Endeavour Silver Corporation

Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver Corp 2021 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 zero. I would now return the conference over to Galina Meliger, VP of IR for opening remarks. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavor Silver 2021 Second Quarter Financial Results Conference Call. With me on the line today, we have the company's Chief Executive Officer, Dan Dixon, our Chief Financial Officer, Christine West, and our Chief Operating Officer, Dawn 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 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'll now turn it over to CEO Dan Dixon.

Thanks, Galena, and good day, everyone. Welcome to the Endeavor Silver conference call for the second quarter of 2021. Before I dive into Q2 results, I want to highlight that this year so far has been one of leadership change. As we position the company for its next stage of growth, as you all are aware, in May we announced a seamless management transition. I assumed the role of CEO. My longtime colleague, Christine West, got promoted to the role of CFO, and Brad Cook stepped into the role of Executive Chairman. Also of note, our newly appointed Chief Operating Officer, Don Gray. He has significant expertise in development over his 45-year career. This management transformation was an important part of Endeavor Silver's succession plan that was several years in the making. It represents a celebration of our past and investment into our future. So with my first quarter in the seat of the CEO, I can assure you that our goal is to deliver exceptional shareholder returns as we execute on our commitment and strategy. With three key areas of focus of safety and culture, ESG, sustainability, and ultimately profitability. We're already making significant progress in these areas. On the safety and culture side, our eye care and taquito operating philosophy continue to be ingrained in our culture, bringing a step back and take charge attitude in a positive way. This is important to me and the way the leadership should view the business. Demand for corporate action and data across a host of environmental, social, and governance issues continues to grow at a rapid pace. with increased mandates from investors, regulators, and industry stakeholders. At Endeavor, these are serving as catalysts to drive further improvements and new initiatives. We are currently formalizing a multi-year ESG business strategy that we anticipate to release in the fourth quarter. We will build on our existing sustainability practices to address the evolving landscape in this area and achieve meaningful outcomes for our stakeholders. This will be especially important ahead of a development decision at Terranera. Lastly, regarding profitability, our focus over the next couple quarters will be cost control. We are seeing industry-wide inflationary pressures due to the global supply chain constraints. I was in Mexico last week and we put together a plan for weathering and reducing higher costs in the second part of this year. Beyond the more traditional business risks we face, we're not out of the woods yet on the pandemic. 25% of Mexico is fully vaccinated, so COVID-19 risks are prevalent for the country. Particularly, a Delta variant poses risk to our non-vaccinated employees and stakeholders. However, the risk remains less than the original variant due to developed protocols already in place. We're currently rolling out a company-wide internal campaign to increase vaccinations for our employees and their families, and testing will become more regular and controlled in the second half of the year. With that, let's turn to our Q2 performance, and then we'll open it up for Q&A. As per our news release this morning, our financial performance this quarter was stronger than previous year. However, comparatively speaking, Q2 2020 was impacted by mandated shutdowns by the Mexican government to prevent the spread of COVID-19. Year on year, our revenue was up 136% to $47.7 million on the sale of 1.1 million ounces of silver and almost 10,000 ounces of gold. an average realized price of $26.82 for silver and $1,866 for gold. On a year-to-date basis, our revenue now totals $82.2 million. After quarterly cost of sales of $37.5 million, mine operating earnings amounted to $10.2 million from our operations in Mexico. This resulted in overall net earnings of $6.7 million, or $4 per share, Q2 earnings were strengthened by the sale of our El Cubo operation and the gain on sale of Mark Global Securities during the period. The Cubo transaction closed in April for $19.8 million in cash and share payments, with up to $3 million in contingent payments in the future. When excluding the gain on El Cubo, the adjusted earnings were just under $1 million for Q2. We reported quarterly EBITDA of close to $16 million in operating cash flow before working capital charges of $8.7 million, both up significantly from the comparative quarter in 2020. It should be noted our quarterly consolidated costs were higher than budget. Cash costs were $13.03 per ounce of silver, up 370% year-on-year, and all unsustaining costs were over $25 per payable ounce of silver, up 70% year-on-year net of gold cut. Offering costs were higher than budget due to global supply chain constraints, creating inflationary pressures, increased labor costs, a strengthening Mexican peso, and we increased offering development at Guaniceve that we should see come to fruition here in the second half of the year. Particularly at Guaniceve, royalty costs increased almost 400% to $4.3 million in Q2. This is obviously due to the higher realized silver price and increased mining of the high-grade material at El Curso. On a per ounce basis, the royalty costs alone equate to almost $4 per ounce on cash costs and all in sustaining metrics. Notwithstanding the increased cost profile, our gold and silver production profile is tracking ahead of guidance, totaling 3.9 million ounces of silver equivalent metal for the first half of the year. We announced in today's news release that management will suspend operations at our Elk Compass mine this month due to exhaustion of reserves. This was communicated in our annual guidance earlier this year and will not impact the company's ability to meet or exceed production guidance for the year. El Compass is a small gold mine and was intended to be a bridge until Terranero comes on stream representing less than 5% of our annual consolidated production. We have some very talented individuals at El Compass that we expect to transfer within the company to our operations in Bolonitos and ultimately to Terranero. The anticipated suspension cost is estimated to be $1.3 million that will be incurred over the remainder of the year. And in the meantime, management will be evaluating various value creation opportunities. On a positive note, we're entering the second half of the year with a robust cash balance of $125 million, minimal long-term debt on our balance sheet ahead of the potential construction decision of Terranera later this year. This should help us facilitate our ability to track project financing. Moving on to our mines, Guanus V is our top performer and will produce over 60% of consolidated production. During Q2, higher throughput and higher grades resulted in production exceeding plan during the quarter and ahead of the annual plan. At Bolonidos, we are focused on developing the Belén vein and expanding production in the Maledito vein, where both areas have multiple drill targets. From a production standpoint, process tons were higher than plan, offset by slightly lower grades during the quarter. And lastly, at Compass, production has been declining quarter over quarter as planned in preparation of the suspension. So that's a brief overview of the operations, and we recognize we have improvements to implement in our costs, and we are confident we will reduce them in H2 in the second half of the year. In terms of our growth outlook, our attention is on Terranera. Terranera is slated to be our next core asset. We published a pre-feasibility study last year forecasting over 5 million ounces of annual silver equivalent production over 10 years. The project is development ready and fully permitted. We're now in the final stages of completing our final feasibility study to de-risk the project and evaluating financing alternatives that we use to start construction. The final feasibility study will be released this quarter and we'll also host a detailed webcast to discuss the results. Subsequent to the end of Q2, we also announced an agreement to acquire an advanced stage gold exploration asset, the Bruner Gold Project in Nevada, from Canamex, a company that's currently under a CTO, a cease trade order, with ideas that we will look for a shareholder vote for the entering Q3. And Deborah will provide an update on our plans to advance the asset after that vote. At this time, I can say that we view the acquisition as opportunistic, and the asset could potentially be layered into our growth plans following Terra Nera. Several years of exploration work remain ahead of any potential development on this gold heat leach asset to model the potential production. For this reason, Mexico and silver remain to be our focus. In closing, we are confident in our business strategy, our financial position, and our growth agenda. I'm looking forward to leading the Endeavor Silver and continue to work with our board, executive team, employees, and partners through these exciting times for the company. With that, operator, I'd like to conclude and open up for Q&A.