Endeavour Silver Corp (EXK) 2021 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. 2021 First Quarter Financial Results Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Galina Meleger, Director, Investor Relations for opening remarks. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavour Silver 2021 first quarter financial results conference call. With me on the line today, we have the company's Chief Executive Officer, Bradford Cooke; our Chief Financial Officer, Dan Dickson; and our Chief Operating Officer, Don Gray.

Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in '20 and '21 and future years, including revenue and cost figures, 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.

On behalf of Endeavour Silver, I'd like to thank you again for joining our call. And I will now turn it over to our CEO, Bradford Cooke.

Thanks very much, Galina, and welcome, everybody, to this Q1 financial results call. Endeavour had a very good start (technical difficulty) lot's going on. We pre-released our metal production at 1.04 million ounces of silver, up 22% year-on-year; 10,900 ounces of gold, up 31% year-on-year; for silver equivalents of 1.9 million at 80:1 ratio, up 26% compared to Q1 last year.

Our costs were pretty much flat year-on-year, cash cost [$7.86] per ounce payable silver, net to the gold credit. All-in costs were up a little bit, 8% to $19.94, again, net of the gold credit. And that led to revenues of $35.1 million, up 58%. That was partly due to, obviously, higher production, higher prices, but also we held back some metal for sale during the first quarter, partly due to the downturn in metal prices in late March, and we fully plan to sold much of that inventory [adhering] to the higher prices.

That impacted our cash flow. We had $5.2 million of cash flow from operations, but that was up sharply from last year. And, of course, a $12.2 million $0.08 per share, so up sharply compared to a loss of $16 million last in the Q1.

A good chunk of that, though, is the reversal of [impairment] of the El Cubo asset, which we sold here just recently, offset partly by increased exploration activities, evaluation activities and a higher tax expense. We would have taken an adjusted loss in the first quarter, but then that's offset by the rise in finished goods inventory. So, again, a busy quarter, a profitable quarter for us, and we're looking for another very good quarter here in Q2.

So those are really the financial highlights from our release today. And I think rather than carrying on, why don't we just open this up for Q&A, and we'd be happy to answer your questions.

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

I just want to thank Brad to everything he's done for the firm. And best of luck to you, and I think you're taking over a very well, well, well-oiled machine here.

Well, thank you very much. Heiko, we also appreciate that.

Yes, thanks Heiko.

You've increased your finished goods inventory by quite a bit in the quarter. I mean you're at 530,000 ounces of silver; 1,700 -- just under 1,700 ounces of gold. In the past, you've done really well trading silver. But, I mean, just briefly, where do you stand right now in regards to dollar terms of finished goods as of today?

And philosophically, what do you anticipate future accumulations of finished goods might look like? And yes, I know that it might be more intelligent to ask this question after the AGM tomorrow. But, yes, just curious, maybe your philosophies there.

Yes, I think, Dan and I shared a similar view that this is a sales strategy that we've used from time to time, and it's based on the seasonality to silver and gold and sometimes quarterly moves in silver and gold. We did this successfully last September when the metal prices fell sharply at the end of the month. And rather than sell all of our metal last September, we had to hold on to it because we felt that the ratable market and there would be a nice rebound.

In fact, there was a very nice rebound, and we were able to take significant additional profit from the sale of that inventory in Q4 last year. And so this example is exactly the same. The metals had a great run in the first quarter. They tipped over and fell in March. Rather than push all of our metal out at quarter end, we felt that there would be a nice bounce here in Q2, and in fact, there has been.

And, yes, just to add to this --

Sorry. Go ahead.

Yes, Heiko, to add to that question of where we sit today, generally, we hold about 300,000 ounces of silver just because of outturn time lines. Ultimately, that can get down as low as 50,000 ounces of silver. We did sell a lot -- a big portion of the 525,000 ounces of silver that we had at March 31, with this recent run-up into the $26, $27.

So, as Brad touched on, it's more of a short term strategy. We're watching short-term patterns and trying to sell, not when the prices are falling, but hopefully, when they're rising.

You've been extremely successful with this stuff in the past, and I hope it continues like that, so congratulations. And then just a quick clarification. The impairment reversal for Cubo is completely done, now that this is closed? Or is there any lingering tax implications or other costs or anything that we should focus on for Q2 and beyond?

For Q2, we had recognized the full gain on sales. So ultimately, what we reversed in Q1 as of March 31 was historical balance that would have been remaining after depreciation. And in April 9, we would have recognized the full sale. So there's contingent payments that would be coming. We have a fair value for the share value of VanGold as of April 9 is what we recognize. So there'll be a residual amount that we'd recognize in a gain in Q2.

Got it. Wonderful. And once again, congratulations to both of you. And thank you, Brad.

Thanks Heiko.

The next question comes from Mark Reichman with Noble Capital Markets.

I just wanted to focus a little bit on the cost. So the all-in sustaining costs were impacted by the higher corporate G&A and the higher capital expenditures at Guanacevi, which I guess, you could kind of look at as an investment. But then the direct operating costs were impacted by the higher labor costs. I was just wondering if Dan could maybe talk a little bit about how he sees those costs trending. And for example, in terms of the all-in sustaining costs, I know the higher capital expenditures are to develop El Curso, so that should benefit down the road. So how do you see those line items trending, Dan?

Yes. Thanks for the question, Mark. You're right. Q1s were a little bit higher, but at Guanacevi, we were well ahead from a mine development standpoint. One of our best development in quarters in a long time actually, which ultimately just means either we'll do less come year-end or continue on, but it should dissipate a little bit. We're getting ahead of ourselves now, which is great for future flexibility. And ultimately, we did have a budget from an all-in sustaining cost, which includes our capital expenditures, and that's unchanged for the year for Guanacevi.

As far as labor costs and impacting our operating costs, we are seeing a little bit of pressure on labor. I would imagine its industry-wide, things are picking up. A lot of companies are out there looking for operating staff and capable operating staff. We brought on a lot of really good people last year. We had a very good year, we feel, from a production standpoint with what we were dealing with in 2020. Some of the bonuses went through on our labor costs in Q1, higher than what we had included for at year-end. So that did impact Q1 a bit. So, hopefully, we'll see labor costs come down.

But as we're seeing across the world, this global supply chain seems to be quite constrained right now and having issues with that. And I don't expect that to change in the next 6 months. So maybe a little bit of increase in our cost, but we're going to work our best to mitigate that for solutions and try to get our tonnage up a little bit to where plan was.

We were on plan from an ounce production standpoint. It would be nicer if our tonnes had improved, and we are actually (technical difficulty). So hopefully on a per tonne base (technical difficulty) throughout the year, and we expect to hit our guidance that we delivered to the market in January. Thanks for the question, Mark.

The next question comes from Cosmos Chiu with CIBC.

Thanks, Brad, and Dan. And Dan congratulations, I guess the big day is tomorrow.

Yes. Thanks, Cosmos.

I guess my question is what took so long? Joking aside, I do have some real questions here. At Guanacevi, as you talked about, royalties were higher in the quarter due to higher royalties at Porvenir Cuatro, sorry, about the pronunciation. Could you talk a bit more about the mine plan going forward for the rest of 2021? Should we expect tonnage continue to come out from that area and, hence, higher royalties?

Yes. I think the key to Q1 was, we did have a little bit higher production from El Curso. It's between our Porvenir Cuatro mine, which you're probably familiar with in Milache. We did mine a little bit more from El Curso just to some of the areas that we're in and a little bit less from Milache, where we don't have that royalty. But the big impact on that [world]is when we did our guidance. We guided $22 silver, $17.60 gold, we sold our silver at $27 and I think gold was slightly below that $17.60. So we had higher royalties on that basis, but also the grade that's coming out of El Curso.

The grades at Guanacevi were about 15% on a silver equivalent basis above plan. And again, just in the area of that El Curso you saw our drill results that we put out a couple of weeks ago with regards to El Curso and Guanacevi and what we were finding on Santa Cruz. So to our surprise, ultimately, the grades have been better than what we expected. So obviously, increasing our costs and royalties, but our margins are still extremely good from that area.

And that leads in well to my next question here in terms of El Curso, and as you mentioned earlier this month, you put out some very good drill results coming out of Guanacevi. I think I saw over 2,000 grams per tonne. A lot of it, just want to confirm, is coming from El Curso.

And I guess the other part of my question after confirming that is, I guess, in the press release, you mentioned the El Curso, Milache and Porvenir Cuatro could all become one continuous ore body, potentially over 1.5 kilometers by about 600 or 400 meters. When would we find out more about this potential here? And then could you maybe talk about potentially when this concept, one continuous ore body could come into the mine plan?

Yes. There's a lot there. The drills that came out a couple of weeks ago were mainly the El Curso orebody infilling and step-out drilling there. We are also drilling the Santa Cruz Sur orebody, which we're actually mining from as well. We're just mining that -- or drilling that at depth and continue to have positive results there. But I'd say a majority of the drillholes that came out 2 weeks ago were from the El Curso ore body.

And if you go on to our website and even in our presentation, we had a beautiful longitudinal section between Porvenir Cuatro and Milache, showing the orebody of El Curso which gives a pretty good understanding of the size and scope of that ore body. There are some slivers in there, which is owned by Frisco, who we've acquired or at least the El Curso concessions from, that owns some slivers, and we're working with them to, hopefully, acquire some of that ground to be able to mine that as well. So we do think it's continuous all the way through.

Obviously, we've drilled out Milache. We've approved that. Porvenir Cuatro, we actually mined a lot of that ore from that mine. So we feel it's continuous, but the scope and scale of it's pretty clean to see just through our website or presentation.

Yes, I've seen that long section as well. So, I guess, my question is we'll find out later on how this kind of -- how this exploration results will impact the mine plan sometime later on.

Yes. When it comes down to total resources and total tonnes in the resources, we're still drilling that area, and we'll come up with a resource estimate later on in the year and publish that. Brad, I don't know if you have any more color you'd like to provide with regards to El Curso and our drill results there.

Yes, just to answer your question, Cosmos, the -- the El Curso claim was -- I think that we leased from Frisco and the 2 gaps between El Curso and Milache and El Curso, Porvenir Cuatro, our other properties owned by Frisco, we expressed interest, they expressed interest. And so we're hoping we can consummate in a way to add those gaps, if you will, to the existing lease agreement. And then we would be able to drill them and prove that, that's one continuous orebody. The gaps themselves are only a couple of hundred meters wide, I think. So it's pretty easy to project that this thing should be continuous.

Maybe switching gears a little bit at Terronera. As you mentioned, you're targeting a feasibility study by Q3 2021. The last PEA was sometime in 2020. And I think Dan or maybe Brad, you touched on it, labor costs have increased. I don't think that's the only cost that has increased in the past year. Steel prices have gone up, other input costs have gone up. So, I guess, my question is, as you do this -- finalize the feasibility of the study at this point in time, have you seen cost increase? How have you factored into your study here? And how are you managing that risk?

So I'll answer it from a higher level. Basically, the feasibility study is still underway. So we still have an opportunity to finalize costs here in the next month or 2. And -- but the main cost drivers at least on capital are the design of the mine and the plant. And most of those we've put pins in already. Dan, you want to add to that?

Yes. I think it's definitely a risk. You always look at it, and that's what we paid to manage to do. Ultimately, we are seeing some input increases, which could increase the capital upfront costs or sustaining capital. From an operating standpoint, we think there's a lot of levers there that we can improve our operating costs from the PFS in 2020. So, ultimately, when all the numbers come out, which you're right, it'll be early Q3, we'll have that. We still expect to have a very economic project when it's all said and done.

And then maybe one last question from me here. Dan, as you take the CEO seat, Brad is not leaving, I guess, he's going to be Executive Chairperson. And in the press release, talked about Brad continuing with the company, growing the company. One side of it is, for sure, building Terronera. The other side, I think we've talked about in the past is potential acquisitions.

Bigger picture, Brad, we've seen some of your competitors divest or diversify into gold, diversify beyond LatAm. You've always talked about it in the past, it is harder to make acquisitions for silver assets. Anything that you can share with us in terms of industry-wide or company-specific at this point in time?

Sure. So in terms of growing the business through the drill bit, that is organically, I think we've been more successful and most, not only with finding new resources every year at our operating lines, but of course, the discovery of Terronera and the emerging resources at Parral.

In terms of our silver gold mix, we've always been a silver dominant producer, but with a healthy gold credit. And we see more of that in our future. Terronera, a lot -- let me say that the operations this year probably are going to be about 60-40 silver gold revenue. Terronera, I think, comes in around 65%, 35%; Parral is 100% silver. So not only are we, I think, one of the most, if not the most silver -- of the silver producers, we will skew more towards silver with our existing development pipeline.

That leads to M&A. And what I -- my view is that we have room to take on gold and should remain a primary silver producer because there's something to buy in silver, we're not allergic to buying a gold dominant asset. It's just that we would like to remain more than 50% silver by revenue even after M&A.

Congrats again, Dan and Brad as well.

Thanks.

Thank you.

The next question comes from Howard Flinker with Flinker & Co.

Brad, my 2 minor questions are. What price did you get in your sale via ATM in quarter 1?

That's a Dan question. Thanks for your question, [Howie]. Dan, do you want to take that?

That's a very good question. We would have averaged just above USD 5 per share price. It's actually in our financials, but I don't have it specifically off the top of my head right now. It's a good question, Howard. But it's just north of USD 5.

Like $5.01, $5.02. Hello?

Pardon Howard?

$5.01, $5.02, something like that?

Just north of that, yes.

And how many shares are actually outstanding now as compared to the average?

We have about 167 million shares outstanding right now.

Right now, 167?

Yes.

Just carrying on from your question. We had this ATM facility available to us all the way back to last July, but we just wanted to use it primarily for any equity portion of Terronera project financing. And we're very patient, we didn't touch it. The nice ramp in the share price here in the first quarter. We did tap that ATM for $30 million. So we closed out in the first quarter with $6 million in cash and $113 million of working capital. And suffice to say that we now feel that any equity component at Terronera is covered.

(Operator Instructions) The next question comes from Justin Stevens with PI Financial.

I think most of what I had to ask has already been covered off, but a couple left on my list here. Obviously, some good results that you guys put out recently from the drilling at Guanacevi. Well cover it off there. I was wondering, I mean, you've spent, I'd say, a good chunk of what you've been budgeting for, let's say, brownfields drilling this year already in Q1. Is there -- should we expect, perhaps you guys will revisit your drilling budget maybe midyear as long as you continue to get the good hits that you've been seeing so far?

Yes. Justin --

Yes, go ahead, Dan.

I would just say that we have done this past when we have a good year, and there is excess cash flow, then we looked on how to put that cash flow to work. And it's probably the case this year as well.

And, obviously, we've seen a nice release out of Guanacevi. Can you give some rough timing for when you might see some of the Bolañitos results?

I would think soon. That would be up next and following that probably some Terronera results, after that some Parral.

And just on the Terronera results. Obviously, the Q3 is surprisingly soon. I don't know how it got to be [mill] already. But in terms of the drilling that you've done there, are you expecting any of that to make it in to the updated resource that will then hit the feasibility study? Or is it going to be sort of more parallel development?

No. What we're doing now -- in fact, I think this year, we put the pin in the reserve and resource at the end of last year. So all of the work here will be in --

Got it. Yes, that makes sense, given the way these time lines work and things have to fit together.

This concludes the question-and-answer session. I would like to turn the conference back over to Bradford Cooke, CEO, for any closing remarks.

Well, thank you, operator, and thanks, everybody, for tuning in today. This is actually my quarterly call on behalf of the management team of Endeavor. And I'm now formally handing the reins over to Dan and Christine.

And I just want to say that we've had a great run, but we're not half done yet, and we look forward to -- I look forward to listening in on Dan in future calls. So, again, thanks all, and look forward to our second quarter financial results. That one's first.

Thanks, Brad.

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