Endeavour Silver Corp. Q1 2023 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Endeavour Silver Corp, first quarter 2023 financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need it.
Students during the conference call you May signal, an operator by pressing star zero.
I'd now like to turn the conference over to Galina Melichar, Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone before we get started I 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 silver Dot com.
Well that's on today's call is Dan Dickson endeavor silvers CEO .
Christine what our Chief Financial Officer.
And Don Great endeavor.
Yes.
Following that well my formal remarks, we will open the call for questions now.
Now over to that.
Thank you Galina and welcome everyone.
2023 is off to a strong start.
It wasn't a good quarter for our operating mines, but we also obtained a significant milestones towards building the long term future of the company.
Consolidated Q1, silver equivalent production was up 18% year over year to $2 4 million silver equivalent ounces.
Ultimately this performance puts us in great shape to achieve this year's production guidance of between $8 six to $9 5 million silver equivalent ounces.
Once again from a production standpoint honestly, you had a positive quarter driven by robust silver and gold grades.
Mill performance was impacted due to the extended maintenance of our on our mill liners and concentrate filter coop changes in February .
Throughput returned to planned levels in March it was down 13% quarter over quarter, averaging 1100 38 tonnes per day for the quarter.
The performance of our other operating Mindboggling remained steady there is increased silver production offset by lower gold production.
We continue to evaluate opportunities to increase mine life at ball and he goes and are cognizant of bulk fallen heroes in the current landscape.
They're all operating team has done a good job meeting their targets.
Moving to financials, we reported topline revenue $56 million with cost of sales of $40 million per mine operating earnings of $16 million.
After exploration and G&A, we reported net earnings of $6 5 million or <unk> <unk> per share.
At the site level want to see delivered mind free cash flow of $9 million.
And Bellamy deals contributed just under $1 million for the quarter.
Regarding operating costs, we've seen pressures across several inputs driven by foreign exchange and inflation. So our direct cost per ton were up 14%.
Specifically, the Mexican peso strengthened substantially up 7% from year end and 9% from Q1 2022.
Which increase our local costs in U S dollar terms.
Additionally, <unk> want us to be in balling us continuously increased labor costs power and consumable costs in steel and processing for items, such as cyanide and zinc.
Lastly, we source more production from Royal royalty concession areas, which resulted in increased royalty fees.
The combination of these cost pressures has placed both the quarterly cash cost and the all in sustaining cost slightly above the upper bounds of our guidance at $11 12 per ounce per cast offs and $20 16, now 16 cents per hour for all in sustaining costs.
While inflation is an industry wide issue that six expect persist throughout the year. We are closely reviewing our purchasing practices see where and how we can mitigate this impact.
Containing costs will continue to be a key focus as we work to improve the efficiencies of our operations.
The higher than planned ore grades continues to offset the higher direct cost per tonne.
And with the recent strengthening of the gold price, we benefit from a higher byproduct credits on a per ounce reporting metrics.
But to be clear cost improvement continues to be a focus.
As at March 31, we had a cash on cash on hand of $62 million and working capital of $93 million cash decrease is $12 million are spent on development activities at Taro naira and prepaid went up to account for deposits and payments on various items.
As mentioned earlier, we announced an exciting milestone in March.
Sorry in April Board approval to formally proceed with the construction of an underground mine and mill at Turner.
The Green light comes on the back of a financing commitment for $120 million in senior secured debt from soft Jenn and I N G capital.
Overall, I'm very pleased with the terms and details of the project loan we worked very hard to secure favorable term protect the upside of the project for our shareholders.
The facility has a term of eight and a half years at a secured overnight financing rate plus 375%.
The project is in full production.
Loan has a two year grace period during the construction phase and there are no hedging requirements on silver production that said there is hedging program for foreign exchange and then for up to 68000 ounces of gold over the first two years of production at Turner.
Given the additional cost pressures that the industry has faced we updated our development plans and initial capital cost for Turner.
The last feasibility study was completed almost two years ago.
The updated mine plan increases the initial capex to $230 million from 175, while the processing plant capacity increased to 2000 tonnes per day from the 2700 and the feasibility study.
The updated plan provides increased operating flexibility, including inflationary cost estimates and bring forward capital investment.
Life of mine sustaining capital estimate decreases to $88 million compared to 106 in the feasibility study as those costs have been included in initial capex.
The current plant design Optimizes the recoveries, while the construction schedule is 21 months with initial production expected in the fourth quarter of 2024.
With a seasoned development team in place we are committed to delivering on time and budget.
With significant early works already underway, we have spent $58 million to date on direct development.
If you're interested in seeing photos of the construction in progress I encourage you to visit our web site under the Terra narrow page.
Let me recap some of our recent developments the full mobile mining fleet is now on site.
They're ordered all the major equipment plant equipment and expect most of that to arrive this summer.
Upgrades to the access roads totaling almost seven kilometers is nearly complete.
We're nearing completion of this permanent cap. We are nearly finished excavating the plant site and we are advancing underground mine access.
Supported by these results. Our main focus now is progressing mine development finalizing earthworks and pouring concrete for the mill platform before the rainy season.
Through all these operational milestones and adapt as we continued to demonstrate our commitment to responsible and sustainable mining to learn more about these and other efforts I encourage you to read our latest sustainability report, which we released yesterday.
The report captures our efforts in 2022 to maximize our positive impact on society and the environment.
This past year, we started executing our 2022 to 2020 for sustainability strategy I'm.
I am pleased with how our team delivered on our priorities, especially in areas like health and safety and embedded ESG practices deeper into our operations.
Let me highlight just a few examples.
We continue to achieve commendable safety performance in 2022 as part of our four year downward trend with our reportable injury rate dropping to <unk> 87.
Yeah.
We recycled over 90% of water used in our operations minimizing our fresh use of water.
And we'd performed climate scenario analysis to assess potential climate related risks and impacts and prepared our inaugural climate report lines of cheese Tcf the framework.
Lastly, I wanted to touch on the recent development of the new Mexican mining laws of course. This has been a topic with a lot of uncertainty and unfortunately move swiftly through the Mexican government.
From an operating standpoint, our expectation is the new law will increase compliance requirements, specifically around water use and reclamation activities, but don't expect a disruption of our operations our construction activities.
There is still uncertainty of the details, but unfortunately, these new laws could discourage future investment into Mexico exploration sector.
You will see these new laws challenge through the courts, and ultimately have more clarity in the coming weeks and months with regarding its impact.
I think that wraps up my formal comments for today myself, Darren Gray, our CFO and Christine are happy to answer any questions that you may have over to you operator for Q&A.
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'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Once again to join the question queue. Please press Star then one now.
Our first question comes from Craig Hutchison of TD Securities. Please go ahead.
Hi.
Thanks, guys.
Hey, Greg.
Just a question on the inflationary pressures on the labor front.
Are there any more pressure you see there over the next 12 months have you have you have any labor negotiations to come here or is that largely wrapped up and just more of a broader inflation. Okay theme.
Right now Thats wrapped up when we finished that typically in February sometimes spoken to March. So we gave a 5% increase to the unions would want us to be involved.
Really where the impact hurting us from me.
<unk> standpoint, it really comes down to it foreign exchange, so about 33% of our costs are incurred in Mexican pesos for labor.
And with the appreciation of the peso this past quarter, obviously impact us right to the bottom line and I think short term, we see some strength in the peso, but hopefully long term it reverts back to what we've seen for the last 20 years, and that's kind of depreciation against the U S. Dollar.
Okay, how about on the energy front are you seeing any pressures kind of coming off on that front or is that still.
So similar to the levels you guys experienced in Q1.
Yes, I think we're going to see some.
Costs in most of our power obviously comes through Cfe Misshape Electric Commission in Mexico our.
Our expectation is it's going to stay where were at from Q1.
But as we've seen.
For the last kind of.
Five six quarters inflation has has been a factor and if the Mexican government.
Commission decides to increase rates that will obviously impact us for us most of the power cost impacts us through a plant standpoint, and then pumping water pumping that want us to be as well. So again, hopefully we see that kind of flattened out here and maintain margin levels are.
Okay, maybe just one last question for me just wanted to be.
You guys have something you're tracking already kind of above the guidance.
When do you kind of expect maybe an inflection downwards in terms of grades or do you expect maybe lower throughput.
Try and model to the midpoint of your guidance I assume it comes down at some point otherwise you guys look like you may exceed but just curious in terms of any kind of color on grades and when he makes sure Steven.
<unk> grades because of the bell curve. So for the last two years and obviously, we've been quite conservative in our reserves reserve estimates on health care. So.
Frankly, we should see our tons per day come up the quantity, we have tough February to switch maintenance requirements, mainly on the liner some class work that we had to do on the tailings and dry stack tailings facility.
So ultimately our expectation is our tons come off which hopefully drives down our cost per ton.
As far as grades like I say, we for the last two years kind of exceed it but we've had it in reserves.
I do essentially us being conservative to see that kind of come back.
Two what we have in our plan.
And we just had a nice area and personal we seem to continue to get these so maybe it stays elevated and if it does we'll come into the upper range of our guidance.
Maybe be but if we revert to what Vince in the mine plan and then we end up.
<unk>. So we're not at this point ready to change guidance had gone at sea and ultimately consolidated.
Alright, perfect. Thanks, guys.
Thanks for the questions Craig.
Once again, if you have a question. Please press Star then one our next question comes from Matt Taylor of Pi Financial. Please go ahead.
Hey, guys. Thanks, just.
Hey, Matt couple of questions on our end.
The spending at Turner this quarter is a little lower than expected and we can expect should we expect a ramp up through Q2 or will it be likely later in the year.
No no.
Formal construction decision I would expect that ramp up.
Everything is kind of running now than.
Like I say with <unk>.
The board's approval the quicker we can move the better obviously I mean I think if we can stay on time, we can stay on budget.
Sometimes for things out of your control, we built contingencies on that timeline I guess, we'd like to spend a little bit more in Q1, meaning we've moved along but at the same time without having that formal construction decision. We've tried to be conservative with just looking at early works.
As far as expenditures between now and the end of.
2024, when we get into the kind of production I would say, it's going to be relatively homogenous statements.
Over the next seven quarters.
Again, hopefully things wrap up relatively quickly here in Q2.
Perfect and then just switching over to bullet need to us.
We can do it and should we expect an uptick in gold production later this year. So in Q1, it was slightly lagging so wondering what.
Yeah.
Yeah for sure I mean, absolutely.
<unk> has moved into kind of a gold operation our expectation that's going to be more gold silver and this quarter. We saw flip kind of silver grades came up and gold grades come down similar to go on it to be I mean, we would expect that to revert to our mine plan. So on a proportional basis I would expect globe come up and silver to slightly come down partly.
That's going to be getting to certain areas within our mine plan and like anything with the underground vein mining, sometimes there's areas but allow.
Allow more ore tonnes to be able to come out of things that are in resources are actually not even in our mine plan that are there, but ultimately if we followed by client expectations are gold comes out overcome slightly down.
Perfect. Thanks, a lot.
Thanks for the questions Matt.
This concludes the question and answer session I would like to turn the conference back over to Dan Dickson for any closing remarks.
Well, thank you operator.
It's been an interesting quarter with regards to the changes in the Mexican mining law, where we're seeing silver and gold prices I think today perfection of questions. Maybe just comes down to what's happening in the marketplace you see silver kind of flipping all over the place and it was up to start the day now it's down and then I see some.
The results in our share price suggests we're down I think it's early in the year and our goal is to get our costs in line to where our expectations and where our guidance is and ultimately we will be working from that from an operation standpoint, but I think it's an exciting year for endeavor I think moving forward with the Turner projects are going to significantly change the profile of the comp.
Any over the next two years.
We're excited for and I look forward to next quarters conference call to be able to give them an update on where we're at with Taryn. There and hopefully continued good performance iguana seeing below any of those so thank you everyone for attending today and talk soon.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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