Q2 2021 Endeavour Silver Corp Earnings Call

Thank you for standing by this is the conference operator, welcome to the Endeavour Silver Corp, 2021 second quarter financial results Conference call.

As a reminder, all participants are in listen only mode on the conference is being recorded.

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I would now like turn the conference over to Galina Melichar VP of IR for opening remarks. Please go ahead.

Thank you operator, good morning, everyone and welcome to the Endeavour Silver 2021 second quarter financial results Conference call with me on the lines day, we have the company's Chief Executive Officer, Dan Dickson, Our Chief Financial Officer, Christine West 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, 'twenty, 1 and future years, including revenue and cost figures silver and gold production grades and recoveries.

And the timing and expenditures required to develop new mines in mineralized out 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 today's call and I'll now turn it over to CEO Dan Dickson.

Right.

Thanks, Galina and good day, everyone welcome to the Endeavour Silver conference call for the second quarter of 2021.

Before I dive into Q2 results I want to highlight that this year. So far has been 1 of leadership change as we position the company for its next stage of growth as you all are aware in.

In May we announced the seamless management transition I assumed the role of CEO My longtime colleague Christine West got promoted to the role of CFO and Brad Cooke stepped into the role of executive Chairman also note our newly appointed Chief operating Officer, Don Gray He has significant expertise in development.

His 45 year career.

This management transformation was an important part of endeavour silver succession plan.

That was several years in the making it represents a celebration of our past and investment into our future.

So with with my first quarter in the seat of the CEO I can assure you that our goal is to deliver exceptional shareholder returns as we execute on our commitments and strategy with 3 key areas of focus is safety and culture.

S G and ultimately profitability.

We're already making significant progress in these areas on the safety and culture side, our eye care into Quito operating philosophy continues to be ingrained in our culture.

Bring a step back and take charge attitude in a positive way. This is important to me and the way the leadership should view of the business.

Demand for corporate action and data across a host of environmental social and governance issues continues to grow at a rapid pace with increased mandates from investors regulators and industry stakeholders.

And Endeavour. These are serving as catalysts to drive further improvements and new initiatives. We are currently formalizing a multiyear ESG business strategy that we anticipate to release in the fourth quarter, we will build on our existing sustainability practices to address the evolving landscape in this area and achieve meaningful.

Comes for our stakeholders.

This will be especially important ahead of a development decision at Turner.

Lastly regarding profitability our focus over the next couple of quarters will be cost control, we're seeing industry wide inflationary pressures due to the global supply chain constraints.

I was in Mexico last week, and we put together a plan for weathering, a reducing higher cost in the second part of this year.

Beyond the more traditional business risks, we face we're now out of the woods yet on the pandemic, 25% of Mexico is fully vaccinated. So COVID-19 risks are prevalent for the country, particularly a delta variant poses risk to a non debt or non vaccinate employees and stakeholders. However, the risk remains less than the original variant data.

<unk> developed protocols already in place.

We're currently rolling out a companywide internal campaign to increase vaccinations for our employees and their families and testing will come more regular and control in the second half of the year.

Okay.

With that let's turn to our Q2 performance and then we'll open it up for Q&A.

As per our news release this morning, our financial performance this quarter was stronger than previous year. However, comparatively speaking Q2.2020 was impacted by mandated shutdowns by the Mexican government to prevent the spread of COVID-19.

Year on year, our revenue was up 136% to $47.7 million on the sale of 1.1 million ounces of silver and almost 10000 ounces of gold in the average realized price of $26.82 for silver and $1866 per goal on a year to date basis, our revenue now totals 82.2.

Yeah.

After quarterly cost of sales of $37.5 million mine operating earnings amounted to $10.2 million from our operations in Mexico. This resulted in overall net earnings of $6.7 million or $4 per share Q2 earnings were strengthened by the sale of our El Cubo operation and the gain on sale.

Marketable securities during the period the.

The Cubo transaction closed in April for $19.8 million on cash and share payments with up to $3 million in contingent payments in the future when excluding the gain on El Cubo adjusted earnings were just under $1 million for Q2.

We reported quarterly EBITDA of 16 close to $60 million on operating cash flow before working capital charges of $8.7 million, both up significantly from the comparative quarter in 2020.

It should be noted our quarterly consolidated costs were higher than budget cash.

Cash costs were $13.3 per ounce of silver up 370% year on year and all in sustaining costs were over $25 per payable ounce of silver up 70% year on year net of gold cash operating costs were higher than budget due to the global supply chain constraints, creating inflationary pressures increased labor costs.

Strengthening Mexican peso and we increased operating development going to see that we should see come to fruition here in the second half of the year, particularly at garnet to be royalty costs increased almost 400 per cent for point $3 million. In Q2. This is obviously due to the higher realized silver price and increased mining of the high grade material at all person on.

On a per ounce basis, the royalty costs alone equate to almost $4 per ounce on cash costs and all in sustaining metrics.

Notwithstanding the increased cost profile or our gold and silver production profile is tracking ahead of guidance totaling $3.9 million 3.9 million ounces of silver equivalent metal for the first half of the year.

We announced.

In today's news release that management will suspend operations at our El Compas mine this month to day exhaustion of reserves.

This was communicated in our annual guidance earlier, this year and will not impact the company's ability to meet our or exceed production guidance for the year, our campuses or small gold mine and was intended to be a bridge until Terran Eric comes on stream, representing less than 5% of our annual consolidated production.

We have some very talented individuals the outcome is that we expect to transfer within the company to our operations and bolt on the dose and ultimately to Turner.

The anticipates suspension costs as an estimate to be a $1.3 million that will be incurred over the remainder of the year and then in the meantime management will be a value and various value creation opportunities.

On a positive note we are entering the second half of the year with a robust cash balance of $125 million minimal long term debt on our balance sheet ahead of the potential construction decision of Taro narrowed later this year.

This should help us facilitate our ability to attract project financing moving on to our minds. Qantas V is our top performing performer and will produce over 60% of consolidated production during Q2 higher throughput and higher grades resulted in production exceeding plan during the quarter and ahead of the annual plan at bowling.

Dose we are focused on developing the bell and then an expanding production in the MELA detailed vein or both areas have multiple drill targets from a production standpoint process tons were higher than plan offset by slightly lower grades during the quarter and lastly at compass production has been declining quarter over quarter as.

Plan in preparation of this suspension.

Yeah.

So that's a brief overview of the operations and we recognize we have improvements to implement in our costs and we are confident it will reduce them in H 2 in the second half of the year in terms of our growth outlook. Our attention is on Turner Terran area is slated to be our next core asset we published a pre feasibility study last year forecasting over 5.

<unk> million ounces of annual silver equivalent production over 10 years. The project is developed and ready and fully permitted. We're now on the final stages of completing our final feasibility study to Derisk the project and evaluating financing alternatives that we use to start construction. The final feasibility study will be released this quarter and we're all.

So hosted detailed webcast to discuss the results.

Subsequent to the end of the queue of Q2, we also announced an agreement to acquire an advanced stage gold exploration asset the Bruner Gold project in Nevada from Canon Max accompany that's currently under a C. T O S. He's trade order.

With ideas that we will look for a shareholder vote for the end of in during Q3.

And Deborah will provide an update on our plants event, yes, 8 after that book at this time I can say that we view the acquisition is opportunistic and the asset could potentially be layered into our growth plans. Following Turner. Several years of exploration work remain ahead of any potential development on this gold heap leach asset to model the potential.

Production.

For this reason Mexico on silver remain to be our focus.

In closing we are confident in our business strategy, our financial position on our growth agenda I'm looking forward to leading the endeavour silver endeavour silver and continue to work with our board executive team employees and partners through these exciting times for the company with that operator, I'd like to conclude and open up for Q&A.

Thank you we will now begin the question and answer session.

To join the question queue you May Press Star then 1 on your telephone keypad.

O'hara tone acknowledging door request.

You are using a speakerphone please pick up your handset before pressing any keys.

Draw your question. Please press star 2.

I'll pause for a moment as callers join the queue.

The first question comes from Jake Zukowski with Alliance Global partners.

Please go ahead.

Hey, Dan and team thanks for taking my questions.

Hey, Jake so.

Just looking at compas winding down this month I guess, what do you see as the most likely outcome here I know youre looking at a range of options.

Think you know we're likely to see more of an outright sale like what we saw with Cubo and any color on on an outcome on the strength.

As far as time on those.

Yeah for sure Jake from a timeline.

<unk> provide a lot of color there we've talked with a number of groups that would be interested in compass, but at the same time there is exploration opportunities that remain in the desert and ultimately Cuba worked out really well for free for the acquired Bangor, which is now Guanajuato silver and worked out well for us and ideally that would be the same case for El compas.

We're early days, yet and as I say, there's a lot of exploration opportunity that remains in that district, we have some other properties a little bit more base metals that would require refurbishment of the plant not a huge amount of refurbishment, but nonetheless refurbishment. So we have exploration opportunity that we can do and continue to push forward, but at this point in time its pretty much all I can say.

From an el compass various alternatives standpoint.

Okay. That's helpful. And then I guess just on the finished goods inventory I mean, we were slightly down from from where you were in Q1.

I'm just curious if this is more related to the timing of shipments or was this just again a strategic decision to withhold some some inventory for sale on the higher metals price environment or what are your thoughts on that.

Yes, it's true.

You alluded to we built our finished good balance at the end of Q1, and we continue to hold that balance.

I think at the end of Q1, we actually the fair market value is about $50 million at the end of Q2 that fair market value is about $17 million. So from a fair market value standpoint, we actually had higher finished goods at the end of Q2, and we do still believe in long term price of silver and gold and ultimately what we saw on Friday.

As a short term dip what we expect in the prices and we expect that to come back in the fall on ultimately when we need that cash flow will dispose of those finished goods.

Got it that makes sense, okay. That's all on my on thanks.

Thanks Jake.

Yes.

The next question comes from Heiko with H C. Wainwright. Please.

Please go ahead.

Hey, Dan Thanks for taking my question I hope, you're all doing well.

Thanks, Heiko hope youre doing well as well.

I'm trying you mentioned industry wide pressure is on the global supply chain earlier on this call can you just provide a little bit of color on the things that concern you. The most I mean, I assume a year ago. It would have been things like masks.

It's a place.

That stuff seems to be pretty decent supply right now.

Rumors about hires being hard to get equipment.

From some particularly equipment equipment, having long lead times.

Is there anything in particularly that you see in almost as importantly can you maybe see hold that answer with a different 30 days ago.

Sure.

I think our biggest concern right now is going into the construction phase of tear on air So steel is going to be a big part.

And we are seeing increases in basic construction supplies and terra narrow being such a key asset to us and ultimately the cost to build Turner and we want to do it within the next 2 years and ultimately have that decision. This year those inputs and we're slightly seen increases there.

For us we're not huge costs, our top tires are not a huge cost for us with being on underground vein to vein development and vein mining.

As opposed to the the big open pits, we're tires, a big significant costs other things that we're seeing some costs are all our reagents cyanide flocculent.

We saw some increase in Q1, we saw some spots, where we think that we're going to see some cost control here for the second half of the year.

On ultimately what we're also seeing increases on his geologists and engineers.

On the supply constraints with what's happening in our space that more geologist more engineers on it can impact there.

On their salaries and their asks and that's starting to come through 1 of the other things that we saw coming through in Q2 as production bonuses from 2020.

PTU payments profit sharing payments in Mexico also what happened in Mexico is the change the outsourcing rules. So all employees have to be employees of the company that they work for we had to make that transition in the second quarter, which cost us an additional cash as well, but ultimately the rest of the inflation story that we're seeing across the world.

Impact us a little bit here in Q2, and we're concerned that will impact us across almost all inputs in Q3 and Q4.

Got it.

And then just a quick clarification.

On your MD&A, you breakdown on the drilling activity by country and in meters.

I think it was page 22, or something I noticed that you're spending a million 2 in Chile, Paloma for only 3000 meters of drilling and I'm, a perimeter basis, that's actually quite a bit higher than any of theater assets. So purely out of curiosity I am aware. This is a small from a money we're talking about here, but do you think paloma. He is just temporary.

<unk> expenses, given drilling economies of scale am I missing something obvious or is this just a more expensive area to work in and operate with I don't know unions, giving trouble or hard to access in it.

Would this be any different if there is ultimately a mine there.

Yeah, no. It's a very fair question, you're right Paloma, we drilled this year. It is more expensive and that was always budgeted that'd be more expensive. We also did a lot of surface work to that would be built into some of that cost. So we've been doing.

Permitting at Aida and permitting at Cerro Marquez that would be built into some of that costs on a per segment basis that you're reading.

Youre right in the fact that Chile itself is more expense of its smart sensor from a drilling standpoint, and we also think it would be a much more expensive from an operating standpoint, but again, what we're looking for in Chile is an underground vein mining its open pit world class size assets that would be.

Game changers for Endeavour.

Very good I'll get back in queue. Thank you guys.

Thanks, Heiko much appreciate it.

The next question comes from Cosmos <unk> with CIBC. Please go ahead.

Hi, Thanks, Dan and team.

Maybe on Sox.

Also on Hi, Dan how are you doing.

Good how are you also on good. My first question is also on cost I guess as you mentioned in your MD&A cost was over $25 an ounce.

Higher than what you had expected you've also talked about inflation and some of the cost pressure here.

I'm just wondering how much of that cost pressure has been captured in your Q2 numbers. It doesn't sound like everything I'm. Just wondering you know since the Q2 numbers have you seen more cost pressures into Q3 and could that leak into Q3 and more being reflected into Q3 as well I'm just trying to figure out.

Even if you have say improved efficiencies on the second half where in Q3.

Is that going to be offset by continuing inflationary pressures that were not reflected on your Q2 numbers.

Yeah, No. It's a fair question. Our goal is those inflationary pressures won't show up in Q3 and Q4. Our July production results just came in and we're waiting for costs for July yet so I can't speak to Q3's, what we're seeing so far but our expectation is those costs will be contained here in Q2. So we've looked at some of our cost per.

Files, and we projected out for the next 2 quarters and we expect that to be relatively the same again some of the stuff that we saw in Q2 on bonuses production bonus is P to use and changeover resulted in salary increases and labor cost increases.

Ultimately those won't flow through in the third quarter or fourth quarter, and then big aspect to it all and we've always communicated this is the $4 royalty costs and with prices where they are at today, obviously that royalty costs will come down the other thing that happened in Q2 and from <unk>. It was we did a lot of operating develop.

So development that we expense in an area, we call El Porvenir ultimately that won't flow through into Q3 or Q force, we expect our cost profile to be lower in the third quarter.

Okay, great and I guess debt into the fourth quarter as well because to confirm you've maintained your cost guidance for the year on a sustaining caso 19 to $20 an ounce right.

Yes, we have not change guidance at this time.

Okay great.

Maybe following up on costs as you mentioned the feasibility study Terran Erez expected by Q3 and potentially a go ahead decision after that.

As you've talked about inflationary factors here.

Mexico.

Theres been recent changes in sub contracting rules as well in the country. How are you going to factor that into your feasibility study and how can you mitigate some of those that risk and how do you see the inflationary pressures in Mexico potentially impacting your decision on <unk> on there.

Yeah, It's very fair questions, obviously from the pre feasibility say to the feasibility study, we're going to see cost increases and we've hired wood on their exceptional group, but being able to determine costs and rely on that and I think what we're going to see come through the feasibility study is an inclusion of the what we're seeing.

From an inflationary pressure standpoint on our initial capex.

How to mitigate against that ultimately for us it's going to be if we can get into a construction decision and move forward.

Partly as a company that we are we're a silver producer on a gold producer so effectively.

Any inflation pressures that we see across the rural will eventually be shown up in the silver and gold prices on the back end of it. So I think were mitigated in that sense and ultimately the sooner we can kind of get going on that construction will be better.

As I say I think woods really income and our team is considered the inflationary pressures and youre going to see that our initial capex when we come out with it and hopefully in the next month or so.

Great and then 1 last question from me here Dan.

Bruno Gold project.

It seems like Youre acquiring it from Panamax.

2 questions I guess, the first part is new country, new metal can you talk a bit more about that strategy and number 2 is that telling us that it is just really difficult to find good.

Silver assets in terms of acquisitions.

Yeah I mean.

I will say it is difficult there's a scarcity of primary silver mines in the world and we see that in most silver comes from baseband on our lines and as a byproduct of a lot of other mines.

It is difficult we've seen the whole silver space acquired gold assets. Most recently at Fortuna with rock school for sick with Cherry Canyon.

We want to maintain our 50% silver production or above 50% silver production.

The move into Nevada, which is obviously a world class jurisdiction.

And gold.

Was more opportunistic than necessarily a strategic move into gold or into a new jurisdiction the idea that.

We're not obviously concern with Nevada, we're not concerned with gold, 40%, 45% of our revenue comes from gold and we do like gold, but we like silver more than ultimately we are looking for silver assets. There's just not a lot out there and there are some but not a lot and it always takes 2 to kind of come to an agreement to acquire.

Our silver assets.

We want to add value, we saw a quick weighted add some value and hopefully after a shareholder vote from Panamax, we can talk about bruner in more detail.

Great. Thanks, Dan does all the questions I have thanks again.

Scott good questions.

The next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.

Hey, Dan and team thanks for taking my questions.

No problem, Joe nice to hear from you.

Yeah.

So I guess.

I'm sorry to continue on to the cost side of things, but maybe a little bit different question on <unk> specifically.

Guys mentioned in the MD&A that some of the cost in Q2 were related to some development for an ore body, that's not reserves and therefore, you had to expense it.

Can you kind of give us an idea of what that looked like so maybe we can back it out of the cost numbers and also how many how much more youre going to have for expenses for.

Non reserve development on over the rest of the year.

Yeah.

So in Q2 at El Porvenir, it's an upper area of Porvenir.

As part of the <unk> acquisition.

We spent about $500000 accessing some ore that will ultimately build to mine and drop effectively here in Q3, and because under <unk> rules Theres no reserves. There we chose <unk> expense that development. So it's like I say just under $500000.

Ultimately we're out of that area now and we wanted just be mining malott shale Caruso and Santa Cruz sur So I wouldn't expect much more in Q3 or Q4 from that area.

Okay.

Were there any other items like that 1 time items in the Qantas V Q2 numbers.

Yeah, we had profit sharing and true up of our bonus.

So Peter you, we paid about $250000 in Pizza you to go on us being in the second quarter and we added a top up of year end production bonus that we finalized which ultimately amounted to vote, a similar amount 200 to $250000.

Okay.

Second thing is.

You know from looking at your annual guidance specifically.

Specifically at the gold guidance for going to sample on Ido as you guys are tracking.

You know if you just doubled the first half you guys would be above the high end should we be thinking about Q2 gold production from those assets being lower.

In Q1 was Q1, just that much better than expected like how should we you know whatever color you can give as far as what the Q2 might look like that.

Made it so you guys didn't decide to raise guidance.

Yeah, we just weren't ready to raise guidance at this time due to Covid. Obviously Q1 was phenomenal from a grade standpoint out iguana, Sabine and the grades and in Q2 at Qantas fever, right around what we expected with plan and I think those grades from.

For Q2 might improve a bit here in Q3, and Q4, but ultimately be closer to plan at ball on Ido as our tonnage has been on plan a little bit higher than planned in Q2 and the grades from a silver standpoint were slightly lower on gold grades have been on plan. Ultimately, we just werent comfortable raising guidance at this point with so much time left in the air.

But there's no expectation that we'll see a dip in production at <unk> in the second half of the year compared to what we see now.

Okay. So it's fair to say Youre concerned is more about the potential impact of COVID-19 on tonnage not on grade. So great do you expect to remain steady.

Yes, okay.

Okay, and then 1 final thing.

It looks like subsequent to the end of the quarter you guys finished off the ATM that you had any additional plans for any form of equity financing related to Turner or do you feel with the $125 million in cash you have.

Plus some investments that you guys are well funded on the equity side.

We are well funded on the equity side, obviously, our balance sheets in a great position and we've been working with a number of groups to add project financing in the form of and we've said this for the last 6 months somewhere between 60, and 100 million, so say $75 million to $80 million to help with the funding and keep our cash balance drive for other <unk>.

Opportunities that may come along.

Okay. It sounds good thanks, I'll turn it over.

Thanks, Josef good questions.

The next question comes from Lucas pipes with B Riley Securities.

Please go ahead.

Good afternoon, everyone. This is actually Matt key here asking a question for Lucas.

Just a quick macro question from me, we've seen a lot of strength in commodity pricing over the last 12 months the precious metals are largely lagged or even decrease.

I was wondering if this performance and kind of precious metals surprises you at all on where you kind of see silver and gold price and go on in the second half of 'twenty 'twenty 1.

Yeah, I mean, I guess now than in the space are 14 years surprise isn't the right word.

I think Fridays was kind of 1 of those tough days, but.

We've seen those in the past and I think it's just a correction and right now we're sitting at 75 to 1 silver to gold ratio and ultimately we see that gold ratio get back down to 65 to 1 and I think we're going to be sideways here for a little bit, but I do expect a pickup in fall and into next year.

Ultimately the government balance sheets haven't changed the impact of inflation is still here and I think inflation is going to be.

Our long term and we're going to have to deal with it and theres not a lot of ways for the government to deal with it with where their balance sheets are so ultimately, we see silver and gold to be higher going forward, but can never give a timeline of when that happens so.

We're going to make our decisions.

Decisions on <unk> are kind of based on what we see a long term silver price be in long term gold price and continuing to look into the market and see if we can add more silver into our portfolio.

All up and down on the spectrum.

Got it that's very helpful. Thank you and you mentioned that ESG report that you guys are going to publish in the coming months I was wondering if you'd be able to share what you kind of see the eds easiest avenues to kind of improve your ESG profile over the coming years.

Yeah, I mean, it's.

ESG strategy, we actually reported a sustainability report in May and then we did our eighth report this year.

It's not 1 specific area, where we can improve I think its partly continue to improve from our culture standpoint, I think we do a really good job.

Internally.

And from a governance standpoint, but theres going to be things that are changing in the world, specifically carbons and how to manage that over the next 3 or 4 years.

That we're going to continue to look at it in turn are gives us that opportunity to try to do some best practice stuff to reduce our footprint in the world.

All mining companies are going to have to look at their carbon footprints.

<unk> footprints and we're going to be no different so hopefully over next 3 to 4 years, we can improve that.

And then hopefully report on it and being given credit to be a leader in the space on it.

Got it that's that's helpful. That's all from me best of luck moving forward.

Thanks, Matt.

The next question comes from Ryan Thompson with BMO. Please go ahead.

Hey, Dan Thanks for the update.

Most of my questions got asked but I'll just ask 1 on <unk>, maybe a little bit longer term.

Should we be thinking about that mine when I look at the sort of resource grade book MNI and insured.

They seem to be higher than the reserve grade. So if you could just talk a little bit about.

Sort of converting that.

Material into the reserve mine plan and just how we should be thinking about that asset for the next couple of years is it is it safe to think that grades would be moving up closer to those sort of resource grades.

Okay.

Yes.

Are the dynamics right now at ball on he knows we're getting still getting grades that we expect and we're trying to open up more areas to get more working faces to build kind of get a more blended silver grade that come up but ultimately we are going to see this might be more gold less silver as we get deeper into the deposits.

We do have some areas 1 blend that we've been drilling and we expect that to come online next year <unk>.

Net of detail we've been we've put out some drill results on that earlier this quarter with some good grades, but ultimately we're hovering around the 2 to 1 gold aspect that if we can get silver grades backup in the $50 <unk> that would be ideal, but right. Now we're just seeing variations in the ore body that has lower silver and gold.

Okay. That's that's helpful. Thanks, Thanks for the update.

Thanks Ryan.

Once again, if you have a question. Please press Star then 1.

The next question comes from Mark Reichman with noble capital markets.

Please go ahead.

Thank you.

There's a lot on mixed messages in the market about the trajectory of inflation so I.

I wanted to ask you Dan about how youre thinking about <unk> in terms of the feasibility study coming out in the third quarter. How is this changing you know the inputs that go into that report and is the former CFO. How do you kind of think about managing that project in terms of locking.

In supplies ahead of time.

Versus on.

On an as needed basis.

Yeah, I mean, I kind of touched on this earlier ultimately.

I think on Etsy, and we are going to see initial capex increase and part of that is due the inflations on what we're seeing from a cost pressure standpoint in the engineering group and our team of foresight to be able to.

Put that in and ultimately impact are our costs.

As far as locking in supply costs or I think the business that we're in growth.

It's obviously, a natural hedge hedge to inflation that we don't need to get way ahead of ourselves and lock in costs. The other aspect to that as the Mexican peso to depreciate against the U S. Dollar is on underground vein miner, a significant portion of our cost structure is labor, 30% to 33% as the labor at our 3 existing.

And that's no different at tear naira.

So I think if we do see runaway costs from an inflation standpoint youll see.

On our labor costs, probably stay relatively the same in terms of U S dollars.

And ultimately silver and gold is that hedge against higher higher cost pressures in the world and there's going to be short term blips, but ultimately we expect to be at Turner from 15.2025 years.

Nothing that we can do in the short term will help us over that length of time and we've got to take the long term focus on Taryn air rather than short term now of course when it comes to our construction decision how well can we lock in those prices over the next 2 years and we'll look to do that as best we can.

But at this point, we have no strategy on buying everything upfront.

Okay and then the second question is and I know you know turn there is going to be a big.

Change for this company.

In terms of the where you talked about optimizing your operating cost profile.

In the second half and you may have touched on some of this earlier, but what do you think are the key variables that you're that you're really focused on to do that and where do you think how much of a reduction do you think you can achieve.

Uh huh.

The key aspect right off the geckos labor as I touched on on a lot of the onetime items that rolled through <unk>.

But then also acquire we've acquired supplies here in Q2 that will be using in Q3 and Q4.

So theres no particular.

Item that we're trying to lock in on.

Most everything he's on across everything transportation costs et cetera, et cetera. The key to us is ensuring that we hit our grades and we hit our tonnage in Nepal and he doesn't want to see I'm confident that we're going to be able to hit out here in the second half of the year and ultimately what it's taken all of those 1 time costs out that we'll be able to get our costs in line to what our expectations were at the beginning of the year somewhere in the 19.

$20 all in sustaining cost range.

It's a little bit of everything it's not 1 thing.

Okay. Thank you that's very helpful.

Thanks, Marc good questions.

This concludes the question answer session I would now.

Like to turn the conference back over to Dan Dickson <unk> CEO of Endeavour silver for any closing remarks.

Thanks, operator, and I want to thank everybody for joining our call today.

The big aspect and 1 on the biggest catalyst for the company is going to be <unk>, it's going to take our production profile and double it and ultimately cut our cost profile and have asked we have a big quarter coming ahead of US. We do expect the final feasibility study to be out this quarter and we will be putting a webcast together for that feasibility study as it is the importance of the company. So hopefully we can.

Talk again soon and thank you for all the questions.

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

[music].

Yeah.