Q4 2022 Endeavour Silver Corp Earnings Call

Thank you for standing by.

This is the conference operator, welcome to Endeavour Silver Corp, full year 2022 financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll 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 zero.

I would now like to turn the conference over to Galina Malaga, Vice President of Investor Relations.

Please go ahead.

Please go ahead.

Thank you operator, and good day everyone.

Before we get started.

Thank you our MD&A that the cautionary language regarding forward looking statements and the risk factors pertaining to these data.

Our MD&A and financial statements are available on our website at Edr silver Dot com.

With us on today's call is Dan Dickson endeavor silvers CEO .

Christine Russell, our Chief Financial Officer, and Don Great Endeavor C O.

Following Dan's formal remarks, we will open up the call for questions.

Now over to Dan.

Thank you.

Welcome everyone.

I will keep today's call as brief as possible because all those details for published in todays news release and make sure I hit some of the key points for our investors.

Endeavor silver had a solid 2022, and what can be categorized as a challenging cost environment.

Production exceeded guidance, which helped alleviate any upward pressure on cost.

Inflationary pressures across the entire spectrum of the inputs referrals across the entire mining sector and there was no different for US we continued to Derisk and advance Turner ideally a financial package would be complete how are things outside our control has pushed that into this year I'm confident we will.

Have a clarity on this matter in short order.

On a consolidated basis, we produced 9 million ounces of silver equivalent metal with both silver and gold production exceeded the upper range of guidance.

17% and 4% respectively.

Second consecutive year, we have significantly exceeded production guidance.

Lance V was a star performer yet again.

Accounting for over 70% of consolidated production with silver and gold grades well above plan.

In fact, once we had record throughput grades averaging 512 grams per tonne silver and 1.44 grams per ton globe well the plant approached 1300 tons per day average throughput in Q4.

Overall, the mill performed well with recoveries, averaging just under 86% for silver and just below 90% for gold demonstrate consistency and stability at the slightly higher throughput.

The performance of our operating mine Bala Nieto's remained steady there was increased silver production offset by lower gold production.

We continue to evaluate opportunities to increase mine life at ball.

And our Congress and a ball needles in the current landscape.

The operating team has done a good job meeting their targets.

Our strong operating performance enables robust financial results.

Particularly in Q4 as gold and silver prices strengthen we were able to take advantage of the higher prices by selling most of the silver inventory as a result revenue rose by 27%, marking a 10 year best bolstered mostly by volume.

Higher revenue translated into increased cash flow with mine operating earnings of $51 5 million up 42% from 2021.

Free cash flow before working capital changes of 54 million again up 68% compared to 2021.

And specifically at the site level want us to be deliberate in mind free cash flow before taxes of $30 million.

And below the knee <unk> contributed just over $1 million our earnings for the year was $6 $2 million or <unk> <unk> per share.

I'm, particularly pleased that we're able to deliver operating cost on a per ounce basis that are relatively in line with guidance. Despite the industry wide inflationary pressures. We ended the year with cash costs of $10 65 per ounce, which is about 7% over our guidance and all in sustaining.

Cost of $19 97 per ounce, which is below the lower end guidance of $20 per ounce.

However industry wide inflation has been and continues to be challenging our direct cost per ton were up 16% compared to the previous year as we saw cost increases and a lot of our key inputs.

Fortunately the increase going to be grades offset the increases in direct costs cost control will continue to be a key focus for the company going forward.

Our financial performance led to a strong balance sheet at the year end, we had cash on hand of $84 million with no long term debt aside from normal course leases FERC equipment.

Working capital totaled about $94 million, which includes unsold bullion held at cost of $6 million, but has a market value of $15 million.

This past year, we were very busy and productive at Terra and are preparing the site for full scale construction.

We spent $41 million on initial development using our own existing cash while we continue to confirm a viable debt package during.

During the year the project team deliver several achievements before the full mobile mining fleet is now on site comprised of 30 units all the major planned ticket equipment has been preordered with the majority of the equipment scheduled to arrive in the first half of 2020 three.

Upgrades the road access totaling seven kilometers are well advanced this work will improve slopes David stability stabilization in drainage as well as enhanced transportation access we commenced construction of the permanent camp. We commenced the back excavation of the plant site and we convinced first portal access.

We are optimistic and excited to provide the market with full details of the financing package in the near future and to announce a formal construction decision. The board has approved an additional $26 million and development expenditures for Q1 2023, while we continued continue to advance the project.

At the outset of 2022, we began executing our three year sustainability strategy, which is anchored on three pillars people planet and business, we launched or expanded many initiatives to further embed sustainable practices across our organization and create real value for our stakeholders.

We took several steps to increase employee development engagement and inclusion with positive results across the company.

In addition, we amplified our community investments in Mexico aligned with our priorities priority priority areas of education and employability.

Over the past year, we devoted significant a significant amount of time and effort across our organization to better understand the potential risk and opportunities related to climate change.

These are discussed in our first climate disclosure report that will be published next week aligning with the T. C. F T framework.

While it's still early days on integrating climate initiatives, we're trying to be thoughtful and diligent in determining the most effective steps for us as we deepen our understanding of the impact of climate change initiatives on our company.

Most importantly, our view climate change is not solely fixed arm risk. There are also great opportunities in front of us.

The world is beginning to realize the importance of metals to support the transition to a low carbon economy. The.

The products, we provide set out at the very beginning of the supply chain for essentially everything needed and used in modern society I encourage you to read our climate report when it's published next week.

For 2023, our production outlook continues to be strong with another year of robust grades from Dwana City.

We are targeting to produce between 8.6, and $9 5 million ounces of silver equivalents, a midpoint, which marks our fourth consecutive year of production growth.

The combination of higher consolidated throughput and produced ounces allows for a projected unit costs of 10 to $11 per ounce for cash costs and 19% to $20 per ounce for all in sustaining costs similar to 2022.

Wanted to be emboldened idose, we have plans to invest more than $35 million in sustaining capital to optimize performance and maximize output.

Of course as everyone knows this company has been built through the drove it and we are aiming into invest $10 million into exploration for 2023 with the largest portion of $3 million being allocated the pits area well Sorel has a one 5 million dollar budget.

I want to emphasize how excited we are about the notion of unlocking value through exploration.

And advanced both pits Ria and parole both are expected to advance through economic studies early next year, the scale and impact of pit area will be very significant for us.

In December we confirmed an indicated resource of nearly 600 million ounces silver plus material amounts of lead and zinc. This year, we plan to extend the historical ramp to better understand the feeder structures will be identified in the deposit with continued exploration success, we ultimately hope to identify a business case tomorrow.

Underground operation at pit area.

In closing it is going to be another busy year I'm very excited about our outlook as we continue to exercise on our growth pipeline, particularly at a time when silver demand is beginning to strengthen.

I think that wraps up my formal comments for today, let's open up the lines for questions operator.

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.

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

The first question comes from Heiko Ely from.

H C. Wainwright. Please go ahead.

Hi, everyone. This is Marcus Giannini, calling in for got it got it thanks for taking our questions.

Okay. So nice to hear from you talked about.

Yeah Yeah.

So you talk about cost control being a key focus for.

This year and in particular, it's nice improvements given that we're now in March can you provide a bit of color as to where exactly you expect a fishing season, how much of that has already been incorporated year to date.

Maybe if you could just touch on any cost improvement you've already seen a that would be great. Thanks.

Yeah, I mean, there's.

It's a difficult question because it would be saw costs increase across the board last year, I mean, cyanide and power costs were significant contributors in steel.

I want us to be eyeballing. He knows it was tea season <unk> power costs.

For us it really comes down to making sure that on a daily basis, a weekly basis on a monthly basis. We're reviewing our cost reports reviewing the inputs that are going in.

Particularly that corn has to be how we have significant pumping that happens at quantity quantity that uses.

And cost effectively a lot of power and money, we have seen a little bit of a decrease from a.

Kilowatt hour costs at Qantas, the Angolan he does.

When it comes to actual improvements we think we do a really good job at following he knows it's gonna see where we can be better at waste management.

Managing our waste managing the times being more efficient on a productivity basis moving tons I don't know if we've seen that come through yet.

Here March one of 2023 is something that will take time through the year.

And there's not big cuts that can be had the inputs that we need are the inputs that we need the inflationary pressures on that.

<unk> had been there we have seen that slow down in Q4, and hopefully that continues through 2023, but.

But it's our job as management to continue to look at it and continue to cut costs, where we can.

Okay awesome, yeah. Thanks for the color, obviously, a lot of moving parts there.

And then switching over to Tara you are sitting on over $80 million in cash with just under $94 million of working capital.

How far down would you be willing to take your balance sheet. It means minimizing.

Capital raise and in building out a teardown.

Yeah, I mean, I think the key part to that is is the fact that we are looking for a debt financing package and that that package would be anywhere between 100 $220 million.

The initial feasibility study for turn there is a 175 million we recognized in and when we do have that debt package, we'll likely update in the market of where that capital costs are.

But to answer your question ultimately, what we want to see and be kind of have on hand, just for the two operating assets somewhere between 30 and $40 million as a cushion.

I think we can get there if we get that that put in place.

Okay excellent.

Yeah, and just one last quick one.

So you guys you incurred <unk> 3 million in smelting and refining costs any thoughts on where you see these costs.

Spending in 2023, I'm, assuming the prices are set in pads under contract.

Yeah, we renew our concentrate contact con concentrate contracts or off take agreements on an annualized basis.

I think the key component there is a relatively similar a little bit lower for ball and he knows the key component all of that when it comes down to is the energy costs at refineries.

As those kind of oscillate.

Does impact us I think for the year, we have like I say, it's about similar to a little bit lower at boat shows.

Of course.

A dore bars the ship.

Gotcha, Okay awesome. Thanks for taking my questions I'll hop back in queue.

Thanks Margaret.

The next question comes from Jake to Koski from Alliance Global partners.

Go ahead.

Hey, Dan and team thanks for taking my questions.

Oh Brown, Jake nice to hear from you.

You as well so Dan you touched on moving Peter yet and Paul toward the economic study stage.

You guys have any visibility on the timeline there for those.

Yeah, I mean part of that visibility also depends on our exploration programs at pits area. We have a plan to do 5000 meters and really that those that drill meters will happen when the ramp extensions complete which we expect it to be done mid year. So the start of Q3 and then we'll drill ultimately from Q3 are the stub.

These would happen in 2024.

Just because of the scale and scope with Korea for parole, we'd actually had a plan to put in place to start economic studies in 2022, I'm, just but with the acquisition of <unk> three of that pushed it back a bit.

This year, we're drilling close to 3000 meters that problem and that Sterling is done our expectation as we move towards economic studies at Pearl So start that those studies at the end of the year, possibly with publishing early 2024.

Okay. That's helpful.

And then just on inventory management for this year I mean, obviously you guys did a good job of taking advantage of higher silver prices in the fourth quarter of last year.

Silver prices will come down this quarter do you guys expect to take a similar approach.

Just two.

Inventory management.

Yeah. It's similar approach is probably the right way to say it I think as we get into the build of Terra narrowed we get less flexibility just depending on where our balance sheet is we made some sales in the beginning of the year here when we hit into the 24 run solar but as you say, we've come down into the Twenty's and <unk>.

20 handle.

We'll see how it goes here in March.

Obviously, our balance sheet is in great shape. So we do have that flexibility kind of for the first six months.

And like I say as we move through the year, we'll see how we do it.

Got it okay. That's all for me thanks for that.

Thanks, Jake good questions.

The next question comes from.

Craig Hutchinson from TD Cowen. Please go ahead.

Hi, good morning, guys.

Good morning, Greg.

One just a question on China. So once the financing package in place just based on the work you guys have done to date and a commitment to spend here in Q1.

What's the timing to first production how long of a construction period take.

Yeah ultimately in the feasibility study of the production period or a construction periods to two year process, our goal with being able to advance it its still to be commissioning at the end of 2024. So a full years production effectively in 2025, but hopefully if things go well knock on wood.

We could have first poor obviously in back half of 2024, maybe commercial production at the end of 2024.

Okay, Great and is there any color in terms of the timing of the amended permits.

I can't happening there.

No.

Our permit scene and is one of the our listeners and investors know some turner is fully permitted.

And with the feasibility study and we have the permits to start construction, which obviously, we've advanced a lot of the things they're already amended permits for operational flexibility. So we don't particularly need the permits to construct but over the 12 year mine life, we want various flexibility.

One being a <unk>.

Staging area that we want to push out 300 meters. We've submitted a lot of the stuff, we actually still have some things that we need to submit.

We've actually had very good communication with the permitting departments the different authorities.

Number that we have to go through sermon at Conagra.

And all been advancing and over the last I'd say three months, we've gotten approval for smaller permits.

So all of that keeps going in.

I'd reiterate that we have all the permits to start construction ultimately go into operations, it's just amending permits for operational flexibility.

Are those amendment permits is that a consideration in terms of the due diligence that's being done by the financing groups, yes, yes. They are okay.

And just.

I wanted to be with respect to the royalties are obviously quite high in Q4 can we expect kind of similar levels.

Dollar amount royalties for the balance of this year, just given where you are kind of back into those same areas and working here.

Yeah.

I'll be careful with that a little bit. The Q4 has an elevator royalties just arm, what we sold in the quarter.

So on an absolute basis, we had sold.

Over 1 million ounces of silver and Theres royalties that would be recognized on sale as per the contract.

So today, where we sit at $20 silver between $2025 silver we pay at 13% royalty.

And that aligning with when it's produced doesn't necessarily lineup when it's sold.

Q4 has an elevator royalty, but on an annualized basis, we're producing similar amount from that area, which we call out Caruso.

Which is.

Subject to that sliding scale royalty with Frisco.

Okay.

And maybe just one last question.

If I could Paul any dose. So how confident are you at with respect to kind of reserve extensions to be able to.

The mine at a similar rate next year.

Any tips.

After 2024.

Yeah, just kind of a center.

Do you think the reserve life can be extended here.

Yeah, we have resources that we can convert into reserves I mean, clearly right now with falling he told US is effectively operating at breakeven and Theres a number of reasons to operate a minus breakeven.

Firstly, and obviously the optionality to Bolognese hosts an end to that production. The second is proportional allocation of our costs.

Thirdly, we have talent there that ultimately if one day volunteers doesn't operate we want to make sure we can keep that talent and move them to turn era.

That would come in but.

We do expect and have confidence that we can extend <unk> life, we are getting to the point, where we're getting to concession boundaries, who are not discovering three years or two years, we're finding three months or six months at a time our exploration team continues to have some success. We've just got more work to do on that exploration.

So level of confidence.

I'm confident and I wouldn't say I'm jumping up in joy and I'm not I'm not compressed so somewhere in the middle of all that.

We've never had more than a two year reserve life at following those for the last 16 years and I can say our exploration team has done a very good job. There. There's a lot of concessions that surround us that have a lot of opportunities still and we just have to work through that.

Okay, great. Thanks, guys.

Thanks, Craig good questions.

The next question comes from comes from Mark Reichman from Noble capital markets. Please go ahead.

Yeah, just a couple of questions you've already laid out your guidance for for 2023.

And you know from a production standpoint, it looks relatively flattish compared to 2022. So it seems to me that grade and prices will make the big difference.

So when you think about next year in terms of whether it's going to end up lower or higher in 2022.

What do you see as kind of the key variables in terms of getting that costs down you know you've already laid out your guidance on the cash costs and all in sustaining costs, but.

If you do this financing package I mean interest rates have come up. So you will you would have you know the additional interest expense, but what would what would be the variables that you think that could drive a better year in 2023.

Yeah of course, we put out the range of $8 six to nine five and I think for us.

And the ability to exceed that plan or hit the high end of that range really comes down to our operating team iguana city in and ultimately our operating team at following he does for that matter.

The El curse of Yolanda area want us to be.

I don't know if we're gonna be crazy like we did in 2022.

But I think there is opportunity.

Stay a little bit above those grades are at those grades.

I think we're set up really well we did a lot of development in 2022, though will give us some efficiencies this year.

But at the end of the day. The reason we put out our 2023 guidance is because we expect that's where we're going to be Oh, I would point to 2021, and 2022 revised guidance upwards two years in a row and we actually exceeded those revised upward guidance.

But we'll see how this year unfolds.

Well I think a lot of people are looking at tariff era.

So you talked about production to a construction decision in the coming months when you're looking at when you were talking about the financing package.

What's the what's the biggest holdup there the biggest hurdle to clear is that are you know getting an acceptable rate is it is that those permitting issues.

What do you think would be the breakthrough and securing that financing package in and how early in the year do you think you would skew would incur more debt.

Yeah, I mean at the end of the day its project financing and the key aspects of the project loan financing is ESG and ultimately getting commercial banks, some big banks onside from an ESG standpoint, and what's required for that isn't Equators principal and Aesop report.

That includes over a 100 and change of different specific reports and we've spent over the last year documents in a lot of that and building processes and procedures to meet those equator principles.

So it's not about terms, we know what those terms would be it's about timeline and getting through that due diligence in a project financing bank will typically higher than external engineering firms to do that due diligence and write reports and effectively pull apart our feasibility study or our plans that's all happen.

And that's been completed.

Like I say I won't get into what happened necessarily in this past year at this point, but there is things that were out of our hands.

But it's been moving forward our team has done actually a really good job on it I expect like I said in my outset clarity in relatively short order on that.

Okay. Thank you very much that's really helpful.

No. Thanks, Mark good to hear from you.

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

The next question comes from Lucas pipes from B Riley Securities. Please go ahead.

Thank you very much operator, and good morning, Dan Good morning, everyone.

Good morning Lucas.

And I also wanted to follow up on Terra naira and.

<unk> believes the 2021 feasibility study pointed to $175 million of Capex obviously.

Unfortunately changed quite a bit from 2021.

I think you mentioned there could be some offsets to inflation, but just order of magnitude as the 200.

To handle the right ballpark to think about or do you think you can keep it below that thank you very much for any color.

Yeah, Lucas I mean, that's a very fair question and the two handle quick answers to handle is the right ballpark, but I'll get maybe a little bit more detail on to that.

Ultimately, we completed that report in March of 'twenty, 'twenty, one and I think it's dated July of 2021, we published it ultimately filed in September of 2021, I think our engineering team and our development team with our external engineers did a good job capturing some of that inflationary stuff that we start to see in 2021.

But of course nobody's perfect without them.

Say that because our mobile fleet is entirely on site with 30 units.

If you compare what we paid compared to what was in that feasibility study. We are right on point. The 12 key components that we've purchased for the plant are relatively in line to what we saw in our piece of elite study.

There are changes, though and there are things that we haven't locked in and ultimately what we've been looking at over the last year year and a half as we pushed through this financing package in advance turn era is optimizing from that feasibility study so going from seven to 800 tons per day to 2000 ton per day has been locked out and that's been locked out overtime.

And that can offset some of the inflationary costs that we've seen a coming from a capital standpoint and come in from an operating on a per ton basis standpoint, as well and so we have been leaning towards a larger plant in.

And ultimately more output from the mine to offset some of the inflationary costs. When we have the detailed financing package in place we're going to.

We will provide the market with where we expect the capital to be a what type of size that Turner will be it's not significantly different but as you say.

Higher throughput will help offset some other inflationary pressures that we've seen.

Very helpful. Dan I appreciate that then.

One of the earlier questions.

Touched on 2024.

All in sustaining costs and I wanted to follow up on that maybe be slight.

Slightly more pointed.

And I know, it's early but directionally should we expect all in sustaining cost to come down in 2020 for our waste at current level.

Debt at the best ballpark for the coming years. Thank you very much.

Yes, I mean at the end of the day Lucas we put out 23 guidance because we have clarity on that for 2024, all in sustaining costs, it's highly dependent on where we sit with Turner and Qantas to be involved in any of those that are mature assets, we kind of know where their costs are and they were very similar for about 12 years until the last couple of years they've really.

Picked up and.

And like I say I don't think that's specific to endeavor silver I think that's what we've seen across the whole mining space.

We try not to put guidance out for 2024, I always just that would save you point to go on in <unk> would be similar we know what we have we know where we're at but there are things that go into that on an all in sustaining cost per ounce grades at <unk> will be important of course, our resource grades are very similar to what we have in reserves so that might continue.

But if taryn, Eric can come online and into 2024 and the timing of that comes online in 2024 will be highly dependent on our consolidated all in sustaining cost I think when we come to next year, we would probably give guidance on our existing operations and then guide Terra narrow separately, depending on when we see the end of construction.

At the end of construction.

That's probably the best way I can answer you at this point for next year lets see how we perform this year.

Hopefully, we can be in line or even beat it and if we can that well.

Bode well for 2024.

That is very helpful and very clear Dan I really appreciate the color and to you and the team best of luck.

Thanks Lucas.

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

Thanks, operator, and thanks to all our investors and listeners today.

Again as I said in my formal comments I think 2023 is going to be a very busy year for endeavor.

Of course, pushing forward to three year in per al is important for our pipe pipeline, but if we can get to a formal construction decision on turn are in relatively short order I think that would be the next catalyst for everyone. Thanks, a lot and have a good day.

This.

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

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