Endeavour Silver Corp (EXK) 2018 Q3 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Q3 2018 Financial Results Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the call over to Galina Meleger, Director, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavour Silver Crop. 2018 Third Quarter Financial Results Conference Call. With me on the line today, we have the company's CEO, Bradford Cooke; as well as our President and Chief Operating Officer, Godfrey Walton; and our Chief Financial Officer, Dan Dickson.

Before we get started, I'm required to remind you that certain statements on this call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in 2018 and future years, including revenue and cost forecasts, silver and gold production, grades and recoveries and the timing and expenditures required to develop new silver mines in mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information other than as required by applicable law.

With that, and on behalf of Endeavour Silver, I would like to thank you for joining our call today. And I'll now turn it over to our CEO, Bradford Cooke.

Thanks very much, Galina, and welcome everybody to this conference call on Endeavour's third quarter financial results. As I always do, I'd like to start with some highlights, and then we'll open it up for Q&A.

So the headline results released today include a net loss of $5.5 million or about $0.04 a share. But that was off the back of cash flow of $6.9 million, up 21% compared to the same period last year. Revenues for the quarter were down 6% compared to 2017 Q3 at about $37.6 million. Our cash costs were up slightly 9% to $8.86 per ounce net of gold credits. But all-in sustaining costs were actually down 8% at $16.14, again, net of gold credits. Working cap was a bit lower due to our spending during the third quarter at about $57.4 million. No debt on the books, so we still have a healthy balance sheet.

Production -- silver production increased 13% to 1.4 million ounces. Gold production was down a bit 5% to 13,000 ounces and silver equivalent production was relatively flat quarter-on-quarter at 2.4 million ounces using a 75:1 ratio. In general, our financial performance in Q3 was impacted by the lower metal prices and our earnings performance was particularly impacted by the higher depreciation and depletion charges, primarily at Guanaceví where production continues to lag behind plan. We've been working very hard at Guanaceví this year, and we're still very optimistic that Q4 will show significant improvement at Guanaceví.

We were also impacted during the third quarter by a brief shutdown at the new El Compas mine, but it's back up and running here, mid-October. And we are still expecting to declare commercial production at El Compas this quarter. El Cubo continued to have strong outperformance carrying on from the first 2 quarters of the year, Q3 was no different. And Bolañitos actually suffered from a drop in gold grades in Q3, but we are seeing them coming back up already in October.

We did complete a large part of our exploration and development spending during the third quarter. That's the main reason why our working capital took a dip. And looking ahead to the fourth quarter, we do expect to both improve the operating and financial performance largely due to our expectations of higher throughput and grades at Guanaceví, stronger gold grades at Bolañitos, initial commercial production at El Compas. So we should also, I think, this quarter realized the full benefit of our short-term cost reduction program that we initiated late in the third quarter.

So lots of things going on, on the operational front. I'll just briefly touch on our development projects. At Terronera, we released an updated PFS, or Pre-Feasibility Study, showing a significant improvement in both operating and financial metrics. I think the real headline there was the all-in sustaining costs estimated for Terronera came in at a very low $1.36 per ounce of silver net of the gold credit. So I think that is the -- some of my initial comments.

And operator, let's open it up now for questions and answers.

(Operator Instructions) Our first question comes from Heiko Ihle with H.C. Wainwright.

You just mentioned the full impact of the cost reduction program that we're likely going to see it in Q4. Can you just sort of quantify it? I went through the release and some articles about it. I mean, it sounds like its head office on bound that was announced back in August. You want to just sort of quantify what do you think we'll see in Q4? And then maybe also Q1 of -- or even full year '19?

Sure. I'll just give you a brief overview and then I'll let Godfrey give you some details. The idea behind the cost cutting was that we saw obviously, the initial drop in gold and silver prices in the summer time. And having been through this before and knowing that we're in the middle of a significant spend, not only at Terronera, but also at Guanaceví, where the new Milache and Santa Cruz Sur lines are in development. So knowing that we were in the middle of a spending phase -- a capital spending phase, we felt it was very important, not only to focus on how to reduce exploration capital and operating costs, but to use the head office as an example. So maybe over to Godfrey for some details.

Sure. So at the operations, the big reductions really come in development. And so development is now paying for itself by being focused on the actual veins themselves as opposed to adding the waste. We've also done a number of reductions in acquiring new -- a variety of new things for the operations now. We go out and buy extra supplies, extra maintenance things. We've cut back that a lot. And then, we've stopped hiring extra people. And so those are really the main things that we've introduced.

We had some layoffs of contractors at the various operations. Dan, do you want to contribute to that?

Yes. I think, from head office standpoint, it's across the space where we started from is up here in Vancouver, Heiko, where we cut back on our investor relations, reduced road shows, conferences, for lack of better term, grind our advisers in tax, legal, looked to do things in-house, put to delay -- delay certain things, and ultimately, also in exploration we finished our Terronera drill program for the year and we reached about $11 million in exploration. Our total budget approved by the board was up to $14 million and we basically got 2 drill rigs going -- internal drill rigs that we own going in and there is no external drilling happening at this point. As far as specific quantities for Q4, the main items end up being from waste development to ore development, which should save about $2 million at Guanaceví and $1 million some at Bolañitos. So all in all, you'll see it in our all-in sustaining costs a reduction more so than what we'd see in our cash costs in Q4.

I think this has been one of the most -- in over a decade of doing this, this has been one of the most comprehensive answers I've ever gotten on a conference calls as an answer. And for that I commend you. I think you're...

As far as your 2019 question, Heiko, which we actually didn't answer, we don't put out guidance in 2019 costs and production until January. The reason being, we are going through that process, as we speak, of looking at mine plans, various levels of mine plans and [actually] at today's prices it's something that we're trying to figure out what's the best fit for us going forward. And we just don't like to comment on that till we're final.

(Operator Instructions) Our next question comes from Chris Thompson with PI Financial.

A couple of specific questions, I guess, on the operations here. Going to El Cubo, first of all, I know since you've cutting back on your sustaining CapEx there on Villalpando, are you compromising the mine life in any way of doing this, maybe you can comment on that?

Chris, this is Godfrey. Thanks for the question. No, we are not compromising the mine life.

(technical difficulty)

in vein development as we've looked at it very carefully, and we don't see any

(technical difficulty)

In fact, I think the extension to that question, Chris, is that our main access ramp for Villalpando-Asuncion has actually reached the bottom of the [innings]. So all of the future development is basically vein development moving up from the bottom.

Okay. All right. Just Bolañitos quickly, I know previously I think you mentioned you'll be winding up the throughput from 1,200 tonne to 1,400 tonne a day. Two questions, I guess on that, is time line and additional CapEx required to do that?

No. It's not -- it's a matter of just accessing more phases and more levels. And that's all as part of the plan. So we always keep

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and what we can access, and so it's really just a matter of mining a little bit more.

And because it's adding the number of phases, it is a ramp-up period throughout the quarter.

Okay. So we can see -- expect, I guess, 1,400 tonnes exiting the year. Is that right?

That's correct. Yes.

All right, perfect. And then just finally, on rather Guanaceví, obviously, Milache and Santa Cruz you're going to be turning those on. Have you got any sense of blended grade? I mean, what should we be putting in our model from a grade perspective when those are fully laid into your production?

Really, Santa Cruz Sur is not going to show up in production until next year. We will hit the vein late this year, but we really wanted that production. When we -- Milache will, but it will be slowly increasing the grade because we are now going to access the levels, but you're basically initially just drifting on ore. You're not developing stokes until probably December. And so that's when you're going to start seeing more grade change.

And Chris, if you look through our reserves and resources, which I know you did, the Milache resource and the Santa Cruz resource are up in the 340 range -- 340 silver equivalent range and that would be coming through in 2019, which is in our internal mine plans been higher grades in 2019, 2020, 2021 than what we're seeing currently. And partly for 2018, our grades are lower than what the plan was for the year because Milache and Santa Cruz haven't come on as quickly as originally guided or hoped.

Right. Okay. I know the asset here has a history or you've taken, I guess, a throughput up beyond 1,000 tonne a day. I mean, is that realistic for next -- I know you don't want to give guidance on that, but I mean what your sense about tonne per day here?

We are -- Chris, we're looking at our mine plans for next year and we're just looking at what the best throughput will be. But we are thinking about the 1,200 tonne range. It's still early days in actually putting an exact number to it.

That's good. That's what my model has. And then finally, I guess, Terronera, obviously, we're still waiting for a couple of permits there. A bit of color on that, guys?

Terronera. So we're waiting patiently for the final permits from the government, and specifically, we got a letter from Conagua, the water authority, basically instructing us to go back -- to sum it up, the environmental authority. And so what we were waiting for the water authority, we now have that letter. We're going back to submit that in October, that's normally a 90-day exercise. We're trying to move it faster, but as you know, we were in a transition period for a new government in Mexico. So while we would love to have all of our permits by December, we certainly can't guarantee that because of the change in government.

(Operator Instructions) There are no more questioners at this time. This concludes the question-and-answer session. I would now like to turn the conference back over to Bradford Cooke for any closing remarks.

Well, thank you, operator, and thanks all for joining us again. I think I just like to conclude by saying that in addition to our upbeat expectations for both operations and financial performance in Q4, taking a broader look at the markets, I think that this is a challenging time of year for all equities and -- particularly for gold and silvers. But we do, based on our research, think that there will be a turning point with significantly better bids for the precious metals before quarter end. So our cost cutting program was not intended to be permanent or long term, especially on the capital side, we just felt that a short-term response was needed for this short-term dip in the precious metal prices. So we're upbeat on the precious metal prices for next year. Anyway, that's our comments for our Q3 conference call, and we look forward to talking to you again in the New Year. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.