This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver Corp 2021 First 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 for you 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 zero. I would now like to turn the conference over to Galina Meliger, Director of Investor Relations, for opening remarks. Please go ahead.
spk01: Thank you, operator. Good morning, everyone, and welcome to the Endeavor Silver 2021 First 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, Don Gray. 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 Endeavor's anticipated performance in 2021 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 in 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 today's call, and I will now turn it over to our CEO, Bradford Cook.
spk07: Thanks very much, Galina, and welcome everybody to this Q1 financial results call. Endeavor had a very good start to the year, lots going on. We pre-released our metal production at 1.04 million ounces of silver, up 22% year-on-year, 10,900 ounces of gold, up 31% year-on-year for silver equivalents of $1.9 million at an 80-to-1 ratio of 26% compared to Q1 last year. Our costs were pretty much flat year-on-year. Cash, $186 per ounce, payable silver, net of the gold credit. All-in costs were up a little bit, 8% to 1994, again, net of the gold credit. And that led to revenues of $35.1 million. up 58%. That was partly due to obviously higher production, higher prices, but also we held back some metal for sale during the first quarter, partly due to the downturn in metal prices in late March. And we fully plan to have sold much of that inventory here into higher prices. That impacted our cash flow. We had $5.2 million of cash flow from operations, but that was up sharply last year. And, of course, $12.2 million per share, so up sharply compared to a loss of $16 million last year in Q1. A good chunk of that, though, is the reversal of the El Cubo asset, which we sold here just recently. offset partly by increased expiration activities, evaluation activities, and a higher tax expense. We would have taken an adjusted loss in the first quarter, but then that's offset by the rise in finished goods inventory. So, again, a busy quarter, a profitable quarter for us, and we're looking for another very good quarter here in Q2. So those are really the financial highlights from our release today. And I think rather than carry on, why don't we just open this up for Q&A, and we'd be happy to answer your questions.
spk02: We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will 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 2. We will pause for a moment as callers join the queue. The first question comes from Heiko Ehle with HC Wainwright. Please go ahead.
spk09: Hey there. Thanks for taking my questions.
spk04: I just want to thank Brad for everything he's done for the farm. Dan, best of luck to you, and I think you're taking over a very well, well, well-oiled machine here.
spk09: Well, thank you very much, Heiko. We also appreciate that.
spk04: Yeah, thanks, Heiko. Always and gladly. You've increased your finished goods inventory by quite a bit in the quarter. I mean, you're at 530,000 ounces of silver, just under 1,700 ounces of gold. In the past, you've done really well trading silver. But I mean, just briefly, where do you stand right now in regards to dollar terms of finished goods as of today? And philosophically, what do you anticipate future accumulations of finished goods might look like? And yeah, I know that it might be more intelligent to ask this question after the AGM tomorrow.
spk09: But yeah, just curious, maybe your philosophies there.
spk07: Yeah, I think Dan and I shared a similar view that this is a sales strategy that we've used from time to time and it's based on the seasonality to silver and gold and sometimes quarterly moves in silver and gold. We did this successfully last September when the metal prices fell sharply at the end of the month and rather than sell all of our metal last September, we had to hold on to it because we felt that the we're in a low market and there would be a nice rebound. In fact, there was a very nice rebound and we were able to take significant additional profit from the sale of that inventory in Q4 last year. And so this example is exactly the same. The metals had a great run in the first quarter. They tipped over and fell in March. Rather than push all of our metal out at quarter end, we felt that there would be a nice down here in Q2. And in fact, there has been.
spk00: Yeah, I go to add to that question of where we sit today. Generally, we hold about 300,000 ounces of silver just because of outturn timelines. Ultimately, that can get down as low as 50,000 ounces of silver. We did sell a big portion of the 525,000 ounces of silver that we had at March 31st with this recent run-up into the 26th, 27th. So, As Brad touched on, it's more of a short-term strategy of watching short-term patterns and trying to sell not when the prices are falling, but hopefully when they're rising.
spk04: You've been extremely successful with this stuff in the past, and I hope it continues like that, so congratulations. Just a quick clarification, the impairment reversal for Cubo is completely done now that this is closed, or is there... any lingering tax implications or other costs or anything that we should focus on for Q2 and beyond?
spk00: For Q2, we had recognized the full gain on sales. So ultimately what we reversed in Q1 as of March 31st was historical balance that would have been remaining after depreciation. And in April 9th, we would have recognized the full sale. So there's contingent payments that would be coming. We have a fair value for the share value of VanGold as of April 9th is what we recognize. So there'll be a residual amount that we'd recognize and a gain in Q2. Got it. Wonderful.
spk09: And once again, congratulations to both of you and thank you, Brad. Thanks, Michael.
spk02: The next question comes from Mark Reichman with Noble Capital Markets. Please go ahead. Mark Reichman, your line is now open.
spk06: Thank you. I just wanted to focus a little bit on the cost. So the all-in sustaining costs were impacted by the higher corporate G&A and the higher capital expenditures at Guantanamo City, which I guess you could kind of look at as an investment. But then the direct operating costs were impacted by the higher labor costs. I was just wondering if Dan could maybe talk a little bit about how he sees those costs trending here And, you know, for example, in terms of the all-in sustaining costs, I know the higher capital expenditures are to develop El Curso, so that should benefit, you know, down the road. So how do you see those line items trending, Dan?
spk00: Yeah, thanks for the question, Mark. You're right, Q1s were a little bit higher, but at Guantanamo City, we were well ahead from a mine development standpoint, one of our best development quarters in a long time, actually. which ultimately just means either we'll do less come year end or continue on, but it should dissipate a little bit. We're getting ahead of ourselves now, which is great for future flexibility. Ultimately, we did have a budget from an all-in sustaining cost, which includes our capital expenditures, and that's unchanged for the year for Gowanus to be. As far as labour costs and impacting our operating costs, we are seeing a little bit of pressure on labour. I would imagine it's industry-wide, things are picking up. A lot of companies are out there looking for operating staff and capable operating staff. We brought on a lot of really good people last year. We had a very good year, we feel, from a production standpoint with what we were dealing with in 2020. Some of the bonuses went through on our labour costs in Q1, higher than what we had accrued for at year end. So that did impact Q1 a bit. So hopefully we'll see labour costs come down. As we're seeing across the world, this global supply chain seems to be quite constrained right now and having issues with that, and I don't expect that to change in the next six months. So maybe a little bit increase in our cost, but we're going to work our best to mitigate that, look for solutions, and try to get our tonnage up a little bit to where plan was. We were on plan from an ounce production standpoint. It would be nicer if our tons had improved and were actually stable. Hopefully on a per ton basis, our costs improve throughout the year, and we expect to hit our guidance that we delivered to the market in January.
spk06: That's very helpful. Thank you, Dan.
spk00: Thanks for the question, Mark.
spk02: The next question comes from Cosmos Chu with CIBC. Please go ahead.
spk03: Thanks, Brad and Dan. And Dan, congratulations. I guess the big day is tomorrow.
spk00: Yeah, thanks, Cosmos.
spk03: I guess my question is, what took so long? Joking aside, I do have some real questions here. At Buenos Aires, as you talked about, royalties were higher in the quarter due to higher royalties at Prevenir Cuatro. Sorry about the pronunciation. Could you talk a bit more about the mine plan, you know, going forward for the rest of 2021? Should we expect, you know, tonnage, you know, continue to come out from that area and hence higher royalties?
spk00: Yeah, I think the key to Q1 was we did have a little bit higher production from El Curso. It's between our Provener Quatro mine, which you're probably familiar with, and Malache. We did mine a little bit more from El Curso, just to do some of the areas that we're in, and a little bit less from Alacha, where we don't have that royalty. But the big impact on that royalty is when we did our guidance, we got it at $22 silver, 1760 gold. We sold our silver at $27, and I think gold was slightly below that 1760. So we had higher royalties on that basis, but also the grade that's coming out of El Curso. The grades at Guana Seville, were about 15% on a silver equivalent basis above plan. And again, just in the area of that El Curso, you saw our drill results that we put out a couple of weeks ago with regards to El Curso and Guana Seville and what we were finding on Santa Cruz. So to our surprise, ultimately the grades have been better than what we expected. So obviously increasing our costs and royalties, but our margins are still extremely good from that area.
spk03: For sure. And that leads in well to my next question here in terms of, you know, El Curso. And as you mentioned earlier this month, you put out some very good drill results coming out of Guanacepi. I think I saw over 2,000 gram per ton. A lot of it, just want to confirm, is coming from El Curso. And I guess the other part of my question after confirming that is, I guess in the press release you mentioned, you know, the El Curso, Menace and Perenna, Cuetro, could all become one continuous ore body, potentially over 1.5 kilometers by about 600 or 400 meters. When would we find out more about, you know, this potential here? And then, you know, could you maybe talk about potentially when, you know, this concept, one continuous ore body could come into the mine plan, huh?
spk00: Yeah, there's a lot there. The drill holes that came out a couple weeks ago were mainly the El Curso ore body infilling and step out drilling there. We are also drilling the Santa Cruz sewer ore body, which we're actually mining from as well. We're just drilling that at depth and continue to have positive results there. But I'd say a majority of the drill holes that came out two weeks ago were from the El Curso ore body. And if you go on to our website and even in our presentation, we have a beautiful longitudinal section between Porvenir Quatro and Malache showing the ore body of El Curso, which gives a pretty good understanding of the size and scope of that ore body. There are some slivers in there, which is owned by Frisco, who we've acquired or leased the El Curso concessions from, that own some slivers and we're working with them To hopefully acquire some of that ground to be able to mine that as well as we do think it's continuous all the way through Obviously, we've drilled out Malachi. We've proved that porvenir quatra. We actually mined a lot of that or from that that mine so We feel it's continuous, but the scope and scale of it's pretty clean to see just through our website or presentation Yeah, yeah, I've seen that I've seen that long section as well so
spk03: I guess my question is we'll find out later on how this exploration results will impact the mine plan sometime later on.
spk00: Yeah, when it comes down to total resources and total tons in the resources, we're still drilling that area and we'll come up with a resource estimate later on in the year and publish that. Brad, I don't know if you have any more color you'd like to provide with regards to El Curso and our drill results there.
spk07: Yeah, just to answer your question, Cosmo. Hi, Brian. Hi. The El Curso claim was something that we leased from Frisco, and the two gaps between El Curso Malache and El Curso Porvenir Cuatro are other properties owned by Frisco. We expressed interest. They expressed interest. And so we're hoping we can consummate a way to add those gaps, if you will, to the existing lease agreement, and then we would be able to drill them. and prove that that's one continuous ore body. The gaps themselves are only a couple hundred meters wide, I think, so it's pretty easy to project that this thing should be continuous.
spk03: Of course. Maybe switching gears a little bit, at Terra Nera, you know, as you mentioned, you're targeting a feasibility study by Q3 2021. The last PEA was sometime in 2020. And I think then, or maybe Brad, you touched on it, labor costs have increased. I don't think that's the only cost that has increased in the past year. Steel prices have gone up. You know, other input costs have gone up. So I guess my question is, you know, as you do this, you know, finalize the feasibility study at this point in time, you know, have you seen costs increase? How have you factored into your study here? and how are you managing that risk?
spk07: So I'll answer from a higher level. Basically, the feasibility study is still underway, so we still have an opportunity to finalize costs here in the next month or two. But the main cost drivers, at least on capital, are the design of the mine and the plant, and most of those we've put pins in already. Dan, you want to add to that?
spk00: Yeah, I think it's definitely a risk, and you always look at it, and that's what we paid to manage to do. Ultimately, we are seeing some input increases, which could increase the capital upfront costs or sustaining capital. From an operating standpoint, we think there's a lot of levers there that we can improve our operating costs from the PFS in 2020. So ultimately, when all the numbers come out, which you're right, it'll be early Q3, we'll have that. We still expect to have a very economic project when it's all said and done.
spk03: Okay, for sure. And then maybe one last question from me here. Dan, as you take the CEO seat, Brad's not leaving. I guess he's going to be executive chairperson. And in the press release, I talked about Brad continuing with the company, growing the company. One side of it is, for sure, building Terranera. The other side, I think we've talked about in the past, is potential acquisitions. Bigger picture, Brad, we've seen some of your competitors diversify into gold, diversify beyond LATAM. You've always talked about in the past it is harder to make acquisitions for silver assets. Anything that you can share with us in terms of industry-wide or company-specific at this point in time?
spk07: Sure. So in terms of growing the business through the drill bit, that is organically, I think we've been more successful than most, not only with finding new resources every year at our operating mines, but of course the discovery of Terra Nera and the emerging resources at Peral. In terms of our silver-gold mix, we've always been a silver-dominant producer, but with a healthy gold credit. And we see more of that in our future. Terra Nera, let me say that the operations this year probably are going to be about 60-40 silver gold revenue. Terra Nera, I think, comes in around 65-35. Peral is 100% silver. So not only are we, I think, one of the most, if not the most, silvery of the solar producers, we go skew more towards solar with our existing development pipeline. That leads to M&A, and my view is that we have room to take on gold and still remain a primary silver producer. Because there's nothing to buy in silver, we're not allergic to buying a gold-dominant asset. It's just that we would like to remain more than 50% silver by revenue, even after M&A.
spk03: Great. Thanks, and those are all the questions I have. Congrats again, Dan, and Brad as well. Thank you.
spk02: The next question comes from Howard Flinker with Flinker & Co. Please go ahead.
spk08: Hi, Brad. My two minor questions are, what price did you get in your sale via ATM in quarter one?
spk07: That's a Dan question. Thanks for your question, Howie. Dan, you want to take that?
spk00: That's a very good question. We would have averaged just above $5 US per share price. It's actually in our financials, but I don't have it specifically off the top of my head right now. So good question, Howard. But it's just north of $5 US. Like 501, 502. Hello? Pardon, Howard?
spk09: 501, 502, something like that?
spk00: Just north of that, yes.
spk08: Okay. And how many shares are actually outstanding now as compared to the average?
spk00: We have about 167 million shares outstanding right now.
spk08: Right now, 167? Yeah. Okay, thank you.
spk07: Just carrying on from your question, We had this ATM facility available to us all the way back to last July, but we just wanted to use it primarily for any equity portion of Terra Nera project financing. We were very patient. We didn't touch the nice run-up in the share price here in the first quarter. We did tap that ATM for $30 million. We closed out the first quarter with $86 million cash and $113 million of working capital. And suffice to say that we now feel that any equity component at Terran Air is covered.
spk08: Thank you.
spk02: Once again, if you have a question, please press star, then 1. The next question comes from Justin Stevens with PI Financial. Please go ahead.
spk05: Hey, guys. I think most of what I had to ask has already been covered off, but a couple left on my list here. Obviously, some good results that you guys put out recently from the drilling at 1SV, well covered off there. I was wondering, I mean, you've spent, I'd say, a good chunk of what you've been budgeting for, I'd say, brownfields drilling this year already in Q1. Should we expect that perhaps you guys will revisit your drilling budget maybe mid-year as long as you continue to get the good hits that you've been seeing so far?
spk09: Yeah, Justin. Yeah, go ahead, Doug.
spk07: I would just say that we have done this past when we're having a good year and there's excess cash flow. Then we looked on how to put that cash flow to work, and it's probably the case this year as well.
spk05: Got it. And, you know, obviously, we've seen the nice release out of Juana City. Can you give some rough timing for when we might see some of the Bola Nidas results? I would think soon.
spk07: They would be up next. And following that, I promise tear and error results. After that, some Peral results.
spk05: Got it. Yeah, and just on the Terra Nera results, obviously the Q3 is surprisingly soon. I don't know how it got to be May already. But in terms of the drilling that you've done there, are you expecting any of that to make it in to the updated resource that will then hit the feasibility study, or is it going to be sort of more parallel development?
spk07: No. What we're doing now, in fact, I think this year, we put the pin in the reserve and resource at the end of last year. So all of the work this year will be a different one.
spk05: Got it. Yeah, that makes sense, given the way these timelines work and things have to fit together. Perfect. That's it for me. Thanks, guys. Thank you.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Bradford Cook, CEO, for any closing remarks.
spk07: Well, thank you, Operator, and thanks, everybody, for tuning in today. This is actually my final quarterly call on behalf of the management team of Endeavor. I'm now formally handing the reins over to Dan and Christine. And I just want to say that we've had a great run, but we're not half done yet. And we look forward to, I look forward to listening in on Dan in future calls. So again, thanks all and look forward to our second quarter financial results. That one's
spk09: Thanks, Brad.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Disclaimer