Q4 2021 Endeavour Silver Corp Earnings Call

Yes.

Thank you for standing by this is the conference operator.

Welcome to the Endeavour Silver Corp year end 2021 financial results Conference call.

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

I would now like to turn the conference over to Chris Moran interim head of Investor Relations.

Please go ahead.

Thank you and good day, everyone before we get started I ask that you. Please view our M. D N a cautionary language regarding forward looking statements and the risk factors pertaining to these statements.

Our MD&A and financial statements are available on our website E D. Our silver dot com.

With us on today's call is Dan Dickson Endeavour, silver CEO as well as Christine West Our Chief Financial Officer, Don Great Endeavor, CLO del Mar VP corporate development and Luis Castro, our VP exploration.

Following Dan's formal remarks, we will open up the call for questions and now over to you Dan.

Thank you Trish and welcome everyone.

2021 was a good year for endeavour silver, both financially and operationally Qantas to be emboldened pawlenty dose each performed well and the performance offset the impact of suspending the operations at El Compas mid year.

In 2021 on a consolidated basis, we produced $8 3 million ounces of silver equivalent of 21, 7% increase over the prior year.

Put us above the top end of our guidance, which we revised upwards in October .

Last year's strong performance.

Sure primarily by two factors first increases in the volume of work crews working.

In recovery.

Secondly, more importantly, higher average realized silver grades.

Revenue rose by 20%, marking a five year best bolstered by volume and price.

Most importantly, this higher revenues revenue translating to increased profit and cash earnings per share.

And more than $32 million of operating cash flow before changes in working capital.

Our cost per ounce metrics are higher than our previous year and above guidance all in sustaining costs and cash costs were higher than guidance by 1% and 3% respectively.

Industry wide inflation has been and continues to be challenged.

'twenty one is the impact of everything from labor to power controls across our operations.

Additionally wants to be saw higher expenses associated with third party ore purchases and operating development.

Additionally, royalties were higher we triggered a special mining tax cubic to Guam, and see significant production the higher silver prices and profitability.

Our financial performance led to a strong balance sheet at year end.

With cash of $103 million and no long term debt aside from normal course leases.

Total working capital and $21 million and clean unsold bullion inventories held at a cost of over $15 million. This bullion at market value of about $31 million at December 31.

The current prices, we have started to draw down this balance through 2022.

Our strong balance sheet sets us up well spilled out here now.

Going into 2021, Karen there wasn't an advanced exploration project.

Last fall it was reclassified as a development project following the completion of a feasibility study confirmation of its economic viability.

The study highlighted many improvements in the projects, including increased production and throughput.

Upon completion, we expect China will nearly double our production cut our cost profile.

The updated study also increased our reserves by 33% and we believe there is a high potential for further growth.

Ongoing drill campaigns are showing very encouraging results in our goals published the latest exploration results in the coming weeks.

Clearly China is transformational.

While we await the formal construction go ahead. The project is moving forward in 2021 12 million was spent on land acquisitions initial development and mobile and processing equipment.

There was an additional $95 million budget from the first quarter of 2022 site clearing final detailed engineering early earthworks temporary cap and procurement of other long lead items, we'll be seeking board approval for construction of upon completion of our debt financing package.

Heat of some amended permits.

I'd also like to highlight that while we've been delayed slightly by finance.

We have financing you're still targeting the first half of 'twenty 'twenty four is complete commission.

With our eye on the future last year, we started rationalize our portfolio and dealt with a couple of assets that were no longer the rates are too small for us.

Early in the year Guadalupe Calvin project was option rich throw money at El Cubo was sold to Guanajuato Silver in August we suspended operations at our small El Compas operation.

Also completed a couple of smaller acquisitions to enhance our flagship assets first we added two more properties adjacent to existing historic old mine workings iguana suite and <unk>.

Secondly, umbrella, we bought out a 1% MSR royalty, which we now own 100% of with no royalty income or.

As well we purchased the Greener project, which is located in the well known Walker Lane.

Nevada.

Our focus is really still on the larger growth projects that will accelerate our vision of being a premier silver senior silver producer, namely, which would be Turner Corral and now it's area in mid January we announced the signing of the definitive agreement to acquire the three of project SSR mining.

It's really it's situated in Durango state, which has a long history of mining as is known as a mining friendly jurisdiction in Mexico.

With several mines in operation and clean our CMO.

One of the largest undeveloped silver deposits in the world with the historic MNI resource of 525 million ounces of silver ring close supplement grams per ton plus amounts of lead and zinc.

There's been significant comprehensive work done by SSRI to advance the project in many key permits are in place as a potential tier one asset <unk> is an exciting project for us.

Soon as the transaction closes in Q2 work will immediately commence to redefine historical resource to a current resorts assess the number of targets.

The projects and updated economic study.

Yes.

We've talked about previous year as well as our exciting future, let's wrap things up with what we saw for 2022, starting with guidance for 2020.

Our production outlook is on par with the App with the average over the last three years and managing costs will be a key focus as we try to offset the impact of rising costs.

As we embark on the Ido as a mature assets, we have plans to invest more in the $34 million in seating.

Capital to optimize performance and maximize output over the coming years.

Equally important on the list of things to do is to further expand our mineral reserves and resources.

Proven and probable reserves and gold.

Silver and gold reserves increased by nearly 30%.

Here, we have $13 million earmarked across our exploration portfolio to continue our long successful track record through the drill bit.

2022 is going to be an exciting year for the three cornerstones of our growth pipeline, chairman, Eric and Victor yet each of which provides us significant opportunity.

To contribute to our future growth profile.

As noted <unk> is expected to move from funding and approval phase through to construction in the coming months.

Well, we expect to initiate a pea in the second half of 2022, and then as mentioned earlier the acquisition of the three is expected to close in the second quarter and once closed the work will begin our goals define current resource by the end of this year.

Overall, it's going to be another busy year and with that I'd like to open up for questions operator.

Thank you.

We'll now begin the question and answer session.

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

You will hear a tone acknowledging Dr request.

If you were using a speakerphone please pick up your handset before pressing any keys.

She withdraw your question. Please press Star then two.

We will pause for a moment as callers join the queue.

The first question comes from Joseph Reagor with Roth Capital Partners.

Please go ahead.

Hey, Dan and team thanks for taking the questions.

Hey, Joseph.

So.

Big picture question that thinking.

Didn't get asked a lot of these calls is just you know.

How are you guys handicapping the impact of supply chain inflation.

Like are you guys doing anything proactively to prevent any impact from that and then a kind of a second question to that you know what inflation rate do you guys assume.

You know on costs across the board for this year compared to last.

Yeah. Thanks for the question Joseph.

The two pronged for 2022, and our budgets, we had 6% to 9% inflation just depending on what the whether it was labor or whether it was.

Direct cost input, we had seen power cost increased significantly last year towards the end of the year and that was all included in our budget and information.

So it ranges depending on what we're just going into the product.

Labor was 6% to 8% power costs were up almost 28%.

And ultimately we saw that in our 2021 costs as well so some of that's been dealt with and dealt within our budgets.

Of course, the actuals for weeks, probably quite different than what we've actually estimate into our budgets and we'll see how that plays out on a bigger picture of what we're expecting from inflation I think it's going to continue and we get a lot of questions on inflation with regards to our capital expenditures and ultimately Turner.

I think we've done a good job with parent air with the fact that we've procured some long lead items, most notably our mobile fleet. Some of it is already on site and we have more coming in March and we ordered that stopped mid year and kind of start moving to make sure that we could get some of these prices locked in but nonetheless, we're not going to be able to lock in everything.

So steel with regards to the plant that's going to be there. We do have contingencies built into our feasibility study as we work through that.

We will update the market toward we think prices will end up I think we've done a really good job of trying to keep this moving forward to try to keep the costs in line to where our expectations will be which is along the lines of the feasibility study.

We will do our best so millions of course inflation is prevalent through.

All the industry not just to us.

I think that is going to continue through 2022.

Okay kind of a follow up to that.

And specifically with like Karen era.

Would you guys consider delaying the start of construction.

Yes, you know I think a lot of people believe some of the supply chain inflation is.

You know temporary.

You know is it do you guys think about that as like maybe it's in the best interest of the long term value of the project to kick the can until that inflation pulls back a touch.

Yeah.

Of course, you consider that for instance, how imperatives and transformational Turner is going to be to us.

We arent going to delay it we're trying to push it through and ultimately when it's the fact that it's going to double our production and cut our cost profile them out completely changed our profile as a company.

Karen era right now in our feasibility study has got a 12 year mine life ultimately, we expect to be there 2025 years.

I know kind of trying to time markets are trying to time inflation at the end of the day, if completions up 10% in 2022 likely still up 2020, it's not we're not going to see deflation in 2023 or 2024, so we're going to keep pushing it forward and it is critical to our company.

Okay, and then one final thing if I could what percentage of the overall cost structure at your minds is fuel diesel.

Yeah, its underground vein mine floods, some 7% I mean, it can fluctuate somewhere between six and 9% on any given year.

Work will feel price sorry.

Joseph with an open pit diesel is a huge cost to us our second highest cost after labor is actually power costs electricity through.

The Cfe in Mexico, so as far as diesel and like I say, it's 6% to 9% so not a big proportion.

<unk> okay.

Okay. Good thanks, I'll turn it over.

Thanks, Joseph Thanks for your questions.

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

Please go ahead, hi, good afternoon, Hi.

Hi, Good afternoon, everyone. This is actually Matt key here asking a question for Lucas my questions around the long term green expectations at granite City, obviously really strong implied grade guidance for fiscal year 2020, Q, but I was kind of wondering how we should be thinking about grade longer term is it.

It's possible that we get back to the kind of 2018 2019 levels in the near term or is that kind of past us at this point.

At this point, it's past us.

Guidance just for the following year, which different right now 2022, and the grades will be similar in 2020, twos, but we havent <unk> 2021 .

If you look past that and really looking at our reserves and resources, which are in our Aif.

The grades should continue that in 2023 2024, but at this point in time, we're not there yet we have had a significant discovery with our first so it continues.

To grow and that's where some of those significant grades are coming from so as prices can also get higher which was our expectation. This year and next year, you could see that grade come down because their cutoffs change in the mine as well.

But right now what we see in 2022 somewhat grateful we did this past year.

Got it that's really helpful and just last one for me I was wondering if you could kind of help frame up what you're seeing as the most promising long term exploration projects. Once we get past urinary here in the next couple of years and if you could also maybe kind of provide a potential timeline on how you see that net.

Des growth projects on the horizon kind of development.

Yeah, I mean, you asked me to kind of pick against the.

The kids that I have but right now we have two great growth pipeline assets.

<unk> got Corral, which is smaller than we are continue to have exploration success, there and at the end of 2019, we had 40 million ounces defined plus lead and zinc and ultimately said to the market and we have to grow that to 66 5 million ounces or we think it would be.

The scale and have an operation that's a.

Of significance to endeavor and has significant scale to be cost effective and economically viable in 2020, we didn't draw it because of Covid in 2020 . One we started to drill it and we have very good results, we put out earlier.

Earlier this year.

Continuing to drill per hour in 2022.

Wait through the year, hopefully we have a sufficient resource base that will put a preliminary economic assessment on that.

Again, we need a certain scale for it to work, but we think we can get to there the other asset with pit Korea is obviously.

Potentially a tier one asset I mean, it's one of the worlds largest undeveloped silver.

Bodies.

And we're excited and extremely excited about it obviously we had.

Our conference call not a couple months ago, when we acquired it from SSR mining will close that transaction here in Q2, and then build out that current resource as far as timeline.

Between <unk>, three and corral and it depends on prices in the future and ultimately we expect to your belt process for Turner and hopefully one of those comes in right behind that to your bulk bill protest at pit the area, we're going to redefine that resource right now it's considered a historic resource Sunday Silver standard.

We're going to make that a current resource by doing the work ourselves in issuing the technical report hopefully by the end of this year and then we'll do an economic study on <unk> for 2023, so three year per altimetry Youre looking at something in 2020 for 2025, when you get into construction, but I think it's one of the leading sector growth profiles that you.

Can see in our space.

Thanks, Thanks for that detailed response.

That's everything for me best of luck moving forward.

Thanks, Lucas great questions.

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

Please go ahead.

Yeah.

Thank you for taking my questions. So the first question is just really on the on the Turner financing I know you were looking to put an 80 to 100 million dollar debt facility in place.

Just wondering whether that is still kind of the plan.

And and how those negotiations are going and if you think you'll have those wrapped up by the end of the second quarter, given that 24 month construction period.

Yeah, Youre exactly right. We are looking for that to $80 million to $100 million, we have $100 million in cash and $120 million of working capital on our books.

A little slower here in Q4 than in.

In Q1, because beyond the coronavirus impact.

Nickel due diligence by the banks, but we're through all that stuff always going a little bit slower than expected, but our hope is to have a commitment from the bank by the end of this quarter.

And then the second question is.

Hugh Hugh your plate pretty full at this point with a good pipeline of projects, but would you still entertain any any smaller producing acquisitions in and what does the landscape look like out there right now for for our M&A, Oh I guess in light.

The the higher prices.

Yeah, I mean, we have a corporate development group panels on the call here with our management team today and we're always looking.

Whether it's a growth asset whether it's a greenfield exploration asset.

For two fold one we think we can always improve our asset base and if there is an asset we can get at the right price, we'd absolutely entertain putting it into our portfolio.

Especially if it provides cash flow.

The landscape is ever changing I think in the world that we live in now it changes faster than it ever has before.

There is a couple of deals that we've seen over the past year. There is a scarcity in the silver market and ultimately we're trying to maintain to be a primary silver producers to maintain our revenue mix above that 51% threshold, which not a lot of our peers have done and so we're interested in primary silver assets and trying to find them.

Difficult and trying to find one profitable or difficult trying to find one.

Our cost effective what we pay for it is also difficult, but nonetheless, we always looking if there's something that makes sense, we'll trigger on it.

Okay, and then I think you've already kind of touched on this earlier on the Perot.

Projects that are you know you already have the indicated.

Indicated and inferred resources, there 435 million Youre looking to kind of get to 60% to 65 are you know as it stands today without any more additional drilling what do you. What do you think you could end up with I mean do you feel like at this point, you're pretty close to target.

And so you know that the updated report that you'll be.

Putting out that there's pretty high confidence that you'll be.

Meeting that threshold.

Yeah.

The 60 to 65, and then doing a P E and Thats our plan and we budgeted.

At the end of the year now of course.

We have to continue and you're asking yeah.

Positive.

But we expect and I think if you look at our 2021 drill results that are more favorable than what we released in 2016 to 2018 on parole and like I say I expect that to continue and it does continue we should hit that mark.

Okay, great well, that's very helpful. Thank you very much.

Thanks, Mark very good questions much appreciate it.

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

Next question comes from John Tumazos, with John Tumazos, very independent research.

Please go ahead.

Thank you very much.

Just noticing that your tonnes processed tricky year mined and milled rose 17%.

And the cost per ton also rose 17%.

So usually the gain in volume.

Helps to reduce the rate of increase in unit cost.

Or is there something special going on with the mine that was idled or.

Downtime or special maintenance.

No John .

Other cases, correct are processed tonnes were slightly up and but ultimately our cost per ton in operating cost per ton were up.

Well I mean, it's like I say earlier in the call. It's a function of inflation and we saw it hit a little bit of everywhere, most notably in power costs from August to December our costs on a monthly basis went up about 30% we.

We saw labor costs increase last year and pressure on our professional labor geologists and engineers and ultimately selling the prevalent right now through the industry that we are seeing cost pressures and we're trying our best to maintain.

As long as the cost per ton as best we can I think we are.

A very positive results and the fact, the grades out iguana severe significantly higher we also saw royalty costs increase last year because of the increased profitability.

And ultimately we pay to 16% royalty at all curves so mine, which we leased from Chris go a couple of years ago. So.

I think I say of course, we'd like to keep our costs down as best we can we're trying to manage it where we can but we are seeing inflation.

And global supply constraints impact.

I can ask another.

I was very excited for when you bought the Bruner project for 10 million cash.

The predecessor company permitted project.

And represented that it was partly build I don't know if they spent 25 million or.

There are 50 million on it.

And initially your disclosures were very synced.

I just assumed.

That you werent talking much about it because you've got such a good deal.

Could you elaborate now that.

You've had possession of it for six months.

Yes, yes.

<unk> 40000 ounces and a couple of years.

We we like the burner project, we were opportunistic we loved the price that we got it for it I mean for those that aren't familiar it's got a historic resource of 300000 ounces of gold 13 million ounces silver. It did have a historic P. E. On it that had an NAV value of about $80 million kind of contemplate in the 35000 to 40000.

Sure.

35 to 40000 gold ounce operation.

<unk>.

There is nothing thats, partly built on it is a greenfields exploration projects.

So there is no infrastructure substance, so I'm not sure exactly what the predecessors had said in the us but I can assure you. It is a greenfield exploration project. We are advancing this year, we'll turn that current reasons or the historical resource current resource there are a lot of targets at burner that we're.

The vote and we are excited about it like I say very opportunistic deal for us a predecessor regarding to some debt trouble.

And we're lucky enough to be able to acquire $10 million.

There's a lot of work left to be done there, we'd like to acquire some more.

Land and exploration potential around it.

But nonetheless, we will have more results from that at the end of this year.

So with this ranked fourth in your queue after pit area per all terrorism era.

What else could be ahead of it or sort of where does it rank in your pecking order of projects.

At this point.

It probably ranks behind per al and pit three exits because more of those have been advance too.

But ultimately the works gotta be done so the draw, but tell us where it ranks at the end of 2022.

Thank you very much and congratulations.

Thanks, John much appreciate the questions I hope everything is going well.

This concludes the question and answer session.

I would like to turn the conference back over to Dan Dickson for any closing remarks.

Well, thanks, operator, and thanks to everyone listening to our 2021.

Earnings call I think 2020, and he is going to be a good year, obviously, we keep prices elevate it hope things in Europe .

A little bit more stable because ultimately we want to hopefully there'll be a resolution there in the coming months, we will continue to do what we're doing again trying to advance our development project with Turner and hopefully come to a construction decision on this shortly and then ultimately continue to advance <unk> and pizzeria, where we think we.

We have one of the leading growth profiles in the sector. So thanks for everyone attending and I'm sure. We'll talk again soon in the next coming months.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating and have a pleasant day.

Okay.

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