our CFO, Dan Dickson.

So without further adieu, the first material news of the week was our announcement to amend and extend the bid for Cream Minerals. We raised our offer to CAD0.14 per share and also made it an optional offer. To the benefit to the Cream shareholders, they can elect to take either cash or shares of Endeavour and we fixed the exchange ratio at 0.02575 which, given the move up in the Endeavour share price, actually implies a Cream share price of higher than CAD0.14 at this time.

So our decision to raise the bid was actually based on some extensive discussions with Cream's financial advisor representing Cream, late last week. And I can tell you that as of late Friday, a week ago, we did reach an agreement with Cream whereby we would provide this amended and extended bid and in return, they were to provide their support. It wasn't unanimous but the majority of the Board of Cream as of Friday night, a week ago, supported our revised offer. We worked diligently over the last weekend to get all of the related paperwork and report documents over to Cream on Sunday, only to have the whole process go quiet on Monday until after the Cream Board meeting.

On Monday night we were informed that Cream's Board would no longer support and obviously we didn't feel that was an appropriate response to the agreement made on that Friday. Nonetheless, we decided to honor our verbal commitment to them and we went ahead with the revised bid. And I can say that we've had a lot of positive response from various Cream shareholders who contacted us after that bid.

Moving to the bought financing announced late Wednesday, this is something that we hadn't been planning for a long period of time. It obviously came up very quickly. And I think it is widely known that Endeavour's trying to be very inquisitive to not only grow through organic growth but through strategic acquisitions or even mergers. And while we don't have an M&A project in our back pocket to tell you about today, clearly being able to go to the market on a bought financing and put $50 million into our treasury really does strengthen our hand and our dealings with regard to mergers and acquisitions. So for that we would like to thank the syndicate who backed us led by CIBC. Also in the syndicate we're [solen] partners, Haywood and RBC. I understand that the green shoe has been placed but there is obviously a period to closing, so there will be no announcements on the green shoe until after closing.

Moving now to our Q3 financials, Endeavour did enjoy another robust quarter of both operating and financial performance. We're well on track to beat our forecast production and resource numbers for the year. Just going through the highlights here. We did report a very small net earning on the quarter, but robust EBITDA, mine operating cash flow, sales, revenues. Our cash costs were a little bit of a disappointment but largely because of the drag on production due to our capital projects. We were hoping that the cash costs would be flat relative to a year ago. They were actually flat, slightly down, actually, quarter-on-quarter, Q2 and that is exactly as forecast. We forecast Q2 and Q3 to be relatively flat on both production and on cost.

I can say that we fully expect Q4 to see a reasonably sharp increase in production and decrease in cash costs. Obviously because of the run-up in the metal prices also we've-- we're expecting to close the year with record cash flow and record earnings.

Moving to the other highlights, our plant expansion at Guanacevi is now substantially complete. The new crushing circuit is up and running. The CCD circuit is up and running and there's only some minor aspects of the capital program at the Guanacevi plant that are still in final stages. Principally, we built some concentrate tanks for facilitating the leaching of our Guanajuato (inaudible). We're not yet using them, but they'll come into use here very shortly.

Endeavour did acquire new properties during the quarter in Guanacevi and we identified three new silver gold veins. You'll see sampling and drilling results coming on those this quarter, excuse me. We discovered two new silver gold veins at Guanajuato in the footfall at the prolific Lucero vein and I can tell you that there's more joy coming from the exploration department at Guanajuato again this quarter. We commenced the new Lucero South access ramp to develop the south end of the Lucero vein and conveniently the new [Corina] and Fernando veins being so close to the Lucero vein should be developed for that same access ramp at Lucero South.

We also were-- became debt free as a result of the conversion of the final $10 million of our debentures in September. And last, but not least, we've already covered the all cash bids for Cream now cash for shares. So that's the highlights. And what I'd like to do now is simply open up the call for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) The first question is from Benjamin Asuncion of Haywood Securities. Please go ahead.

Good morning, guys and congratulations on the quarter there. I just have one question. I guess in one of your previous news releases you mentioned the contemplation of plant expansion at Guanajuato. Is that something that we can look to for the use of that $50 million financing, and if you were to expand it, what would be the throughput that you would envision?

We haven't set anything in cement yet, Ben. By the way, thanks for your question. And with regard to the use of proceeds, clearly we raised the money for a combination of organic growth and acquisition growth, so we could in fact be allocating a small part of the proceeds to the also plant expansion at Guanajuato. Basically we're going to the Board with the proposal to expand that operation in December and we-- with the Board approval we'll be looking at something in the kind of $5 million to $7 million range for a pretty significant jump. Again, number's not finalized but as high as 1,00 tonnes per day, which would be at what 75%, 80% jump in production capacity at Guanajuato. So it's not an expensive CapEx. Really, we're just talking about refining the conveyor system because I think the crushing can handle that already. And we would have to double up the milling capacity, so there'd be another ball mill and additional flotation cells. Really, that's all we need.

Thank you very much, guys.

The next question comes from Chris Thompson of Haywood Securities. Please go ahead.

Hi, Brad. Hi, guys. Congratulations on a good quarter. Just following on I guess from Ben's question, more relating I guess to resources and reserves at Guanajuato. When are you guys planning on releasing an update?

Thanks, Chris. As you know, we typically commission Micon to review all of our updated reserves and resources through year end and that normally comes out in February.

February. All right. And you were saying that at Guanacevi the plant expansion is complete. Is that right?

That's right. The plant's operating at 1,000 tonnes per day at this time, plus or minus.

Right. And a final question, Brad. Just looking at I guess the Cream Mineral property portfolio, have you had any plans for the non-core assets at the moment?

We haven't put our mind to the Canadian properties of Cream, and it's something that we'll do once we actually have achieved the minimum 50% that we're looking for.

Fantastic, guys. Congratulations again.

Thanks, Chris.

The next question is from Haytham Hodaly of RBC Capital Markets. Please go ahead.

Good morning, Brad, Dan.

Good morning.

Good morning.

Just a couple of quick questions, actually. Just one, what was your development budget going forward before this latest financing is completed?

This year's CapEx?

Sorry, not this year's, going forward into 2011, have you guys ever had a stated CapEx out there?

No, no, no. That's-- we take that to the Board meeting December 10 and I think last year's CapEx was 29. It'll come in around, Dan, 25?

26.

26.

This year's you mean, 26?

No, that will be this year's number, and next years' number might be comparable, we'll just have to wait. We hadn't contemplated the Guanajuato plant expansion quite this soon. So with that now being a serious consideration, a similar CapEx for 2011 is probably within the range of possibilities.

Okay. Maybe just a question regarding Cream Minerals. What-- I guess how attractive are the assets for Endeavour and is there a point at which you'll say well, you know what, I'm not--- this is just not working anymore, if you can't get the 50% plus, et cetera, which I'm fairly certain you probably will, but just at what point do you stop and say it's not worth it, this thing has appreciated too much and we're not going to pay any more?

Well I think we probably wouldn't have lifted our bid anyway unless our stock got strong like it did. It was really the strength our stock and the request of Cream shareholders that prompted us to go to CAD0.14 cash or stock. That's pretty much as far as we're prepared to go. And if that's not good enough, then we'll just walk.

Okay.

We're only asking for a 50.1% of the Company. But we took that-- obviously we took that to the Board of Cream. We went through many different iterations of various deals with the Cream Board, not only this year but starting back in June of 2009, and it was -- our frustration with the Cream Board that prompted us to go after Cream shareholders themselves. And that's very much where this thing is at. We have a bid out there and we're basically asking the Cream shareholders, do you prefer CAD0.14 cash or Endeavour shares or do you prefer a $0.05 stock with $2 million in debt. It's your choice.

Sure, makes sense. Maybe a question for Dan. Dan, DD&A seemed to be a little higher this quarter than other quarters. Is this quarter's DD&A in terms of on a units of production basis, is that a reasonable indication of what we should be using going forward?

It is a reasonable indication of what you should use for going forward.

Okay, and G&A looks to be right in line, you don't anticipate any significant increases next year, do you?

No, it's right in line with where we expect in our budget and should stay like that going forward.

Perfect, thank you, gentlemen.

Thanks, Haytham.

Next question is from Tim Lee of Salman Partners. Please go ahead.

Hi, guys. I just have a couple of questions. First one's more of a clarification on the Cream offer. One person asked me if there's a limit on the amount of cash that you would give or if it's just purely optional, cash or shares?

Purely optional, Tim. We already had the cash going into that offer and so it's not a use of proceeds, for instance, in the bought deal. And to be honest, given that the share offer is more accretive to Cream shareholders at this time than the cash, I think it's reasonable to assume there'll be more shares than cash issued on the bid.

Okay. And then the other question is sort of just general sort of production guidance going forward, what you'd expect in the coming years. I know you've had some information out there, but just to kind of double check.

What we've said is that we think we can grow from last year's production level of 2.6 million ounces of silver, we think we can grow this another 50% (inaudible) more than 50% off of last year. We're obviously expecting to beat the 3.1 million ounce target this year, reasonable to assume we'll be in the high threes next year and the low-to-mid fours the year after. At that time we have to give a serious think as to whether to continue expanding the production or just look at expanding the mine life thereafter.

Okay.

And part of our acquisition strategy obviously is through either finding or buying mine number three and obviously mine number four. That would then slot into our growth profile post-2012.

Okay. Great. That's all I had. Thank you very much.

(Operator Instructions) The next question comes from [James Akin], a private investor. Please go ahead. Mr. Akin?

Perhaps you're on mute.

He's deregistered himself from the queue.

Okay.

We'll just wait a few moments. There are no more questions at this time. I'll turn the call back over to Mr. Bradford Cooke.

All right. Well, again, I'd like to thank, everybody for participating in today's call. And as with the last two years, I think it's safe to say that we are expecting Q4 to be our biggest quarter for the year. And we have said while we didn't provide earnings guidance, that we fully expect to have earnings this year and we've already sitting on $0.02 per share earnings and we're expecting more than that in Q4. So on that note, I'd like to thank, everybody and close the call.

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