Q1 2022 Endeavour Silver Corp Earnings Call

Thank you for standing by this is the conference operator, welcome to the Endeavour Silver first quarter 2022 financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded I would now like to turn the conference over to Tricia Moran interim head of Investor.

<unk>. Please go ahead.

Thank you and good day, everyone before we get started I would ask that you view, our MD&A for 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 at Edr Silbert dotcom.

We're supposed to on today's call, we have Dan Dickson Endeavour's, CEO , Kristine West, our CFO and Don Gray, our Chief operating officer.

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

Trish and welcome everyone.

'twenty two is off to a strong start normally wasn't a good quarter for our operating mines, we have been very active on building out a long term future of the company.

Well, let's talk about operations consolidated Q1 production was up 4% year over year to 2 million silver equivalent ounces.

This was more than enough to offset the impact of suspending our el compas operations last quarter.

Qantas to be had a great quarter, driven by higher silver and gold grades and based on where we're mining this high grade ore.

<unk> continue in the near term in addition, repurchasing or from local miners, which is further enhancing our great. This is also expected to continue into the third into the second quarter.

And Bonnie Rose gold grade and gold ounces produced were down in Q1, while our silver ounces and silver and silver grades were each up significantly higher paulino as production is expected to remain steady and continue to provide mine free cash flow throughout 2022.

Ultimately in the first quarter puts us in great shape to achieve this year's production guidance between 677 6 million silver equivalent ounces.

As noted.

Holiday production increased by 4% in the first quarter, However, revenue rose close to 67%.

A lot of you listening today on today's call are aware that we have opportunistically withheld metal in 2021, the bowling held at year end had a market value of about $31 million.

<unk>. This quarter's revenue is attributable to the sale about half of that unsold bullion that we held at year end.

This volume was sold throughout the first quarter at significantly higher prices than what we saw in December which contributes to cash flow from operating activities of more than $22 million.

As at March 31, we had $151 million.

And no long term debt aside from normal course equipment leases and working capital of 160 million $168 million.

For the quarter, our all in sustaining cost per ounce metrics were 5% higher than the previous year shifts inside our guidance range of 20 to $21 per ounce containing costs continues to be a major focus in this inflationary supply constrained environment.

This is an industry wide issue that is expected to prevail throughout the course of the year. We are closely reviewing our purchasing practices to see where and how we can mitigate the impact.

Okay.

A moment ago I mentioned that we have been actively building out our long term future of the company. We are tracking two major milestones here in the second quarter.

Securing financing for chairing mirror and closing.

Acquisition.

First let me update you where things stand with respect to turn era, which is our biggest priority. Once completed here now as expected double our production and cut our cost profile and perhaps.

We're advancing sustainability documentation to meet commercial banking requirements required for project finance.

We believe this documentation will be beneficial with regards to the long term sustainability of the project and comes up consultation with the communities and various levels of government.

Aside from the delays to site visits and other due diligence caused by Covid activity on this documentation has been underway for several months.

To wrap up by the end of May.

Well, let's just put us slightly behind our original schedule. The project continues to move forward in terms of our schedule. We are still expecting to complete commissioning in the first half of 2024, if we can secure the debt portion of the project financing by the end of this quarter.

Last year, the board approved $21 million to advance the <unk> project, while we're working through this financing.

We spent $12 million prior to year end and an additional $6 million in Q1, we.

We are well down the road on site clearing detailed engineering early earthworks and camp infrastructure.

We have another $9 $5 million earmarked to spend a turn here in the second quarter complete earthworks.

As one of detailed engineering and the commencement of the permanent camp construction.

<unk> is a game changer, and it's very important part of our future.

During the first quarter, we also announced the addition of an exciting advanced stage exploration project.

Situated in Durango State Mexico, It's one of the world's largest undeveloped silver deposits and we believe has the potential to be a tier one asset.

We announced this acquisition in mid January and expect it to close before the end of June at which time work will immediately commence to define the historical reserves in the current resorts assess a number of targets and advance the project to an updated economic study.

To close the transaction, we're waiting approval for the Mexican Federal Economic competition Commission that is expected imminently the $70 million acquisition of victory is fully financed.

50% of the purchase price will be endeavor shares and 50% will be paid in cash to fund. The cash portion you completed a bought deal for $46 million in March.

This equity raise together with a strong operating cash flow. This quarter is really strengthened our balance sheet.

One last very important item I want to highlight before I move to Q&A at the outset of the year Youll recall, we introduced a new sustainability strategy focusing on three pillars, our people our planet and our business I.

I am pleased to say that tomorrow, we will be releasing our 2021 sustainability report.

Reflecting our commitment to transparency and reflects our new strategy and Brian we recognize that our long term success goes beyond achieving financial metrics. This year's report speaks to our ongoing actions and commitment to help shape, a more inclusive and sustainable future for our business and our stakeholders to prosper.

Highly recommend you take time to view, our new report after it's published online tomorrow.

That wraps up my formal comments for today.

Myself Dawn and Christine are happy and answer any questions that you may have so over to you operator for Q&A.

Thank you we will 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 your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then.

To join the question queue. Please press Star then one now.

Our first question comes from Heiko ULE of.

Of HC Wainwright <unk> co. Please go ahead.

Peter Thank you guys for taking my questions I assume you can hear me okay.

Yeah, you sound great Heiko.

Wonderful Hey earlier on this call you spoke about adjusting some of your purchasing.

That's quite interesting as a as a frustrated consumer who has been trying to you know more or less to the same thing when I hire contractors and whatnot.

He had a much smaller scale.

But frankly, I really have no or very little success, because people just won't show up for jobs or in August could you stupid prices.

So maybe if you'd be so can you just give us. Some example, swear like negotiating with work versus actually working in maybe some areas where things are not working and where you really haven't been able to mitigate.

The impact of the inflationary pressures please.

Yeah sure I mean, I think some of the obvious areas, where we can't mitigate inflation pressures and that sunpower costs and we get most of our power from CFC.

Mexican Federal Commission of electricity.

<unk> seen a significant increase in that and for us power costs or third largest costs. The other our largest cost and obviously, where it's most difficult to get concessions is labor.

At the end of the day with our Union contracts with <unk> and Garner sphere, obviously, you don't never see wages come down where we can push is on contractors, obviously theyre seeing inflationary costs, but where we do have a little bit of power. It comes down to combining purchasing between bohlen Ido isn't gonna city and obviously we have.

Seeing cost increases in cyanide in steel.

And those are going to be prevalent or primary inputs, but if we can get some purchasing power. If we can combine that stock, but we haven't been overly successful to this date with much and it's obviously something that we're looking at and we're going to build Taryn Erin.

I think we're very lucky in the generic front that we source a lot of our equipment a lot of our set we've gone through sandvik and a lot of the equipment. We purchased with regards to operating is actually already on site.

We have a ball mill already on sites, we have been in front of it in that sense at Turner.

From an operation standpoint, again, it's looking at purchasing more volumes that we can share between <unk> <unk> and then hopefully ultimately turn era when it comes online.

Very good very helpful. Thank you. Thank you very much and I'll get back in queue.

Yeah.

Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.

Hey, Dan and team thanks for taking the questions.

Yeah.

Hey, Thank you.

Yes, so <unk>.

G&A expenses kind of fluctuate a bit from quarter to quarter.

Last year or so.

And I know some of that has to do with the way you guys account for G&A expenses.

And stock expense, but on a cash basis.

We like forecast quarterly going forward whats the whats a safe cash basis G&A number.

Yeah, Youre right. There is a fluctuation and thats from Newark to market on deferred share units that are paid to our board.

As you know our stock price can be very volatile because of the underlying metal and that causes a lot of mark to market fluctuations, but ultimately our G&A on a cash portion budgeted somewhere between $6 million to $8 million ultimately $7 million and it's pretty straight line. I think Q1 generally has higher costs because of the administration stuff with regards.

The audits.

But in general for the year, you kind of use $115 million to $2 million per quarter. It kind of gets you there.

Okay.

That's helpful and then.

Hum.

Yeah.

You mentioned the Pitter re acquisition, you're hoping to get it closed by June .

It seems like that's a little longer than maybe originally it was expected.

Is it COVID-19 related delays in Mexico for getting approvals and how comfortable are you with that June target at this point.

I think I'm very comfortable with the gene target. The biggest thing is <unk>, which is the commission against antitrust and we've been going back and forth with them and submitting information on ultimately endeavour silver's market share globally and in Mexico with regards to silver and so we've submitted all our documentation they came back with a number of questions actually a number of <unk>.

So, it's our belief which completely answered all their questions. So it's now just getting through that process, which we actually quite.

Quite imminent.

We could have that before maze out I think we're being conservative with the June timeline, but if we do get out in the coming weeks, we shouldn't we should be able to close relatively quickly after that but at this point were just waiting for a regulatory approval.

Okay fair enough. Thanks, I'll turn it over.

Thanks, Joseph for your questions.

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

Our next question comes from Lucas types of B Riley Securities. Please go ahead.

Thank you very much and good afternoon, everyone.

I've got afternoon Luke.

I also wanted to.

Ask about inflationary pressures and I wondered if you could maybe.

I'm not distinguishing between.

The inflation rates youre seeing in local currency versus.

The U S dollar rate and what percentage of your costs are approximately in local currency. Thank you. Thank you very much.

Yes, very fair question, so again labor being our largest cost which is about 33% of our kind of operating costs direct operating costs. Those are obviously incurred in Mexican pesos and then over the last 66% about half comes out of Mexico happens, they're tied to the U S. Dollar so ultimately.

We're about 60% to 65% tied to the Mexican peso now last year in 2021, the Mexican pesos inflation rate was just shy of 6%.

This year, it's tracking a little bit higher than that similar to what we're seeing in Canada and the United States.

But ultimately it's lining up toward the U S. So it's not like the Mexican peso is running at a higher inflation rate impacting and the Mexican peso given us, let's start with our with our peso.

I would imagine that will continue with.

With oil prices being higher Mexican peso generally does a little bit better because they are tied quite quite a bit and I do expect their tourism industry to pick up with with people traveling again.

Covid almost behind us.

That's that's very helpful. Thank you for that and then.

Just turning to the balance sheet.

For a moment, you've been shoring up financing and congratulations on that.

It feels like things are a bit choppy.

It feels like things are a bit choppy here.

Kind of across the broader capital markets and I wondered if you could.

Sure sure your perspective on how you look at the balance sheet today, if if there might be desire for more dry powder or if you.

I'd say its pretty bulletproof from here. So I appreciate the perspective on that as I touched on our working capital of about $168 million as of March 31, our cash balance was north of 150.

Of course $35 million of that cash will be paid out to SSR. When we closed <unk>. So we're still in a very strong cash position.

Obviously, the big thing, that's coming down the pipe for us as a formal construction decision on <unk> and right now in our feasibility study of the turn there.

Initial capex is $175 million, it's going to be paid over two years.

So.

We do have and been working on for the last six months the debt portion. So we feel like we have the equity portion with the cash that we have on hand, and the cash flow coming from the operations, but ultimately you want to carry a floating the company and put in about $80 million to $90 million of debt on the books at a.

Next loan financing ability.

We're still going to go down that path.

We've done a lot of work with regards to our sustainability around the Turner.

For our project loan financing, we think it's the best use of capital we think it's the best.

For our shareholders carrying $80 million of debt on our balance sheet I think it's very prudent for our shareholders and ultimately thats where wingo.

As far as putting more powder on on.

On the balance sheet is not at this time of course, our corporate development group is always looking at potential further growth assets that would be accretive.

If it means we have to go out and raise more capital. It means we go out and raise more capital that's not something that we're looking at this time I think with the acquisition of <unk> with the construction coming of <unk> were quite busy with what's going on I don't want to absolutely kill our staff. So hopefully we can kind of swallow those and get moving on that and then look to see what we can do it in <unk>.

23 of 2024.

No that's very helpful and Jeff you've been you've been you've been busy so it so congrats on all of us.

Thank you.

Okay.

This concludes the question and answer session I would like to turn the conference back over to Dan Dickson for any closing remarks.

Thank you operator, and thank you again for everyone for joining US today. Just a reminder, that tomorrow is our annual general meeting of shareholders is being held at the Metropolitan Hotel in Vancouver at 10, a M. We hope to see you there and have a good day.

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

Okay.

[music].

Hum.

Uh-huh.

[music].

Okay.

Hum.

[music].

Okay.

[music].

Okay.