Endeavour Silver Corp (EXK) 2023 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. First Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) I would now like to turn the conference over to Galina Meleger, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone.

Before we get started, I ask that you view our MD&A precautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com.

With us on today's call is Dan Dickson, Endeavour Silver's CEO; Christine West, our Chief Financial Officer; and Don Gray, Endeavour's COO. Following Dan's formal remarks, we will open the call for questions. Now over to Dan.

Thank you, Galina, and welcome, everyone. 2023 is off to a strong start. Not only was it a good quarter for our operating mines, but we also attained significant milestones towards building the long-term future of the company.

Consolidated Q1 silver equivalent production was up 18% year-over-year to 2.4 million silver equivalent ounces. Ultimately, this performance puts us in great shape to achieve this year's production guidance of between 8.6 million to 9.5 million silver equivalent ounces.

Once again, from a production standpoint, Guanacevi had a positive quarter, driven by robust silver and gold grades. Our mill performance was impacted through the extended maintenance on our mill liners and concentrate fiscal of changes in February. While throughput returned to planned levels in March, it was down 13% quarter-over-quarter, averaging 1,138 tonnes per day for the quarter.

The performance of our other operating mine, Bolanitos, remained steady. There is increased silver production offset by lower gold production. We continue to evaluate opportunities to increase mine life at Bolanitos and are cognizant of Bolanitos in the current landscape. Their operating team has done a good job meeting their targets.

Moving to financials. We reported top line revenue of $56 million, with cost of sales of $40 million for mine operating earnings of $16 million. After exploration and G&A, we reported net earnings of $6.5 million or $0.03 per share.

At the site level, Guanacevi delivered mine free cash flow of $9 million and Bolanitos contributed just under $1 million for the quarter.

Regarding operating costs, we've seen pressures across several inputs driven by foreign exchange and inflation. So our direct cost per tonne were up 14%. Specifically, the Mexican peso strengthening substantially up 7% from year-end and 9% from Q1 2022, which increased our local cost in U.S. dollar terms.

Additionally Guanacevi and Bolanitos continue to see increased labor costs, power and consumable costs, and steel and processing for items such as cyanide and zinc. Lastly, we sourced more production from royalty concession areas, which resulted in increased royalty fees.

The combination of these cost pressures has placed both the quarterly cash costs and the all-in sustaining costs slightly above the upper bound of our guidance at $11.12 per ounce for cash costs and $20.16 per ounce for all-in sustaining costs.

While inflation is an industry-wide issue that expects to exist throughout the year, we're closely reviewing our purchasing practices to see where and how we can mitigate this impact. Containing costs will continue to be a key focus as we work to improve the efficiencies of our operations.

The higher-than-planned ore grades continues to offset the higher direct cost per tonne. And with the recent strengthening of the gold price, we benefit from a higher by-product credit on a per ounce reporting metrics. But to be clear, cost improvement continues to be a focus.

As at March 31, we had a cash-on-hand of $62 million and working capital of $93 million. Cash decreased as $12 million is spent on development activities at Terronera and prepaids went up to account for deposits and payments on various items.

As mentioned earlier, we announced an exciting milestone in April. Board approval to formally proceed with the construction of an underground mine and mill at Terronera. The green light comes on the back of a financing commitment for $120 million in senior secured debt from SocGen and ING Capital.

Overall, I'm very pleased with the terms and details of the project loan. We worked very hard to secure favorable terms to protect the upside of the project for our shareholders.

The facility has a term of 8.5 years at a secured overnight financing rate of plus 3.75% once the project is in full production. The loan has a 2-year grace period during the construction phase, and there are no hedging requirements on silver production. That said, there is a hedging program for foreign exchange and for up to 68,000 ounces of gold over the first 2 years of production at Terronera.

Given the additional cost pressures that the industry has faced, we updated our development plans and initial capital costs for Terronera. At the last feasibility study was completed almost 2 years ago. The updated mine plan increases the initial CapEx to $230 million from $175 million, while the processing plant capacity increased to 2,000 tonnes per day from the 1,700 in the feasibility study.

The updated plan provides increased operating flexibility includes inflationary cost estimates and bring forward capital investment. Life of mine sustaining capital estimates decreases to $88 million compared to $106 million in the feasibility study as those costs have been included in initial CapEx.

The current plant design optimizes the recoveries while the construction schedule is 21 months with initial production expected in the fourth quarter of 2024. With a seasoned development team in place, we are committed to delivering on time and budget. With significant early works already underway, we have spent $58 million to date on direct development.

If you're interested in seeing photos of the construction progress, I encourage you to visit our website under the Terronera page.

Let me recap some of our recent developments.

The full mobile mining fleet is now on site. We ordered all the major equipment, plant equipment and expect most of that to arrive this summer. Upgrades to the access road totaling almost 7 kilometers is nearly complete. We're nearing completion of the permanent camp. We are nearly finished excavating the plant site, and we are advancing underground mine access. Supported by these results, our main focus now is progressing mine development, finalizing earthworks, and pouring concrete for the mill platform before the rainy season.

Through all these operational milestones and advances, we continue to demonstrate our commitment to responsible and sustainable mining. To learn more about these and other efforts, I encourage you to read our latest sustainability report, which we released yesterday. The report captures our efforts in 2022 to maximize our positive impact on society and the environment.

This past year, we started executing our 2022 to 2024 sustainability strategy. I'm pleased with how our team delivered on our priorities, especially in areas like health and safety and embedded ESG practices deeper into our operations. Let me highlight just a few examples.

We continue to achieve commendable safety performance in 2022 as part of our 4-year downward trend with our reportable injury rate dropping to 0.87. We recycled over 90% of water used in our operations, minimizing our fresh use of water. And we performed climate scenario analysis to assess potential climate-related risks and impacts and prepared our inaugural climate report aligned to TCFD framework.

Lastly, I wanted to touch on the recent development of the new Mexican mining lots. Of course, this has been a topic with a lot of uncertainty and unfortunately moved swiftly through the Mexican government.

From an operating standpoint, our expectation is the new law will increase compliance requirements, specifically around water use and reclamation activities, but don't expect a disruption of our operations or our construction activities. There is still uncertainty of the details, but unfortunately, these new laws could discourage future investment into Mexico's exploration sector.

We will see these new laws challenge through the courts and ultimately have more clarity in the coming weeks and months regarding its impact.

I think that wraps up my formal comments for today. Myself, Don Gray, our COO, and Christina are happy to answer any questions that you may have. Over to you, operator, for Q&A.

(Operator Instructions) Our first question comes from Craig Hutchison of TD Securities.

Just a question on the inflationary pressures. On the labor front, are there any more pressures you see there over the next sort of 12 months? Have you have any labor negotiations to come here? Or is that largely wrapped up and just more of a broader inflation in them?

Yes. Right now, that's wrapped up. We finished that typically in February, sometimes pile into March. So we gave a 5% increase to the unions of Guanacevi and Bolanitos. Really where the impact hurting us from a labor standpoint really comes down to foreign exchange. So about 33% of our costs are incurred in Mexican pesos for labor.

And with the appreciation of the peso this past quarter, obviously impact us right to the bottom line. And I think short term, we see some strength in the peso. But hopefully, long term, it reverts back to what we've seen for the last 20 years, and that's kind of depreciation against the U.S. dollar.

Okay. And how about on the energy front? Are you seeing any pressures kind of coming off on that front? Or is that still similar to levels you guys experienced in Q1?

Yes. I think we're going to see similar costs and most of our power obviously come through the electric commission in Mexico. Our expectation is going to stay where at that from Q1 -- but as we've seen for the last kind of 5, 6 quarters, inflation has been a factor. And if the next government, the commission decides to increase rates, that will obviously impact us for us. Most of the power costs impact us through a plant standpoint and then pumping water, pumping at Guanacevi as well. So again, hopefully, we see that kind of flatten out here and maintain where the level are.

Okay. And maybe just one last question for me. I wanted to be you guys look like you're tracking already kind of above the guidance. When do you kind of expect maybe a flection downwards in terms of grades? Or do you expect maybe lower throughput try to model to the midpoint of your guidance that you see it comes down at some point? Otherwise, you guys look like you may exceed. But just curious in terms of any kind of color on grades and when you make some sort of...

Yes. I mean... We've seen elevated grades because of El Curso for the last 2 years. And obviously, we've been quite conservative in our reserve estimates on El Curso. Frankly, we should see our tonnes per day come up, they want to see. We had a tough February just with some maintenance requirements, mainly on the liner, some cost work that we had to do on the tailings -- drive stack tailings facility. So ultimately, our expectation is our tonnes come up, which hopefully drives down our cost per ton.

As far as grades, like I say, we -- for the last 2 years, kind of exceeded that we've had in reserves. I do essentially in menus being conservative to see that kind of come back to what we have in our plan. We just had a nice area in El Curso we seem to continue to get these. So maybe it stays elevated and if it does, we'll come into the upper range of our guidance, if not maybe be. But if we revert to what is in the mine plan, then we end up being where we are. So we're not at this point really changed guidance at Guanacevi and ultimately consolidate it.

Our next question comes from Matt Taylor of PI Financial.

Just a couple of questions on our end. The spending at Terronera this quarter is a little lower than expected. Are we going to expect -- should we expect a ramp up through Q2? Or will it be likely later in the year?

No. Now that we have formal construction decision. I would expect that ramp up. Everything is kind of running now. And like I say, with the Board's approval, the quicker we can move the better, obviously. And I think if we can say on time, we can stay on budget. And sometimes for things out of your control, we built contingencies on that timeline. And I guess, we'd like to spend a little bit more in Q1, meaning we moved along. But at the same time, without having that formal construction decision, we try to be conservative, we're just looking at early works.

As far as expenditures between now and the end of 2024, when we get into the kind of production, I would say it's going to be relatively homogenous payments over that kind of next 7 quarters. And again, hopefully, things ramp up relatively quickly here in Q2.

Perfect. And then just switching over to Bolanitos. Are we going to -- should we expect an uptick in gold production later this year? So in Q1, it was slightly lagging wondering what is going to be?

Yes, for sure. I mean absolutely, Bolanitos moved into kind of the gold operation and our expectation it's going to be more gold, a lot silver. In this quarter, we put kind of silver grades came up and gold grades come down. Similar to Guanacevi, I mean we expect that to revert to our mine plan. So on a proportional basis, I would expect gold to come up and silver to slightly come down.

Partly, that's going to be getting to certain areas that's in our mine plan. And like anything with the underground be mining sometimes there's areas that allow more ore tonnes to be able to come out and things that are in the resources are actually not even in our mine plan that are there. But ultimately, if we follow mine plan expectations, our gold comes up, silver comes slightly down.

This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks.

Well, thank you, operator. It's been an interesting quarter with regards to those changes in the Mexican mining law where we're seeing silver and gold prices. I think today is a reflection of questions maybe just comes down to what's happening in the marketplace, you see silver kind of flipping all over the place. And it was up to start the day, now it's down. And then I see some -- the results in our share price just were down.

I think it's early in the year. And our goal is to get our costs in line to what our expectations and where our guidance is. And ultimately, we'll be working from that from an operation standpoint. But I think it's an exciting year for Endeavour.

I think moving forward with the Terronera project are going to significantly change the profile of the company over the next 2 years, and it's something we're excited for. And I look forward to next quarter's conference call to be able to give an update on where we're at with Terronera and hopefully continued good performance at Guanacevi and Bolanitos. So thank you, everyone, for attending today, and talk soon.

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