Q3 2023 Endeavour Silver Corp Earnings Call

Thank you for standing by this is the conference operator, welcome to the Endeavour Silver Corp, third quarter 2023 financial results Conference call.

Reminder, all participants are in listen only mode. 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 assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Galena Balaguer, Vice President of Investor Relations. Please.

Go ahead.

Thank you operator, and good morning, everyone.

Before we get started I asked you you are M DNA for cautionary language regarding forward looking states.

And the risk factors pertaining to these statements.

Our MD&A and financial statements are available on our website <unk> com.

With us on today's call. It is Dan Dickson Endeavours CEO.

We've seen what our chief financial Officer, and Don Great endeavor.

Oh.

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

Alright again.

Thank you Galina and welcome everyone.

I'd like to begin by saying that we navigated through a difficult third quarter.

The only where we kept with challenging market conditions because of the sharp decline in the silver miners index.

A cornerstone nine granite city had a difficult operating corporate.

The impact of lower throughput significantly lower grades non routine expenses related to repairs and maintenance and an increased operating and development results escalated costs on a per unit basis.

Yeah.

Costs were further amplified by macro factors.

Industry wide inflation pressures.

Patient.

Well the headline for this quarter.

Basic coughs, we've taken aggressive measures to get <unk>.

So you're back on track and not have issues affecting productivity.

Persist.

Of course, nobody likes to experience a lackluster quarter, but it is an opportunity to learn and improve such is the case for us as our new VP of operations, who is taking steps to sustainably improve quantity quantity.

Performance.

I'm pleased to tell you that we've seen a significant improvement in mine productivity this quarter.

Of course during the past quarter, we continued to advance in the chair in your projects.

<unk> provides a clear path to margin expansion.

Positioning the company to obtain significant free cash flow once the mine is in production.

Yeah.

Let's discuss this year's or this quarter's production in more detail consolidated Q3, silver equivalent production was down 14% year over year to $1 9 million silver equivalent ounces, bringing us a $6 5 million silver equivalent ounces year to date, while this quarter's results still puts us on track to be within this year's production Guy.

This range there is little room for setback in Q4.

Sweet production shortfall is due to a number of factors. If you recall, we discussed initiating changes to our mine plan and infrastructure to improve working conditions for employees.

Providing better ventilation and improving our water management.

Address these conditions, we temporarily changed mine sequencing.

This meant mining lower silver and gold grades stopes until we sufficiently address the temperatures in the water inflows, while we're in our mind.

Ultimately these issues could have been better managed or event impacts on production simultaneously increase still development. During Q3, taking more songs further impacted Q3's miner.

<unk> seen a cell development will continue to be a focus would want us to regain share stable production schedule going forward near term and long term.

The temporary changes have lasted longer than we anticipated conditions have improved and mine output has increased.

With the conditions within the mine management felt it was an appropriate opportunity for an extended plant shutdown to address areas within the plant required more time to understand their maintenance shutdowns.

Considerable maintenance work was performed in all areas of the plant, including crushing grinding sickness in the booklet rest assure we maintain consistent.

Going forward and alleviate risks that could result in unplanned downtime.

With the plant maintenance completed in early October with the mining plan or are operating at or above capacity.

The combination of these events during the third quarter results and quarterly silver and gold production decreasing by 22% and 13% respectively.

We see a production shortfall of nearly 400000 ounces of silver compared to previous quarters and annual mine plan.

But as I've said, we're back on track with Q4 expected to meet plan.

Performance of our other mine below Nieto's remains steady increase gold production was offset by lower silver production in Q3.

<unk> operations teams continued a strong effort to meet or beat their targets, including mined and processed tonnes. Our safety programs and is also being outstanding at both operations.

Moving to our financials, we reported revenue of $49 $5 million with cost of sales of $46 $7 million for operating earnings of $2 7 million and mine operating cash flow of $10 $6 million after exploration G&A and other investment expenses, we reported a net loss of two.

$2 $3 million or a loss.

This quarter, our cost of sales increased 35% compared to the same period last year.

While there are a number of drivers, including strengthen Mexican peso of higher labor power and consumable costs.

Increased royalty costs, a significant part of the Q3 story with low production once we impacting costs on a per unit basis.

<unk> reported a negative mine free cash flow of $1 $3 million.

It's been quite sometime since quantity has not delivered a positive free cash flow quarter.

Year to date.

Don and see its delivered $12 $2 million of mine free cash flow and bone Nielsen remains slightly above breakeven regarding operating costs. We've seen pressures on several fronts. Our direct cost per ton were up 23%. The increase in operating development paired with higher energy costs increased labor due to reshaping of the workforce.

An increase in costs from exactly more told or had the largest impact this quarter.

While the Mexican peso weakened a latter part of Q3.

Averaging 17 to one in the third quarter.

The peso has recently reversed course, but it is still 10% above our budgeted assumptions.

Again, all of these factors translated into higher costs overall.

Quarterly cash cost and the all in sustaining costs.

Alright at $17 95 per ounce in 2964 per ounce.

Respectively on a year to date basis, we've reported at $13 need since cash costs and $22 41, all in sustaining costs, which were both above our original guidance provided in January.

Looking to the rest of the year continued costs continue to be a focus as we work to improve the efficiencies of our operations.

We are closely reviewing our purchasing.

Practices see where and how we can make improvements.

At this time, while we expect cost metrics to improve additional maintenance work related to the plant shutdown continued for the first week of Q4 and increased operating development is expected to continue into Q4. Additionally cost pressures related to macro factors will continue.

However management anticipates, the Q4 cost metrics will improve productivity and production are expected to return to historic levels.

As at September 30, we had cash on hand of $41 million in working capital of $76 million during the quarter. We raised gross proceeds of $23 million through ATM. Another allotment of $17 million was raised subsequent to quarter end to ensure there is sufficient funding for the development of the turn arrow.

Yes.

On October 10, we executed $120 million like project financing agreement with stop <unk> capital to fund the Terran Arrow project as a requirement under the project along the company will primarily salt undergone through cash on hand, before drawing down the facility.

The company expect to draw on these funds in 2024.

Based on the project spend schedule that we anticipate will be fully committed on the project capital costs in Q2 2024.

Moving to more detail.

Nathan on the construction of turn Arrow at the end of Q3 rates, 30% completion, and we expect to be close to crossing the halfway mark by year end.

$95 million to the end of Q3 on direct development.

Its commitments totaled $160 million, which is 69% of the $230 million initial capex budget.

With the execution of the $120 million senior secured debt facility, we are well positioned to satisfy the financing requirements of the project.

During the quarter, we made notable progress in a number of key areas not only have we completed construction of our permanent camp and now can fully familiar our workforce, but we've also made significant progress on construction of our processes.

With surface construction now above 42% complete.

Furious interested in seeing photos of the construction progress I encourage you to visit our web site under the term loan H.

Well, let me recap some recent developments.

Of note with rainy season upon us during Q3 construction safety measures were modified focus was on visibility and project road maintenance. We're pleased the extensive improvements over the last year helped maintain the site roads keeping them in good condition and accessible as a result of equipment access and material deliveries.

We're unaffected during the rainy season. Additionally, visibility control measures for reinforced on the recruitment side.

Continues to grow with onsite personnel, having increased over 520 employees and contractors. It's all engineering and progress is nearly complete most equipment has now been purchased and deliveries for all major client agreement will be completed by year end. During Q3, the request for proposals for the mill construction contract was nearly complete.

Which includes structural steel mechanical electrical and instrumentation.

Mine development remains a critical path this quarter and over 1300 meters have been completed and advance rates have gained momentum as portal too and for pass through the fault zone and ground conditions have improved during the quarter quarter. One reached its design elevation, allowing for mine development events now on forefront for one two.

For which is incline and declined directions.

Site earthworks concrete work in rebar installation are underway concrete work in rebar installation, continuing the sag and ball mill grinding areas coarse ore stockpile and flotation areas.

We're also began for the primary crusher and excavation work started in the tailings thickener area and lastly on the community side, but can you continue to focus on supporting the municipality with projects like upgrades to our roads are local landfill in communication infrastructure.

Looking ahead. Our main focus has remained progressing our mine development advancing concrete work for them no platform on schedule with electric electromechanical contractor mobilization early 2024.

Which marks the next major phase of construction for China, and starting excavation on the filtration and LNG power plant areas and the TSA.

That wraps up my formal comments for today and myself downgrading Christine are happy to answer any question you may have.

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.

Yeah, Todd acknowledging your request.

If youre using a speakerphone please pick up your handset before pressing any Keith David draw. Your question. Please press Star then two.

Next question comes from Heiko with H C. Wainwright. Please go ahead.

Hello, everyone. Thanks for taking my questions and it's nice to see an eight sugar mine operating cash flow core taxes figure even though this was all this year.

Challenging quarter.

Building on all of that you had a production shortfall penalty due to mine sequencing changes required to focus on improved access and ventilation.

How about for maintenance deal was completed in September at Snow in November.

As per your reliefs. So building on all of that Mitch is any of that.

Next from the mine sequencing changes should we anticipate.

Loss through the remainder of the year or maybe even into 2024.

Phrasing it differently I guess more simple is your expectation for Q4 change where it was two months ago and all their meaningful impacts that we should model.

Sorry, Heiko, it's good to hear from you just your question about muscle there a little bit and I'm not sure I heard it.

The question ultimately is building on the changes that you saw it closely.

Should we anticipate them collapse through the remainder of the year or most of the impacts from them gone.

And then I phrase it a little differently is your expectation for Q4 for the site changed from where it was about two months ago.

Yeah, It's a very fair question and it's nice to hear from you Heiko ultimately.

Our through the designs of the changes that we put through some crude ventilation and improve our water.

The management of our water, we're getting more inflow down the hill personal consumption than necessarily was expected about a year ago.

And we're making those changes and ultimately our throughput and our mine output have increased here in Q4 or meet spec, but most of the work that we did in Q2 and Q3 would be lasting so not only do we expect Q4's production throughput production output from the mine and ultimately throughput through the plant to meet plan, which is effectively around.

1200 tonnes per day both.

Those changes should help benefit us for 2024 and beyond.

I would say some of these things are preventable and the fact that we could have managed it better last year and made sure that we were advance on on our ventilation program and our water inflow program.

Something we didn't do we can be better on interest in all of this came kind of all at once and ultimately impacted our production here in Q3 and with that impact on production in Q3 really showed in our financial results and ultimately our cost metrics that quantum leap.

I wouldn't say, it's completely behind US we are still working on.

Ventilation and water management, we expect that to be done here in Q4.

But ultimately our output is up so with our output up will at least meet our production decline.

I think thats, a very fair answer and reassuring as well.

Completely different thing you're hosting a visit to turn arrow in two weeks and we're obviously excited to attend.

Construction progress at the site is 38% complete as Korea released today.

<unk> side, just going through the last release you had on the site. It stated the procurement as a quote procurement efforts are on schedule with most long lead major equivalent anticipated to be received by year's end.

Its a week and a half ago.

What exactly is still missing and what exactly is it is it a cost tonnes on a ship is it the suppliers anything that's concerning view or maybe should concern us I assume the answer is no, but just wanted to make sure.

No theres always things that concern us I mean, the big thing that comes to mind right now some delays and so those were unexpected I wouldnt necessarily call them critical items, but they are important items.

And parts matter to get the plant up and going.

As I say all are key components for the mine and key components to the plan.

We're ultimately.

Ordered quite early on and most of that's being delivered this year the smaller equipment now that we're going through.

Right now we're going through <unk> on steel.

Can it be kind of delivered out to suppliers and that expectation is going to come but over the next year until we get into production or to start up the plant there'll be always little things and our job is to manage that.

There's always unforeseen items that we have to manage and right now it's been fine.

There's been nothing critical but.

Something will come up and it'll be our job to manage that.

And you've done a successful and good job of that stuff in the past so.

So well wishes and thanks for taking the questions.

Thanks, Michael for the questions.

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

Thank you very much operator, good afternoon, everyone.

Mike My first question is a follow up on <unk>.

As you look out to 2024, what do you think.

These.

Measures you've taken.

When it comes to production.

And the cost profile. Thank you very much.

Yeah for Us for 2024, we'll put out guidance in January but <unk> been there 18 years. The plant capacity is 1200 tonnes per day.

Pretty easy to make the assumptions that will be all need 12 near terms today for 2024.

Similarly, the measures we've taken in Q3 and ensures that we can have a 210 days operation.

If we can maintain our production profile and.

It will allow us to meet guidance from a cost standpoint, and our all in sustaining cost was expected to be between $19 and $20. This year, that's probably a little bit higher next year because of the inflation factors, but we'll come out with that guidance in January.

I appreciate the thoughts.

Thank you very much and then.

Question on Caracara.

In terms of kind of your minimum cash and liquidity targets while U.

While you do the development there.

Sure.

Anything specific we should keep in mind as we model kind of cash flow over the coming quarters, what would appreciate your perspective. Thanks.

Yeah, I think it's important that we maintain a certain level of liquidity right now we're sitting on $76 million of working capital and that's what we look to when we're looking at our liquidity.

Especially during this development cycle that we're in Mccarran era.

I think it's important to know that we do have to spend.

Spend our cash first before we can draw down on our debt facility and we expect to draw down our cash.

Not to zero, but to a certain level, probably 2000 $25 million before we draw down on that facility and then once we start drawing down that facility hopefully our cash builds with performance at <unk> and we'll see that in 2000.

Got it okay really appreciate it.

Yes, Thanks again for all the color and best of luck.

Thanks for the questions Lucas.

The next question comes from travel reward.

Private Investor. Please go ahead.

Yes, good morning out according from Hawaii.

And that's in the new in terms of purchasing the common stocks.

And.

Our board is substantial in my opinion any less substantial position in.

Endeavour.

Currently holding 40000 shares at an average cost of $3 and.

10 cents.

What I'm curious about is all this jargon and the numbers for me the bottom line is.

Tens of let's say over the next year.

And then looking forward when do I expect to HTC.

Endeavour actually turn a profit and show a dividend.

Yes.

Well Trevor you're lucky.

Hawaii right now we're here and thank you it's beautiful day, but are ultimately cold. So I do wish I was where you were.

For Endeavour Silver view, where we are right now from a growth profile standpoint, as we're investing in our current Arrow project Sharon Harris can take up to 9 million ounces silver equivalent to 16 million ounces of silver equivalent production per year, having that scale can improve our earnings and we've had positive earnings over the years this quarter.

In itself of course, the lost any.

Obviously, we don't want to be in that position, we want to be making money no matter what.

Silver is or what price of gold is and I think <unk> is going to do that for us as far as dividend because it's Darren here.

And that's going to be in the future I would say in the near future. Because we also have the to Korea project coming in behind that our goal is to advance the ramp to three it would be a significant scale project.

We sell a lot of work to do on but we are feeling confident with it but.

But again any capital in castle with tungsten Karen Arrow, we're probably going to reinvest in the company. So unfortunately, if youre looking for a dividend from endeavour silver.

It's probably not going to come.

In the near future, but with what can happen in the silver price and ultimately if you're investing in that endeavor. So you're investing in the price of silver.

That could change and I hope it does but like I say currently right now with where we're at with $23 Silver I don't see a dividends in the near future until we fully invested with an exploit what we have with <unk> and our other exploration programs.

Right. So just a couple of more quick questions of that having to do all shirts, such a little while ago. So I'll watch day.

The interview.

Yourselves and hill.

Projection in your assumption that that Tom was that by the end of 2023.

Silver would hit $30 an ounce.

And just quickly what what Forbes T. That's an offset in terms of maybe a quick brief.

Explanation of how the international slow the market works and then the last question before I'll say goodbye.

What is your current position and can you tell me since you've been in this position what is your current holiday of stock and when was the last time, you bought or sold the stock.

Sure and there's a lot of questions there the overall market and my personal position.

Personal position I believe I hold about 400 450000 shares of endeavor.

My holding price and probably would be between $45 a night carrying price would be.

The last time, they bought stock would have been last year about may or March of 2022.

So that's probably enough without me with regards to maintain the silver price would have been $30.

I couldn't tell you win which Youtube or each interview listen to you, but I have said in the past and ultimately that will be based on where the oil prices and if you look at the history of gold silver ratio.

Last 35 years has averaged about 35 to one right now sitting just below 2000, maybe at that time will be about 2100, so to get to a ratio right now sitting at 86 to one to get to a ratio similar to what we've seen historically that we've pushed silver up into the high twenty's and ultimately $30.

$29 Silver Hill, a couple of years ago, now and we've really come off of that.

It's been very uncertain times, and with rising interest rates silver prices not perform but funny enough gold has held on considerably well I think thats a positive thing for the silver price I think it pushes up through 2021 hundreds.

Silver always eventually follows consistent there's a lag time in a lag period, and sometimes that lag period six months periods, one year or so.

With me procrastinated or <unk>.

Projecting the silver is going to be $30 I don't think I've never not said that so I like we did annuity based on where gold prices and then ultimately how the silver market works in the world. That's a huge question I mean, it's a large market. There is over 800 million ounces that are produced and sold.

It's sold through different exchanges in the United States China.

Across everywhere, so I don't think I'll get into that right now Trevor.

But happy to answer those questions to our info line.

Given our IR group a call.

Another time, but I'll move on to next question operator.

Okay.

The next question comes from Craig Hutchison with TD Securities. Please go ahead.

Yeah, Hi, guys.

I was wondering if you guys can give us an update with respect to pizzeria, what's on the milestones or I know you had some issues around ground control, but any.

Any kind of milestones in terms of exploration work, there and potential for an update.

Yeah, No that's a great question Craig Thank you.

Ultimately, we wished we were drilling with Korea. This quarter as you touched on you had some ground issues default that will gain theory supportive, but ultimately there is continues to be rock falls and the old adage that was there. So we are doing a parallel and we've taken that drill program and ultimately put into an adverse events.

This year, so we will not be drilling if Korea until January possibly February of next year still allows us to do a PPA or start doing economic studies on pizzeria next year.

We want to make sure we get that out to complete the drilling done.

What we think are some theater zones and then ultimately.

Look at this project as potentially next development project after turn there and that would be like I say studying starting to make those economic studies hopefully mid year to end of next year.

Alright, Thanks, and just one other question from me just credit cards to the debt funding.

The stipulation that youll need a cost overrun funding in the form of cash or letter of credit.

Up to $48 million, how should we think about that is.

Is that a requirement that effect to become like.

Restricted cash requirement you have to hold for certain period or how do we just understand that $48 million requirement.

Yeah.

Very good question and fair question, its actually broken into two tranches. The first $60 million and 120 is available to us the cost overrun funding of $24 million.

Ultimately he restrict it.

However, it's almost treat it like restricted cash and then of course when the next $60 million funding comes up 128, another $24 million requiring there now we'll look at where we are from a project construction standpoint, and whether the full $48 million of overcoming acquired and will be.

Indian Engineers, who will come to that sometime I guess mid year in 2024.

But in your question is that restrict ship.

Strict it possibly yes.

Okay.

And maybe just as a follow up I guess it would be fair to say you have more to do on the ATM facility. This quarter just to kind of get your cash position up out of that drawdown.

Yes, it's very possible if the market allows it.

Obviously, you'd want us to be performing as expected and that impacts our.

So now I think our balance sheets in great shape, we have over $41 million of cash at the end of the quarter was $76 million in working capital. There are some levers on our long term you had Eva about $18 million of waves chair near that hopefully we can get to current.

In relatively short order so that gives us more funding that's available almost $96 million of working capital. We include that either so I think we're in really good shape, but it's something that we have been mindful of while we are in development and with these market. So we will be and I think we're doing a good job managing that.

Alright, Thanks, guys best of luck.

Thanks, Craig good questions.

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 thank you everyone joining our Q3.

Again, I think it's important to know that management is working to resolve some of these cost issues that we have is one that can be done through getting our output to where we expect it to be and on plan.

Everyone I look forward to having our our Q4 call and financial release for 2023 and talk to everybody again in March 2024. Thank you.

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

Okay.

Thanks.

Yes.

Hi, Heiko.

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