Q3 2020 Endeavour Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Endeavour Silver Corp, third quarter 2020 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 to join the question queue. You May proceed Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Galena milling messenger.
Director Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to be Endeavour, silver 2023rd quarter financial results conference call with.
With me on the line today, we have the company's Chief Executive Officer, Bradford Cooke, Our Chief Financial Officer, Dan Dickson, Our Chief operating Officer, Don Gray.
Our president Godfrey Walton.
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 2020 in future years, including revenue and cost figures silver and gold production grades and recoveries and the timing and expenditures.
<unk> quire to develop new silver mines in mineralized zones, while 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 Brad Cooke.
Thank you very much Galena and again welcome everybody to this conference call on our third quarter financial results. Thanks.
I think first of all I'd like to welcome Don Gray to the group. This is his first earnings call as our new COO and I'd also especially like to recognize Godfrey Walton those who was with me when we went to Mexico in 2003, and looking for an asset we could build a company around.
This has got to be his last earnings call and so kudos Godfrey Oh, It was a great run.
Moving on to our press release this morning.
Just like to open with comments on the quarter. It was our best quarter in 18 months.
In fact, our best quarter in a long time when you consider the.
Changes of revenue.
Cash flow and earnings Paul sharply higher this year compared to the same quarter last year.
Our cash cost and all in sustaining costs were significantly lower year on year and this improved operating performance combined with the higher precious metal price has generated a.
A significant return to profitability again for the first time in six quarters.
As a result, our cash and working capital position has also increased substantially during the third quarter. So.
Lets drill down a little bit into the numbers, our revenues were up 29% to just shy of $36 million in the quarter.
And.
Our cash flow jumped almost 400% to $10.3 million year on year net.
Net income or earnings came in at a positive half million dollars compared to almost $7 million loss a year ago.
And I should point out that we did carry a significant increased metal inventories through the quarter and largely because of the summer run up in metal prices and then the significant correction at the end of September. So we chose not to sell a sufficient amount of silver gold at the end of the quarter, we carried it in.
The inventory and the cost of that inventory is about $6, but the mark to markets of.
Inventory at the end of September was in.
The order of $15 million, what that implies is that if we had sold that metal our earnings would actually be in the $10 million range not the half million dollar range.
Production on the quarter was just shy of a million ounces of silver and 10000 ounces of gold for 1.8 million ounces of silver equivalents.
And I mentioned already or balance sheet cash was up 47% to just shy of $45 million in working cap is up in the 54 million dollar range up 21% year on year.
Moving to the operations.
Guanacevi continued to outperform with both silver and gold grades well above plan, we were affected by significant rainfall in the rain season in Q3 and as a result throughput was only 911 tons per day.
In the quarter with a 1200 ton plant.
That implies that as we bounce back here exiting the rainy season in Q4, Theres actually more production at lower costs in our future point.
I want us to be I should point out however that the the improved grades are accompanied by higher royalty payments were mining property at one of the city, where there are very significant royalties paid so our costs will slowly rise as the metal price rises to the royalties.
Well in Itos continued to improve its not quite on plan, yet, but we achieved a 1075 tons per day into a 1200 ton plant again, implying that there's still room for improvement on Throughputs gold grades were on plan sort of grades remained below plan, but cost refined and all three assets generated free cash flow in the quarter.
Last but not least del compass is pretty much on plan.
Throughput steady gold grades on plan surrogates below plan.
But we are doing fine, there and making a little bit of money, it's our smallest minds.
Well, let's see our largest mine has by far the biggest impact on our financial performance.
I think on that note operator, let's wrap up my comments and open it up for acuity.
Thank you well now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then too.
Our first question is from Heiko with H.C. Wainwright. Please go ahead.
Hey, Thanks for taking my questions and congratulations on a very very good quarter here.
Thank you.
Hey.
Schooling the financials here I'm looking at the year deferred income tax asset has gone from 7.14 million at the beginning of the year to 5.3 million today.
Going through that segment Disclosers chart on page 15 of your financials. It looks like the improvement was almost exclusively related to the ball and Needless should we expect further improvements for the company. There I mean, because that's all I'll say free money, but it's certainly good cash flow it actually.
You know if you get paid back.
Yes, Heiko, Dan Dickson here, thanks for the question.
You did touch on our deferred tax actually went from $7 million to $5 million basically that's we're actually using not that deferred tax asset, which is a non cash item and what's happening and we have made significant profits in ball and Ito this year.
But weve been offsetting those profits against previous year's loss losses. So we have lost care, forcing used and ultimately that reduces the value of that deferred income tax asset. So.
We are benefiting and we will see more profits in Q4 likely from ball on iOS and Guanacevi Guanacevi. We also have loss carry forwards. There. So I don't expect to have a income tax.
Current income tax expense.
In Q4 other than for special mining duty, but we'll see EPS grind away from that asset and have an expense on a noncash basis.
Got it perfect. Thank you and then a completely different question can you just sort of walk us through how your planes in Mexico have changed since you restarted operations with safety related to coal that has there been meaningful change is our people.
Hearing to the safety precautions properly and it seems like your your safety record there is pretty good. So just if you could provide some more color that'd be great. Thank you.
Well, let me. Thanks, Heiko, let me give you a very high level comment then I'll turn it over to Godfrey and Doug.
We we.
Fortunately were able to move very quickly to put.
Our coal good.
Precautions in place books are approved prevention plan and our emergency response plan and then by and large it's served us very well stopping covered at the gates of the operations. Our actual work for us that is mine and plant.
Minimal impacts from coated we've had some office workers impacted by cold at all.
Eventually return to work, but maybe.
Maybe I'll ask Godfrey and Doug to give you a little more color on our plans since.
Since.
The first and second quarters.
Hi, this is godfrey.
Yes, we are we actually have a pretty intense protocol protocols to make sure that we.
We do stop barcode at the gate as has.
Brad mentioned.
We are we make sure that every worker as they come in is.
That temperatures checked there.
Sprayed down.
Everybody is wearing a mask 100% of the time.
And.
Yes, your spread down body wise, not fro front and back end of your vehicles are sprayed down.
As you come in so it's.
It's pretty intense and unless you're actually there Don and I went through.
In the last month or so we've been in that it was a different operations and and it's it's it's to me very very good I was very impressed with how sorrow were being.
Yes, we've had a few cases, but typically we've got about I.
At 11 to 15 active cases does any one time.
Nobody seriously.
Okay.
Infected.
But.
It's it's it has been.
Very.
That has been done very effectively I think.
Don do you have any anything else to add to that.
I think I'd just add that the screening is pretty.
As per the.
As for the comprehensive.
With temperature checks and checking some tenders internationally. So when there is some muddy when there is somebody detected that could be coming in.
We do send them right out for testing and the testing.
Operationally as we can turn that around very quickly. So if we do identify somebody that does test positive.
When you take the proper precautions for for corn Cheney and then also.
[music].
Our medical response has been quite good and so we have really good response.
Probably.
The response is just as good or better as you get.
Just about anywhere in the world, It's an issue and actually is really good. So I think from that perspective, we're taking all the proper precautions and measures too.
Take care of our people as well as make sure that the operation can maintain continuity.
Very helpful just very informative.
Sorry can I just add one thing HEICO.
Is that we've actually we are we have doctors as all our operations and we've increased the number of doctors just to help out with the screening and evaluation of people. So I would say, we probably triple the number of doctors we have on staff now just.
Just during this cove and just because it does take up quite a bit of time.
For them when when shift changes on tell you. If you got a couple of hundred people coming through the gate it.
Takes quite a bit to get them all checked out in <unk> and <unk>.
Evaluated.
Very good it's nice to hear the whole team chime in on an answer to a similar question that's actually really Google you guys play off one another thanks.
Thanks for taking my questions I'll get back in queue.
Thanks, Michael.
The next question is from Craig Hutchison with TD Bank. Please go ahead.
Hi, good morning, good afternoon.
I was wondering if you could give me some more clarity in terms of grades.
How we should think about sort of Q4 here.
In particular why city should we assume a similar grades to Q3, which are obviously very high.
Again high level.
Short answer yes Godfrey.
Hi, Craig this is.
God for Yeah, I think you're going to see girlfriends continue at.
Guanacevi.
A lot of the grade that we're getting is coming from.
Prop.
Property called Ocampo that so we we do pay a high royalty on so that the grade needs to be.
Good.
Also coming from third party or that we're buying.
Which is part of our some of our social license to continue operating at Guanacevi.
I'm, sorry, I think the grades you're seeing.
Let's see compass and at that time.
Paul Anita it's not going to be similar in Q4 as they were in Q3.
Okay. Thank you.
And then just in terms of an accounting question depreciation was fairly high in the quarter should we expect similar levels in Q4 as well.
Yes, Craig Dan here I.
Ultimately our depreciation is higher high we're very conservative in that standpoint, we depreciate, our proven and probable.
So I would expect very similar depletion and depreciation in Q4.
Okay. Thanks, guys.
Thanks, you for your question.
Pardon me. The next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking the questions.
Hi, Jonas.
So I guess first thing.
Terronera.
You know what.
Any update there on timeline to making a construction decision.
Well, Chris its subject to the feasibility study, which is underway and expected next summer, but Don do you want to comment.
Okay.
Yeah. We're just we've just as you know awarded.
Feasibility study work too would consultancy and theirs, they're starting up so we'll be looking at.
The feasibility report being some being completed sometime mid next year, and then and then we'll be able to.
To go with the ball go to the board.
With the recommendation as to if they are going to start construction. So.
Right now the timeline it's.
What we have in the past, but subject to subject to any additional work we do in the cells.
The feasibility study.
And the current Threed reasonable.
Construction schedule once we break ground is I believe 18 months to the started of commercial production. So.
We've got lots of work to do but Oh finally into the final feasibility process.
Okay fair enough.
And then thinking about next year I know, it's a little early to provide guidance probably but.
You know from a modeling standpoint should we be thinking about the guanacevi and bolanitos kind of returning to normal operating rates near there you know planned capacity <unk> or should we be thinking about you know a certain percentage of plant capacity as a you know for the <unk>.
Next 12 months.
Yeah I think.
Well I don't think were going to averaged 1200 tonnes per day at either operation next year, we're certainly going to be bumping up against it on a regular basis.
The reason why I'm cautious about talking about operating at full capacity is simply rainy seasons are a bit unpredictable and covance is still out there so but yes. It will be at our plan to operate close to capacity.
Okay. Thanks to the that color I'll turn it over.
Thanks, Joe.
The next question is from Lucas pipes with B. Riley Securities. Please go ahead.
Hey, good afternoon, good day everybody.
I wanted to ask a question on the direct production costs that are kind of on and there's a lot of noise in that metric train that cohort and then some other challenges here today.
And kind of looking at that the third quarter.
I'll bet very nice performance kind of across the board, but it's still a $110 over $110 our time and so what do you think we can get below kind of a $100 per tonne figure.
Maybe back into that 80 to $90 range.
What would really appreciate your thoughts and that the various puts and takes you on that thank you very much.
Yeah Lucas Thanks for the question Dan here again, and very good question and it's hard to speak to it just on a consolidated basis and getting below 100 on a consolidated basis for Q4, probably will be difficult only because a significant driver to all this is guanacevi and Godfrey touched on it we've been buying a lot of told or ought to go.
Honestly it was almost 11% of our production in Q3, and ultimately when that or comes to us that these high prices, we take it it keeps ounces in the ground for us and for another day and ultimately it's high grade ore. So we pay a significant portion for it.
We have roughly make about 30% to 35% profit off that or on a cash basis.
And we expect that to continue because as prices go up more of the store told or comes available and it's got a lot of benefits to us as we get to go find out where that or is coming from and gives us a little bit exploration opportunity or and like I say ultimately keeps it in the ground. The other aspect is the l. curse, so concessions that we.
At least from Ocampo, we pay a 12 dollar processing fee per ton on that material and then we also pay a royalty cost on that material. So we picked up belt LDL corsaro concessions a effectively at no cost, but we do pay a very high royalty on it and over $20, we paid 30% NSR on it so effectively.
In Q3, we paid about on across all our times, we paid almost $28 of royalty per ton in there. So that's really driving up our cost per ton.
Guanacevi and the reason why Guanacevi sat at $146 for Q3, when ultimately it we operated at around $100 per ton on just basic mining processing and indirect costs falling he knows were right in line with our cost per ton.
In line with budgets in line with historical at $68. If we hit this throughput tonnage we should be around that if not a little bit lower if we can get to 1200 tonnes per day and it compares it's just a high variability.
Because of the size of the operation. So its only 250 tons per day and ultimately we spent almost a million dollars a little bit more than a million dollars. This quarter than what we had planned but because it's such a low amount of throughput and scope of that operation. It really hits the cost per ton it doesn't have a huge impact consolidate it.
But obviously on a on a.
Operations level, if we get a big variability there we do expect to come down we put in a lot of training.
Safety real safety programs been there trying to increase our level of safety commitment and at Compass.
We hope it's going to come down in Q4 were monitoring it we want to make sure that those costs come down to improve the free cash flow there but.
I don't see it coming under $100 consolidate I hope we get in 400 to 105 for Q4.
That's very helpful. I appreciate that color and then as a second question.
Just checking in on Chile can you update us on where Youre spending your time, there and what are some of the milestones that investors should be looking forward to over the coming.
Call it.
Next to two to three quarters. Thank you.
Who wants to take that one Godfrey.
Sure I can take that one yep.
In Chile, we are currently drilling.
The Paloma property and were sort of following up on some of the Sox intersection.
Intersection that we got last year.
First hole.
So weve completed a couple of holes now we have not got any assays at this point.
But we expect to continue drilling until Christmas.
And then the season will pretty much close down because we're up at about 5000 meters.
[noise] once we have our results early next year, we'll be able to put.
Put those out.
And so we're we're encouraged with what we see in the core but we don't have any numbers, yet and we wont until Q1 next year.
Is it gets kind of made the time for that.
On into the rest of the year, you because chili's sort of in the southern hemisphere. Most of the activity is happening now or in the fall.
So here, we're busy right now looking at other properties and evaluating whats happening out but.
Sure in my case.
And talking to a variety of people about about top property.
And then it will go quiet during our summer and.
Become active again in the in the fall and I'm through Christmas.
And Scott just Scott.
For the rest of our illustrates the context of our portfolio in Chile is that these are all high impact World class targets for instance, below we consider to be a multimillionaire on school target and we're just getting into the drilling now.
So we're going to be patient theres, a it's a big area to drill but.
But like Godfrey said, we're seeing all of the things that we want to see in the core values silica hydrothermal breadth. So.
Sulphides.
And other related geological factors that indicate the presence of gold, but we don't have the assays yet.
Got it okay gentlemen, thank you very much for the information and best of luck.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.
Hey, guys I just had one more.
At El Cubo any any update there I mean with higher prices is there some let's call. It mineralized material that was outside the resource that might come in or if you've been able to get any further in talks for neighboring projects just any color you can give us.
Well the good news is that.
These that oil prices were getting a lot of inbound inquiries about a possible sale.
The bad news is that.
It doesn't really change the higher prices don't really changed in the amount of ounces in the ground and our decision to close because we exhausted reserves and the remaining reserves as we felt were just too small for us to restart a 1500 ton plant. We have been as you know actively scouring the district for opportunities and continue to do so.
That there's no decisions have been made whether to buy something and restarted or just sell the whole thing yet.
Okay. Thanks.
Thanks, Joe.
The next question is from Chris Thompson with Pi financial. Please go ahead. Thank.
Hey, good morning, guys.
This is probably a question for you it's a little bit.
Maybe just broad obviously with with higher margins were experiencing right now.
Back to you.
Good metal prices, and obviously, you'll reduce costs that speaks to higher.
Cash flow I Wonder if you could just give us a sense of.
How are you.
You would a portion of this cash flow by.
By way of purpose preparation for Terra naira, obviously, whats happening with Toronto, and maybe the need for mine life expansion through drilling and discovery at your operating assets.
Yes, good point and good question, Chris Thanks for your question.
Obviously with the rising cash balance and we've really only had one quarter of that.
It gives us a lot more flexibility and know what to do we.
We've always historically balanced our capital spending from our cash flow model each year, and we spend a a at least at the three mines only out of our cash flow now that we've got lots of free cash flow.
It opens up other possibilities. So for instance, we took two years off from drilling Terra neuro, what we focused on her economic studies as of September we've resumed drilling on a number of very interesting.
Undrilled veins of Teradata trend continue boosting the resources there same thing apparel, we took a one year break from drilling per hour, which is intended to follow Turner and our development pipeline, but I think it's safe to assume that there will be aggressive drilling programs on both Turner and probably next year.
So in terms of allocating so our free cash flow there's two projects.
We'll continue with our brownfields exploration or I'm going to see at Bolanitos.
And they're not going to grow those programs are going to grow or shrink there just a study on.
Chile, Oh, we're drilling flowing now and we hope to be drilling the Ada next year as well so there's a kind of a discretionary exploration expense that we will consider.
And then for Chris just building up our cash for the.
Equity component of the $100 million.
Capex to build here and there.
So those are our considerations no decisions made yet we typically do your end planning, but just give you an idea of.
What we would do.
Great. Thanks, Fred I'm, just ask another quick question I'll sneak one and well see higher metal prices.
Gold and silver.
Can you speak to the effect that this might have on on.
Resource base that I.
I guess.
First of all let.
Yes.
Okay.
Oh, because the veins have clean walls and these are not the associated bodies with low grade halos I don't think theres much change in our approach we're going to mine. The veins are the cut off grades can drop a bit but.
But we were mining such high grade at both operationalize as it certainly I'd want us to be that has zero impact.
Well at Bolanitos will look at whether or not we can bring some of the lower grade resources into the mine plan.
But that's probably the only impact.
Great. Thanks, a lot. Thank you.
Thank you.
This concludes the question and answer session I'd like to turn the conference back over to Bradford Cooke for any closing remarks.
Well. Thank you all for tuning into for our third quarter call on our financial results.
It's been a great quarter, we expect bigger and better as we go forward and.
We've got a I think one of the best outlooks in the sector with.
Leveraged to cash flow not only from higher metal prices have been falling costs.
Leveraged to production growth through our own organic growth profile was not one but two projects awaiting developments turn area, which is largely permitted in parral, which even though it's an advanced exploration project is a looks like it has the potential to be a new mine.
Down the road.
And last but not least leverage to new discoveries potentially world class was three drill ready targets in Chile, So very exciting times for us. So we're a catalyst rich time for the company and we've come through that transition phase, where we undertook in the last six quarters.
Operational turnarounds to try and get out of the.
The the doldrums during the barrier markets and we've succeeded so lots of catalyst to drive value for the shareholders over the next year. Thank you very much.
This.
Close today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Yes.
[music].
No.
[music].
[noise] [noise].
[music].
HM.
[music].
[noise] yeah.
[noise].
[noise] [noise] Oh.
Oh.
[noise] Oh.
[music].
[noise] Oh.
[music].