Q4 2020 Endeavour Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Endeavour Silver Corp, 'twenty 'twenty fourth quarter and year end 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 Press 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 Galina Mellinger Director Investor Relations for opening remarks. Please go ahead.
Thank you operator, good morning, everyone and welcome from the Endeavour silver 2024th quarter and year end 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, Dan Great.
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 'twenty, and 'twenty, one 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 zone would.
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.
Thank you very much Galina and welcome everybody to this.
Year end financials call.
For Endeavour silver.
Hum.
Well, maybe I'll just start with some highlights twenty-twenty turned into.
A very challenging year with the Covid pandemic, but ultimately.
It was one of our most satisfying mirrors, our operational groups really came through in the crunch.
We drove our cost coupled with higher metal prices drove significantly higher revenues higher cash flow higher earnings.
We turned positive in terms of earnings for the first day with three years.
And notwithstanding the government mandated two months suspension of mining operations throughout Mexico, we were not only able to.
Meet our 2020 original production guidance, we delivered higher production and lower costs at each of the three operating mines.
Perhaps lasted at least in terms of high level color.
We obviously continue to focus on safety is our number one priority and for the second year in a row Goalless V. Our largest mine posted more.
More than a million hours worked without a lost time accident. So.
Kudos to again to our operations team.
Let me touch on some numbers in today's news release, and then we'll open it up for Q&A.
So as I mentioned in a very good year in 2020, and we certainly finished the year with a bank fourth quarter sales were $61 million up 81% year on year.
Cash flow was $22 million up from negative $8 million a year ago.
And net income was almost $20 million of 13 cents a share up from a net loss of $18 million a year ago.
Yeah.
Moving to the full year highlights, we posted $140 million of revenue up 15%.
Cash flow was 29 million before working capital changes up from negative $9 million and net income of $1 2 million up from a net loss of $48 million in 2019.
Our production was solid at $6 5 million ounces of silver and equivalents.
Equivalent being gold.
That was actually down 9% from the prior year due to the closure of our no non core operation the El Cubo mine.
Cash cost at $5 55 per ounce of silver net of the.
The gold credits was down 57%, so a significant reduction in cash operating costs.
And the all in sustaining costs were $17 59 per ounce net of the gold credits down 17% year on year. We finished the year with a very strong balance sheet.
61 million cash 70 million working capital.
Just a reminder, that we started 2020 with 23 million cash. So it was a heck of a year for adding cash to the balance sheet.
So those are the financial highlights from todays news release, I think operator, why don't we open this up now for Q&A.
Yeah.
Certainly we will now begin the question and answer session.
And the question queue. You May Press Star then one on your telephone keypad, you will share tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing the chi.
To withdraw your question. Please press Star then two well I'll pause for a moment as callers join the queue.
Our first question comes from Jake <unk> with Alliance Global Partners. Please go ahead.
Hey, Brad and team congrats on the strong first quarter and thanks for taking my questions.
Yeah. Thanks, Jason.
Just two.
Two quick questions on certain era can you just provide us some color on the timing of the feasibility I guess are you seeing any delays in the timeline due to the pandemic I know some of your peers have been seeing extended turnaround times on studies and whatnot. So I'm just curious how confident you are.
And the timeline for that.
Well, we're still reasonably confident we had our quarterly management meetings last week and the report from our director of project development was that we're almost bang on 50% complete the feasibility study would is the engineering consultant conducting this study on our behalf.
But our director of project development is very active obviously in the whole process, we are targeting a mid summer Ah.
Receipt of the full feasibility study.
And that would allow us to go to the board for a development decision thereafter.
Yeah.
Okay.
And then just switching gears to exploration in the release you touched on from Greenfield exploration at the new concessions that paranoia I'm just I'm just curious what's the budget for that and how much of a priority is that relative to exploration across the rest of the portfolio.
So our Turner our budget this year for drilling mostly untested veins on this very large property is $2 million and.
And we're focusing in two main areas. This year the southeast extension of the the main reserve in the Turner vein is still open to the southeast and we're testing an area.
About a kilometer further soc along the same vein structure it does.
Play into two or three different parallel veins at the.
Point, and we've had some encouraging results so far the other one is on one of the newly acquired properties to the west of our original holdings at Turner.
It's a big thing.
Called the Los Gatos, and so big is it up to 30 meters thick and we've traced it for three kilometers and we've just started testing various portions of that vein system. So early days, yet, but we are hopeful that are coming out of this year, we'll have total here new discovery, but some new resources at <unk>.
In there.
Okay got it that's helpful.
It's all from my end, Thanks again guys.
Okay.
The next question comes from Heiko with H C. Wainwright. Please go ahead.
Hey, Brad Thanks for taking my questions.
Hey, good morning.
Hey, Hey, your firm recently exceeded 1 billion in market cap, but congratulations has this done anything to your investor base and on that same note have you seen people interested that are able to purchase shares that previously weren't allowed to do so and have the whole thing feed on itself a little bit have you.
<unk> seen anything like that have you gotten phone calls from people you've never really heard of before funds that have you know mandates like a market cap minimum.
Oh, absolutely Heiko.
I don't know if we're seeing it yet but are in the coming.
12 days.
Never is certainly under review to be added to not one but two indices.
We're certainly qualify or appear to qualify for the Gtx inclusion and the Gtx index. We're currently on the Gtx Jay.
But were also in line and could possibly qualify for the S&P T. S X 500 index both.
Indices, they actually do their additions and the I think the third week of March So it's coming up here pretty quick and we're hopeful that given our a billion dollar market cap U S.
That we do qualify to meet these two new indices, which is not just index buying but a number of investors institutional investors, who only buy index stocks, so well it could open the door for more institutional involvement.
Very helpful. Thank you.
Shifting gears quite a bit I was going through your $12 8 million in net deferred income taxes are on page 39 of the financial statements. This figure includes $18 4 million net tax loss carry forwards are there expiration timelines for deferred east assets and if so what's the timely.
And also we're now in March, albeit March 1st have you managed to recover anything of this some year to date.
Yeah, Hi, good question way to get into the depth of those financials note try 26 or 36.
In that note, we actually show the expense exploration date of our loss carryforwards.
We are recognizing an asset related to those temporary differences I believe 9 million iguana city and $3 million at ball and he does the timeline taxi chew through those loss carryforwards about 16 months for <unk> city and less for for our volume should be in 2021, so less than 12 months.
Q1's continued weight and I understand you.
Am I understanding you correctly that some of these are expiring this year.
No sorry.
Youre looking at E Youre looking at the on page 40, correct.
I'm not looking at it but I know I'm not familiar with me now so ultimately the expert the typically a loss carry forward loss for 10 years in Mexico, and I think some of them start running out in 2025 for us.
But we will use those loss carryforwards in 2021 Heiko.
Just based off the profitability.
With regards to your question for.
Eating some of that up now similar like our production in Q3 and Q4 show that we are now making profit for tax purposes in Mexico, that's continuing here in Q1.
We put out our guidance for 2021, and we expect to be profitable at these prices, hence using a book loss carryforwards.
Got it.
Thanks for taking my question, so I'll get back in the queue and stay safe.
Okay. Thanks Heiko.
Yeah.
The next question comes from Joseph Stringer with Roth Capital Partners. Please go ahead.
Good morning, guys. Thanks for taking the questions.
Yeah. Thanks, Joe.
So.
Looking at kind of the results from the fourth quarter.
I want us to be had.
We had slightly higher direct cost there it seems like part of that was related to the purchasing of or other.
Was there any other factors driving you know higher higher cost there and then you know what are your thoughts on purchasing or going forward.
Yeah, Joe you're right, we did purchase more or.
Obviously with higher prices, we're seeing more of the local miners bring a third party or to the to our processing plant, which were required process I believe up to 10%.
Of local or just under the terms of when that plant was built.
Uh huh.
The other thing that's coming through our cost structure in Q4, and it's going to persist through 2021 is royalties and special mining duty so as more profitable in Mexico, we're paying more special mining duty as that goes into our kpis metrics.
And the royalties coming from El <unk>, which is a property we acquired in 2019, we didn't have any upfront capital, but it does have a big royalty on it.
<unk> of our production is actually coming from El <unk>. So about 50% for 2021, so that's going to persist through through our cost structure going forward.
Okay and then.
On the tax front.
I saw some commentary I can't remember from which government person, but basically that the Mexican government expects less investment in Mexico in the coming years because they're.
Tax structure has become more cumbersome and expensive and.
That they believe people are going to look to invest in South America. Instead, do you think that theres any opportunities to see them kind of rolled back some of the taxes. They added kind of just after the last peak and the gold cycle.
Or is that you know wishful thinking.
I think at this time, it's wishful thinking based off the current government regime. That's there are you hearing a lot of rhetoric out of Mexico with regards to how much Mexican mining company in the Canadian mining companies are paying in taxes. The special mining duty was introduced in 2013, plus the environmental duty, which is up <unk>, 5% on.
Gross revenue from precious metal companies.
I would guess that none of that is going to get rolled back during this regime in.
Quite frankly, it would be great if taxes got lower in all jurisdictions, but I would think that going forward there would always be conservative and hope that it stays where we're at now and we will be comfortable with that.
Maybe I can give some more color to that.
Further downloads come out last week in a press conference in state no new mining taxes.
I guess, we're supposed to take that is good news.
And.
In the overall scheme of things the total tax burden in Mexico is around 50, 253% so right up there.
With Canada and.
Some other countries.
Not exactly the cheapest jurisdiction in the world.
They would love to have more investment, but you know the Mexico's caught in the middle of this COVID-19 pandemic with a crash in employment to crash in.
In tax income to the government.
And.
No financial relief in Mexico Force poorer people like there is in Canada or the states. So.
I think it's steady as she goes in terms of Texas and Mexico.
Okay, just continue on that and maybe one other thing just real quick is that part of the reason the company has started to look at South American opportunities and then on that note any update on what to expect from per hour. This year.
So yes, we diversified in recent years, our exploration projects, we have three active.
World class prospects in northern Chile, we really like Chile as a country.
And we're looking at other South American jurisdictions as well as North America.
So not just exclusively Mexico.
And then per hour after a one year hiatus in terms of exploration drilling.
We resumed in January.
Drilling or per hour project with a $2 million budget to try and grow the resource base. There, we basically got two or three years to grow the resource space before per hour goes to economic studies and Terra in areas up and running we'd love to have our project development team move straight from tier two per hour in 2024.
Okay. Thanks, I'll turn it over.
The next question comes from Craig Hutchison with TD Securities. Please go ahead.
Hi, Good morning, guys. Thanks for taking my question.
Two quick question on reserves and resources you still have fairly substantial indicated resources at Balmy tells you know what are the opportunities to have some of those resources are converted into into reserves and.
And do you see there the mine life at ball nito sort of extending well into next year at this point.
Oh, Yeah, well and you know this is a bit different than got us feed because the main area, where mining is underneath a village of Av.
I lose which really prevents us from being able to drill from surface.
So almost all of our drilling and use recent years of the lose vein system has been from underground and of course that then its a cost reward exercise to see how far ahead, we want to drill can we convert indicated resources.
Two reserves.
Certainly to some degree.
But we're typically run on one year reserve envelope and an additional couple of years of resources and I don't think thats going to change just because of the constraints of drilling ahead of the reserve envelope.
Net oil pricing could have some beneficial impact on conversion of resources to reserves as well.
Can you remind me what's the budget for bonding tests in terms of exploration.
At $2 2 million and 250000 per brownfields exploration this year.
Okay, great. Thanks, guys.
Thanks for your questions.
Okay.
The next question comes from Lucas pipes with B Riley. Please go ahead.
Hey, good.
Good morning, everyone.
Well done on the quarter congratulations there.
Thanks, Joe Joe asked.
Most of my questions here and there, but I'll I'll I'll add some follow up questions first on the purchased at work.
Can you remind us how we should think about margins on that business. Thank you.
Yeah.
Yeah from a margin standpoint, we look to how we pay about 60% of the value of that ore and ultimately when it's all said and done we share about 35% to 40% win with our processing costs and royalties that get put in place ultimately it's about 10.
Last year, we are closer to 11% total production came from total ore, which is the highest we've historically ever been.
If you go back through the last 10 years, we've proxy of about 6% of our throughput through told or so at current prices I would imagine we're going to be closer to 10% again this year.
And generally followed the same formula from a purchase standpoint.
Of shooting for that 40% profit margin from it.
Very helpful very helpful. I appreciate that detail and then.
Second follow up question just on Chile.
That you mentioned how are you.
Like you like being there whats kind of the priority in terms of allocating capital towards debt region and dairy.
Very high level kind of what are some of the catalysts, we might be looking forward to when it comes to your T lay opportunities. Thank you.
Okay.
Thanks Lucas.
We've been in Chile for I think eight years, so we generally run.
5 million to $1 5 million dollar annual budgets. So we've actually done a pretty significant investment to acquire explore and prepare for drilling our three projects.
We're currently drilling one of them the Paloma project in the far North of Chile is arguably 5 million ounce gold equivalent High School foundation of a thermal target so open pit potentially heat bleach.
But early days yet we just started drilling at last year and we hope to have some results here in the next month or two.
We're.
Probably going to partner, our Cocker Rich project Cerro Marquez is a copper gold porphyry again, we've spent several years in several million dollars grooming it.
It's true already.
We've had a lot of expressions of interest from copper majors. So we've signed some confidentiality agreements and our preference is to bring on a partner at Cerro Marquez, which leaves our third project Aida Aida is our extension of the Bolivian silver belt down into northern most Chile.
And again its drill ready.
Massive alteration zone with a very strong indications of open pit silver.
We don't have the drill permit yet we had expected late this year.
It would lead to a drill program at Aida either.
This year or next year, so we really like the other in Chile, we focused on world class prospects. When we acquired these things during the bear market.
Not done yet we will keep continue to try and grow that pipeline and the whole goal of our Chilean.
Exposure is to get into.
A discovery that has world class potential and.
Ultimately to added to the development pipeline.
This is very helpful color I appreciate all the detail and continued best of luck. Thank you.
Thanks.
Once again, if you have a question. Please press Star then one.
Okay.
The next question comes from Henry Western debt, a private investor. Please go ahead.
Well gentlemen, you seem to have had a very very good fourth quarter.
And.
It strikes me that.
The future in 2021 and beyond.
It could be very substantial and without pushing the envelope too far.
Could you comment on it.
2021.
In terms of our public guidance we've guided.
Our production to be similar to slightly higher than last year. So I think a.
Six 1% to $7 1 million ounces of silver equivalent production forecasted this year, obviously, our performance in Q4 with the lower costs and higher metal prices is a pretty good guide for how we're going to do financially. This year, we don't provide financial guidance, but Q4 is certainly a good indicator.
Okay.
You provided a little one you said youre going to use up the tax loss carry forwards in Mexico. This year.
Would you say youre going to use it up very very safely.
Just about is it up or is it a dicey.
Using up those loss carryforwards.
Just a function of production and what we've used historically from a cost standpoint. So we have multiple entities in Mexico and at <unk> from 2016 to 2019, we had challenges financially and we accumulate those loss carryforwards and hopefully over let's say the net 16 months, we eat through those loss carryforwards.
Excellent excellent for what it's worth I've been one of the since 2000, and that's freed up from that and I think we're going up again, thank you gentlemen.
Thanks for your questions.
The next question comes from Rahim Mama with Arcadia Economics. Please go ahead.
Hi, guys. Thank you for having me congratulations on a great quarter for my question has to do around has to do with the developments that are arose during quarter four.
And most of the quarter one.
Typically with the silver squeeze.
And the manipulation of the price of silver on the Comex. My question is doesn't Deborah have you know any strategic plan to deal with this the combat the manipulation and idea I've heard is withholding five per cent of production I. Just have you know I just want to hear your answers around that and you know the future.
Concerning that.
Well. Thank you for your question.
Yes, I've got two different answers because theres really two different issues here.
With regard to our sales strategy and whether we withhold or accelerate silver sales. That's typically a short term decision based on our short term view on the direction of the silver price and we have in the past for instance, when we felt that the silver price was rising.
Held back our sales for instance, most recently last September we built up of finished goods inventory because of the crash in the silver price late September.
And the presumption that silver would bounce back in Q4, which it did with a bang and we were able to sell that accumulated inventory and make extra profit on it. So we do this from time to time, it's a sales strategy.
With regard to the infamous.
Silver short squeeze.
Yeah.
I have a lot to say on it and I actually got posted and ask the CEO comment on our website a few weeks ago. So you're welcome to go and read that but.
My view on this is perhaps a bit different than most I don't think it was a silver squeeze.
I think it was a classic pumping dumped by some knowledgeable investors, who did purchase 35 dollar call options on silver before posting on our edit those options on the Tuesday before they're ready.
35, <unk> 30 to 35.
The following Monday after promoting it for three days those options were worth $1 65, So I think some smart investors made a lot of money on that very short term pumping up I don't think it was a squeeze at all.
Secondly, it's very difficult to squeeze silver because banks are generally agnostic to the silver price what I mean by that is that they are generally neither long nor short.
Or.
More accurately there long physical sitting in vaults and Theyre short paper.
Thanks you.
Using fractional banking do lend out their assets figure on down to the local branch your cash is being lent out.
Several times.
That is probably the case in silver, but its not manipulation.
Simply a function of what banks do.
And to be honest, if investors were to try and squeeze silver and by physical by the ETF by the call options.
The bank going to do they're sitting on physical so they're the ones who are actually going to make money at higher prices and they can roll out of like Theyre typically hedging their silver right.
And it doesn't cost them anything to rollout of the short position and set it higher and rollout of it and set it higher than they could do that all the way up to $1000 silver.
I don't think.
There is a mother of all squeezes to be had in silver.
It's a function by the way. This is my last comment on this.
Silver amongst all the metals traded in the options and futures market is different why is it different because of all the common metals. It's the only one that is a byproduct of other mines. So byproduct of copper mines, let's think mines gold mines, and those big diversified global producers of copper lead zinc and.
<unk>.
Typically sell forward their silver lock in the revenue stream from their byproduct. So there are unhedged on their primary products.
What that means is that silver amongst all the metals as a massively higher derivative book compared to the other metals and compared to physical.
And that's because diversified miners sell forward their silver.
Who buys at the buying center into those forward contracts. So now they have not only physical they have a commitment to buy more physical and because they're agnostic they balanced debt that long commitment with a derivative sharp.
And that's the structure of the silver market. So I think it's very very challenging to try and squeeze something like silver because the the main beneficiaries of higher silver prices would be the bankers in the minors.
Okay, so kind of going off that this is my last question. Thank you for your answer what is your projection for silver in 2021.
[laughter] Crystal ball well.
I'm not shy when it comes to forecasting internally, but I rarely do it externally.
We obviously think that there's a silver bullet market well underway precious metal market well underway.
It's probably got years to run I would say that for two reasons in the case of precious metals, primarily gold theres, a whole backdrop of record low interest rates massive government intervention.
No change in the fed view for at least two more years, maybe three.
So the fundamentals underlying our higher gold price and therefore, a higher silver price so very strong.
But silver again is not just a precious metals, it's an industrial metal and the industrial side of silver is really taking off.
Silver is a green metal.
You can't have an electronics industry without silver you can have solar photovoltaic power without silver you can't have.
Electric vehicles without silver you can have five G technology telephonics without silver and I think there is an emerging appreciation finally among.
Amongst generalist investors.
Silver is a go to metal and a green economy.
Okay. Thank you very much for your answer.
Thanks for your questions.
This concludes the question and answer session I would like to turn the conference back over to Bradford Cooke.
Oh for any closing remarks.
Well, thank you operator, and thanks, all for listening in today.
Obviously this was a great year 2020, it was a great year for us very satisfying after some challenging years.
Q4 was a great way to finish the year and I think it's a good guide to how we expect to do in 2021.
Thanks again stay tuned.
This concludes today's conference call you may disconnect your line. Thank.
You for participating and have a pleasant day.
[music].
Okay.
[music].
Okay.
Yeah.
[music].
Yeah.
Yeah.
Hum.
[music].
Yes.
Yeah.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Yeah.
[music].
Okay.
[music].
Yeah.
Yeah.
[music].
Yeah.
[music].
Hum.
[music].
Yeah.
Yeah.
Okay.
Thanks.
Okay.
Yeah.
[music].