Endeavour Silver Corporation

Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver second quarter 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Galina Meliger, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavor Silver 2020 Second Quarter Financial Results Conference Call. With me on the line today, we have the company's Chief Executive Officer, Bradford Cook, our Chief Financial Officer, Dan Dixon, and our Chief Operating Officer, Godfrey Walton. Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding endeavors anticipated performance in 2020 and future years, including revenue and cost figures, silver and gold production, grades and recoveries, and the timing and expenditures required to develop new silver mines and mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information other than as required by applicable law. On behalf of Endeavor Silver, I'd like to thank you again for joining our call, and I'll now turn it over to our CEO, Bradford Cook.

Great. Thank you, Galina, and welcome everybody to this financial results for the second quarter conference call. We had a lot of challenges thrown at us during the second quarter, not the least of which was the COVID-19 pandemic, the government-mandated shutdown of mines in Mexico since reopened, and all the issues related to that. I am pleased to report that notwithstanding all of that, Endeavor was actually able to deliver a decent quarter. We reduced our net loss quarter on quarter. Each mine generated positive mine-free cash flow. And that was generally due to not only the higher precious metal prices, but our improved operating performance across the three mines. So I'm just going to go through the highlights of today's news release, and then we'll open it up for Q&A. Top line revenue was $20.2 million in the second quarter. And of course, with reduced production, That was quite an accomplishment. Our cash flow came in at $1.9 million before, sorry, that's from operations before working capital changes. That income was a loss of $3.3 million, or two cents per share, but virtually all of that could be found in the care and maintenance costs during the mine suspension period when we actually had to send our employees home on their full wages and wait out the suspension period. and also in general administrative costs related to the mark-to-market of our different share units due to the higher share price. So balance sheet improved during the quarter. We finished the quarter with more than $30 million in cash and more than $44 million in working capital. That was partly due to making use of our ATM equity financing, but also due to the performance of the operations. Metal production, as a reminder, was just shy of 600,000 ounces of silver and 6,000 ounces of gold. That works out to about 1.1 million ounces of silver equivalents at the now 80 to 1 silver-gold ratio. Operating costs improved significantly during the quarter. Cash costs were down to $2.78 per ounce net of the gold credit. And the all-in sustaining costs consolidated were $14.91 per ounce of payable silver net of the gold credit. both substantially lower quarter-on-quarter and year-on-year, again, due to the improved operating performance at Gwena Sivi and the higher realized gold price for the byproduct credit. Gwena Sivi continues to outperform. If you recall, we launched over a year ago a complete clean sweep of the operations, operating turnaround and a transitioning from mining deep low-grade ore bodies to opening new higher-grade ore bodies. That transition was completed in January. As a result, in Q2, Guanusvi continued to generate mine-free cash flow of around $2.7 million, and we saw higher processed tons, higher silver and gold grades, higher silver and gold recoveries, all well above plan. We also had an advantage at Guanusvi when we did the restart in May, in that we'd had not only a significant high-grade stockpile built up prior to shutdown, but we'd prepared some long-haul stoves for blasting prior to shutdown. And that really expedited both an early plant restart and an on-time mine restart. Bolonitos, still trading the corner, as forecasted. The operating turnaround there was launched not even a year ago. But it also was able to squeak out a small profit on a mine-free cash flow basis. And its restart was slower because of a smaller stockpile and more of a focus on accelerating the mine development and grade control during the ramp-up period, the restart period. El Compass was also able to generate free cash flow with mine-free cash flow at $1.1 million dollars. Its restart was also slower than Guanacevi, again due to a smaller stockpile and the focus on mine development and grade control. And last but not least, we did rev up the exploration drills again in late May after a shutdown in early April, and we did enjoy continued exploration, positive exploration drill results from the El Curso area at Guanacevi and the Mayadito area at Bolanitos. We're actually mining the El Crystal area now, and they continue to grow the resources there. And we're currently developing towards the Mayadito area, and we'll hope to be in it here in Q3, Q4 for production. So that's basically a summary of our Q2 operational and financial performance. I think now we might as well open this up 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'll hear a tone acknowledging your request. If you're 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 Heiko Ehle of HC Wainwright. Please go ahead.

Hey, guys. This is Marcus Cheney calling in for Heiko. Thanks for taking our questions, and congrats on the quarter. You made some pretty strong moves in the silver prices recently. Yeah, thank you. So you meaningfully improved operations at Gwena City. As of mine, it seems to be running quite well, and it's nice to see all the progress that's been made. We're currently in August, so there's about five months left in 2020. Could you just provide some 2021 and possibly even longer-term plans and goals for the mine.

For Guanacivi in particular?

Yeah, Guanacivi in particular.

Okay. Well, thanks for your question, Marcus. On the financial side, maybe I'll let Dan answer.

Well, we haven't come out with 2020 guidance just because of the COVID situation in Mexico where COVID cases are continuing to rise. But otherwise, if we can continue to operate, we are an essential business in Mexico. We'd continue to operate close to the 1200 ton per day capacity. So we'll be slightly below the 1200 days, 1150 with similar grades to what we originally guided for the year. But ultimately we expect that same capacity and similar grades into 2021. If you're trying to predict that Marcus. All right, excellent.

If I could add to that, what Dan's saying is that everything's based on site is going according to plan or better, but off-site concerns such as stopping COVID at the gates, keeping high-risk people at home so we actually have a depleted workforce because particularly the contractors can't maintain the level of employment that we require. We're still a little bit concerned that we'll be able to outperform on a continued basis. So this is just being careful. But everything that we control on site is doing better than planned.

Okay, yeah, fair enough. And then sort of on that note, if we ask you to guess, do you have a dollar figure regarding the impact of COVID-19 through today? And do you have an estimate of sort of projected expenditures related to COVID-19? that have not yet been incurred thus far?

Yeah, as far as costs have not yet been incurred, I think we've incurred everything from a COVID standpoint. We were shut down all of April and a little bit of May, which ended up being about $800,000, but most of that was standby costs. The costs incurred to bring in wash stations, increase security, get metal equipment, was really incurred in April, March and April. And then ultimately it's the testing kits that we have on site that is the continued cost. So it's actually quite little. You're talking about 125 grand on a quarterly basis. So small impact at each operation going forward. It's just the larger impact of COVID that is a bigger concern for us. There's other things that because of COVID, we've seen a decrease in costs, such as travel. from sites. So even that, the increased medical cost, so to speak, has probably been offset a little bit by efficiencies just using Zoom and Teams and reduced workflow. Eventually, maybe that will catch up to all mines that are operating that way, but we seem to be managing pretty well.

And I think we were able to utilize our existing workforce, the security, We haven't really had to beef up much. You know, they're doing more, obviously, with temperature and questionnaires and all of that, with every person coming and going at the gates of each mine. But it didn't require a significant increase in security. Same thing with sanitation. We probably hired a few more bodies to do a lot more sanitation, but it wasn't a big number.

Perfect. All right. Thanks for taking my questions, guys.

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

Morning, guys. Thanks for taking the questions. Go ahead, Joseph. So on the G&A level, when I looked at the breakdown, it looks like salaries, wages, and benefits was up quite a bit in the quarter. Is that just like a one-time thing because of the shutdown? You had to move some G&A contracts? you know, costs from the mine level up to the corporate level?

No, actually, Joe, it's Dan here. The G&A movement was actually marked to market on deferred share units. A lot of our directors are paid in deferred shares, and under IFRS, we have to mark that to market. So it's a function of our share price going from about $2.14 Canadian up into the $4. I want to say almost $5 range at the end of the quarter. So we have a $1.1 million salary charge related just to that mark-to-market.

Okay, but it's non-cash, right?

Non-cash.

Yeah. Okay, all right. So I guess the way to think about it is if the stock is higher again, there might be another one this quarter, but just back it out of our cash flow statement.

Exactly. Okay.

Okay. Then, obviously, with the ATM, you guys raised a good amount of money. The balance sheet's a lot stronger than it was at the end of last quarter. Do you guys think you have enough capital to now go out and fund Terranera via debt only in addition to here? Do you still think there might be an equity component to that in addition to what you've already raised? Any What is the two and a quarter million on the ATT?

Thanks for your question, Joel. It's Brad. I don't think we've changed how we plan to finance Terra Nera. It's still going to be a debt equity mix. The timings and amounts are still, you know, somewhat up to debate. But with the new CapEx on Terra Nera of around $100 million, it does make it a lot more financeable project. And ideally, it would be like a 35-65 equity debt split. So that's the plan. We have launched into commissioning a feasibility study. We hope to actually grant the study to an engineering firm by the end of August, early September. And it will be less than a year from then to complete that study. Because of the hot markets, we may not need to wait to put the financing in place. That was the original plan. When gold and silver prices were beat up in March, we were thinking, well, we'll just go to feasibility and worry about financing later. But obviously, the markets have responded very robustly to the global monetization of COVID, shall we say. And as a result, the markets are definitely open. So Timing is still to be determined, but 3565 equity debt split is still the plan.

Our next question comes from Justin Stevens of PI Financial. Please go ahead.

Good morning, guys. Most of my questions have been crossed off here, so just a couple on some more sourcing, though. So one's to V. How's the development of Santa Cruz sewer going? I know it was running a bit behind schedule, but are you guys getting close there?

Thanks, Justin. This is Todd. Great. We were a bit behind in Q2, but we've actually managed to catch up and The ore split right now is a third from Malache, a third from Curacao, and a third from Santa Cruz Sewer. So we've got some very nice grades coming out of Santa Cruz Sewer at the present time.

And so that's pretty steady now. That'll be the plan, I guess, going forward with the next few quarters here? Is it about one-third, one-third, one-third? Yeah, that's the plan for the last year. Perfect. Great. No, that's what I like to hear. And then just over on the Bolonidos side, I think, Brad, you said that you're currently mining from San Miguel, but you're getting into Melodito. Is that what I heard?

Yeah, the plan is to be – we're developing towards Melodito right now, and we expect to be in there in Q4. So we'll have some cell development mineral coming from there in Q4.

Great. Yeah, and then maybe, I guess, I mean, Brad, you sort of touched on it there, but just sort of the, do you guys have an idea internally of what your tipping point might be in terms of, I guess, silver price or sort of cost of capital that would make you sort of move ahead with the Terran era decision, development decision before the feasibility study?

Well, I don't think it's going to be price sense. If we're weighing the money on price, that was on the old prices, not today's price. I think the determinant factor on timing is simply are the markets sufficient to finance the project and are there some long lead items that our project director is happy that he'd be willing to start breaking ground, for instance, before the feasibility study is finished. So those are questions we hope to answer here very quickly in the coming weeks and give some clarity on timing. in the, hopefully this quarter.

Great. All right, that's it for me. Thanks, guys. Thanks for your questions.

Our next question comes from Bhakti Pavani of Alliance Global Partners. Please go ahead.

Good morning, guys. Thank you for taking my questions, and congratulations on the quarter. Thank you, Bhakti. I just wanted to dig a little bit deeper into GONESV. I know Dan kind of previously alluded on the grade profile, but the grade for both silver and gold increased quite a bit in second quarter compared to first quarter of this year. So from the modeling perspective, what would be the best, you know, way to model the grades for GONESV going forward?

Hi, back to you. This is Godfrey. Yeah, our grades did come up. That was a result of mining from Coursera and actually even getting some high-grade material from Coursera. We're still planning on the budgeted grades, which was lower than what we actually mined in Q2, but we do expect to continue those grades and Maybe get a little bit higher, Chris.

Got it. Okay. And secondly, you know, you did previously mention about the increasing COVID cases in Mexico. I know everything is uncertain at this point, but how are you preparing yourself in case there is a second shutdown? Are you doing anything in particular? Yes.

Hi, back to you, Scott, here again. We are very diligent at checking everybody as they come onto site and checking everybody on a daily basis. So we've stopped a few cases at the gate and turned people back and sent them for further evaluation at some of the clinics. So we're just being extra cautious. So far... We've had a few cases occur at our operations, but we've been very, very successful in making sure it doesn't spread very quickly.

Got it. And in terms of mine planning and mine development, has there been any changes?

No, the mine planning and development has continued. We were able to... increase the speed of some of our development at Palo Nitos, which was holding us back in Q1 and Q2. So that's catching up, and our development at Guanajuato has been going very well.

Thank you very much. That's it from my side.

Thanks for your questions.

This concludes the question and answer session. I'd like to turn the conference back over to Mr. Cook for any closing remarks.

Well, thank you, operator, and thanks all for listening today. As we look forward through the rest of the quarter, we've got some pretty significant catalysts. We've restarted exploration drilling at several sites, specifically Bolonitos, Guanacevi, near El Compos, and we're planning to get started on Terra Nero this quarter as well. It'll be almost two years, Godfrey, since we drilled Terranera, about two years. So there's significant upside to be had through drilling additional veins at Terranera. And we only stopped drilling two years ago because of the desire to go to economic analysis and see if we had enough reserves to build a mine, which we do. And now that we've got the final PFS results and they're extremely robust, it's time to restart the drills. So that's one catalyst for this quarter. Another catalyst, obviously, is granting the feasibility study to an EPC firm here in the next month and get that work underway. In fact, there's some bridge engineering studies already being conducted under the auspices of our Director of Project Development, Ernesto Lima. So work is already underway on the feasibility level. And Dan, do you want to add anything to that?

No, I think we're in a good position going forward, especially with where the silver and gold prices are. And provided the operations continue to operate at capacity and where we expect they'll operate, especially after putting in significant time and energy into getting them back to what we've historically done, especially at Guantanamo City and hopefully coming here soon at Bonitos, we should be in a great position to be able to fund a lot of these programs going forward. Yeah.

Godfrey, anything to add? No, we'll just continue with a steady ship.

All right. Well, I'm busy with Dale on various merger and acquisition opportunities, small brownfields, one kind of bolt-ons to our existing operations. We're always working on those, always optimistic. And every once in a while, we pull the trigger, like our deal last year in Guanasvi, which really helped to turn around that operation. We're looking at bigger opportunities as well, but they always take time, and it takes two to dance. So lots going on, a very catalyst-rich quarter for the company, and boy, what a tailwind for metal prices. I do think we're still early in the precious metal cycle. We've probably gone a little bit too far too fast, and I wouldn't be surprised if there was a minor pullback in the near future, but other than that, I'm the The overall overarching direction here is more monetary intervention globally by central bankers, and there's only one direction I think that precious metal places can go from here. Anyway, that's it from me, Operator. Thank you.

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