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spk01: Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver Corp Year-End 2021 Financial Results Conference Call. As a reminder, all participants are in the listen-only mode and the conference is being recorded. I would now like to turn the conference over to Trish Moran, Interim Head of Investor Relations. Please go ahead.
spk00: Thank you and good day, everyone. Before we get started, I ask that you please 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, edrsilver.com. With us on today's call is Dan Dixon, Endeavor Silver's CEO, as well as Christine West, our Chief Financial Officer, Dawn Gray, Endeavor's COO, Dale Ma, BP Corporate Development, and Luis Castro, our VP Exploration. Following Dan's formal remarks, we will open up the call for questions. And now over to you, Dan.
spk02: Thank you, Trish, and welcome, everyone. 2021 was a good year for Endeavor Silver, both financially and operationally. Guantanamo and Bolognese each performed well, and the performance offset the impact of suspending the operations at El Compass mid-year. In 2021, on a consolidated basis, we produced 8.3 million ounces of silver equivalents, a 27% increase over the prior year. This put us above the top end of our guidance, which revised upwards in October. Last year's strong performance was driven primarily by two factors. First, increases in the volume of ore processed or throughput in recoveries. And secondly, more importantly, a higher average realized silver grade. Revenue rose by 20%, marking a five-year best, bolstered by volume and price growth. Most importantly, this higher revenue translated into increased profit and cash flow, with earnings per share of $0.08 and more than $32 million in operating cash flow before changes in working capital. Our cost per ounce metrics were higher than our previous year and above guidance. All-in sustaining costs and cash costs were higher than guidance by 1% and 3%, respectively. Industry-wide, inflation has been and continues to be challenging. In 2021, it impacted everything from labor to power to consumer roles across our operations. Additionally, Guantanamo City saw higher expenses associated with third-party ore purchases and operating development. Additionally, royalties were higher and we triggered a special mining tax due to Guantanamo City's significant production, the higher silver prices, and profitabilities. Our financial performance led to a strong balance sheet at year end. We had cash of $103 million and no long-term debt aside from normal course leases. With total working capital of $121 million, including unsold bullion inventory held at a cost of over $15 million, this bullion had market value of about $31 million at December 31st. With the current prices, we have started to draw down this balance in 2022. Our strong balance sheet sets us up well build out Terra Nera. Going into 2021, Terra Nera was an advanced exploration project. Last fall, it was reclassified as a development project following the completion of a feasibility study and confirmation of its economic viability. The study highlighted many improvements in the project, including increased production and throughput. Upon completion, we expect Terra Nera will nearly double our production and cut our cost profile in half. The updated study also increased our reserves by 33%, and we believe there is high potential for further growth. Ongoing drill campaigns are showing very encouraging results, and our goal is to publish the latest exploration results in the coming weeks. Clearly, Terranera is transformational. While we await the formal construction go-ahead, the project is moving forward. In 2021, $12 million was spent on land acquisitions, initial development, and mobile and processing equipment. There is an additional $9.5 million budget for the first quarter of 2022 for site clearing, final detailed engineering, early earthworks, temporary camp, and procurement of other long lead items. We'll be seeking board approval for construction upon completion of a debt financing package and receipt of some amended permits. I'd also like to highlight that while we've been delayed slightly by financing, we are still targeting the first half of 2024 to complete commissioning. With our eye on the future, last year we started rationalizing our portfolio and dealt with a couple assets that were no longer the right fit or were too small for us. Early in the year, Guadalupe Calvo Project was optioned to Ridgestone Mining and El Cubo was sold to Guanajuato Silver. In August, we suspended operations at our small El Compass operation. We also completed a couple smaller acquisitions to enhance our flagship assets. First, we added two more properties adjacent to the existing Hisar Gold Mine workings at Guanajuato. And secondly, at Perel, we bought out a 1% NSR royalty, which we now own 100% of with no royalty encumbered. As well, we purchased the Bruner Project, which is located in the well-known Walker Lane District of Nevada. Our focus is really still on the larger growth projects that will accelerate our vision of being a premier silver, senior silver producer, namely, which would be Terranera, Perel, and now Pizzeria. In mid-January, we announced the signing of the Defender Agreement to acquire the Pizzeria project from SSR Mining. Pizzeria is situated in Durango State, which has a long history of mining and is known as a mining-friendly jurisdiction in Mexico, with several mines in operation, including our Guanacini mine. It's one of the largest undeveloped silver deposits in the world, with a historic M&I resource of 525 million ounces of silver ingrained close to 100 grams per tonne, plus amounts of lead and zinc. There has been significant comprehensive work done by SSR to advance the project, and many key permits are in place. As a potential Tier 1 asset, PIT-3 is an exciting project for us. As soon as the transaction closes in Q2, work will immediately commence to redefine the historical resource to a current resource, assess the number of targets, and advance the project to an updated economic study. We've talked about previous year as well as our exciting future. Let's wrap things up with what's in store for 2022, starting with guidance for 2022. Our production outlook is on par with the average over the last three years, and managing costs will be a key focus as we try to offset the impact of rising costs. Quantity and volatiles are mature assets. We have plans to invest more than $34 million in sustaining capital to optimize performance and maximize output over the coming years. Equally important on the list of things to do is to further expand our mineral reserves and resources. Proven and probable silver and gold reserves increased by nearly 30% last year. We have 13 million earmarks across our exploration portfolio to continue our long, successful track record through the drill bit. 2022 is going to be an exciting year for the three cornerstones of our growth pipeline. Terranera, Perel, and Pizzeria, each of which provide a significant characteristic and opportunity to contribute to our future growth profile. As noted, Terranera is expected to move from funding and approval phase through to construction in the coming months. At Perel, we expect to initiate a PEA in the second half of 2022, and as mentioned earlier, the acquisition of Pizzeria is expected to close in the second quarter, and once closed, the work will begin. Our goal is to find a current resource by the end of this year. Overall, it's going to be another busy year. And with that, I'd like to open up the questions operator.
spk01: 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 will hear a tone acknowledging your request. If you were using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Joseph Rager with Roth Capital Partners. Please go ahead.
spk04: Hey, Dan and team. Thanks for taking the questions. Hey, Joseph. So, big picture question that getting asked on a lot of these calls is just you know how are you guys handicapping the impact of supply chain inflation um like are you guys doing anything proactively to prevent any impact from that and then uh kind of a second question to that you know what inflation rate do you guys assume um you know on costs across the board for this year compared to last yeah
spk02: Thanks for the question, Joseph. I mean, the two-prong for 2022 in our budgets, we had 6% to 9% inflation, just depending on whether it was labor or whether it was a direct cost input. We had seen power costs increase significantly last year towards the end of the year, and that was all included in our budgeted information. So it ranges depending on what widgets going into the product. Like I say, labor was 68 percent, power costs were up almost 28 percent. And also we saw that in our 2021 costs as well. So some of that's been dealt with and dealt with in our budgets. But of course, the actuals will be probably quite different than what we've actually estimated into our budgets. And we'll see how that plays out. On a bigger picture of what we're expecting from inflation, I think it's going to continue. And we get a lot of questions on inflation with regards to our capital expenditures and ultimately Terran Air. I think we've done a good job with Terran Air with the fact that we've procured some long lead items, most notably our mobile fleet. Some of it's already on site. We have more coming in March. And we ordered that stuff mid-year and kind of started moving to make sure that we could get some of these prices locked in. But nonetheless, we're not going to be able to lock in everything. So steel with regards to the plant, it's going to be there. We do have contingencies built into our feasibility study. As we work through that, we'll update the market to where we think prices will end up. I think we've done a really good job of trying to keep this moving forward to try to keep the costs in line to where our expectations will be, which is along the lines of the feasibility study. So we'll do our best. I mean, of course, inflation is prevalent through inflation. all the industry, not just to us. And I, I think that is going to continue through 2022.
spk04: Okay. Um, kind of a follow-up to that, uh, and specifically with like Karen Eric, would you guys consider delaying the start of construction? Um, if, you know, I think a lot of people believe some of the supply chain inflation is, you know, temporary, uh, Do you guys think about that as maybe it's in the best interest of the long-term value of the project to kick the can until the inflation pulls back a touch?
spk02: Yeah, I mean, of course you'd consider that. But in our instance, how imperative and transformational Terranera is going to be to us we aren't going to delay it. We're trying to push it through. And ultimately, when the fact that it's going to double our production and cut our cost profile in half, it'll completely change kind of our profile as a company. Terranera right now in our feasibility study has got a 12-year mine life. Ultimately, we expect to be there 20, 25 years. And I know kind of trying to time markets or trying to time inflation, at the end of the day, if inflation is up 10% in 2022, It's likely still up 2020. We're not going to see deflation in 2023 or 2024. So we're going to keep pushing it forward, and it's critical to our company.
spk04: Okay. And one final thing, if I could. What percentage of the overall cost structure at your mines is fuel, diesel?
spk02: Yeah, it's underground vein mines, so it's less than 7%. I mean, it fluctuates somewhere between 6% and 9% on any given year, depending on where fuel prices are. So, Joseph, with an open pit, diesel is a huge cost to us. Our second highest cost after labor is actually power costs through the electricity through the CFE in Mexico. So, as far as diesel, like I say, it's 6% to 9%, so not a big proportion compared to open pits. Okay, good. Thanks. I'll turn it over. Thanks, Joseph. Thanks for your questions.
spk01: The next question comes from Lucas Pice with B. Reilly Securities. Please go ahead.
spk06: Hi, good afternoon. Hi, good afternoon, everyone. This is actually Matt Key here asking a question for Lucas. My question is around the long-term grade expectations at Guantanamo City. Obviously, really strong implied grade guidance for fiscal year 2022. But I was kind of wondering how we should be thinking about grades longer term. Is it possible that we get back to kind of 2018, 2019 levels in the near term? Or is that kind of past us at this point?
spk02: At this point, it's past us. So we put out guidance just for the following year, which right now is 2022. And the grades will be similar in 2022 as what we have in 2021. And If you look past that, and it's really looking at reserves and resources, which are in our AIF, the grades should continue that in 2023, 2024. But at this point in time, we're not there yet. We have had a significant discovery with El Perso. It continues to grow. And that's where some of those significant grades are coming from. So as prices can also get higher, which is our expectation this year and next year, you could see that grade come down because your cutoffs change in the mine as well. But right now, what we see in 2022 is similar grades to what we did this past year. Got it.
spk06: That's really helpful. And just the last one for me. I was wondering if you could kind of help frame up what you're seeing as the most promising long-term exploration projects once we get past Serenero here in the next couple of years. And if you could also maybe kind of provide a potential timeline on how you see that next big growth project on the horizon kind of developing.
spk02: Yeah, I mean, you're asking me to kind of pick against the kids that I have. But right now, we have two great growth pipeline assets behind Terranera. You've got Peral, which is smaller, that we're continuing to have exploration success there. And at the end of 2019, we had 40 million ounces defined, plus lead and zinc. And ultimately, we said to the market that we have to grow that to 60, 65 million ounces, where we think it'd be enough of a scale to have an operation that's of significance to Endeavor and has a significant scale to be cost-effective and economically viable. In 2020, we didn't drill it because of COVID. In 2021, we started to drill it, and we have very good results that we put out earlier this year. We're going to continue to drill Perel in 2022, and then halfway through the year, hopefully we have a sufficient resource base that will put a preliminary economic assessment on that. We need a certain scale for it to work, but we think we can get to there. The other asset with Pitoria is obviously potentially a Tier 1 asset. I mean, it's one of the world's largest undeveloped silver bodies, and we're excited, extremely excited about it. Obviously, we had a conference call on that a couple months ago when we acquired it from SSR Mining. We'll close that transaction here in Q2. and then build out that current resource. As far as timeline between Pitoria and Corral, and it depends on prices in the future, and ultimately we expect a two-year build process for Terranera, and hopefully one of those comes in right behind that two-year build process. At Pitoria, we're going to redefine that resource. Right now, it's considered a historic resource done by Silver Standard. We're going to make that a current resource by doing the work ourselves and issuing a technical report, hopefully by the end of this year. And then we'll do an economic study on Pizzeria for 2023. So Pizzeria or Perel, ultimately you're looking at something in 2024, 2025 when you get into construction. But I think it's one of the leading sector growth profiles that you can see in our space.
spk06: Thanks. Thanks for that detailed response. That's everything for me. Best of luck moving forward. Thanks, Lucas. Great questions.
spk01: The next question comes from Mark Reichman with Noble Capital Markets. Please go ahead.
spk05: Thank you for taking my question. So the first question is just really on the Terra Nera financing. I know you were looking to put an $80 to $100 million debt facility in place. I was just wondering whether that is still kind of the plan and how those negotiations are going. And if you think you'll have those wrapped up by the end of the second quarter, given that 24-month construction period.
spk02: Yeah, you're exactly right. We are looking for debt to $80 to $100 million. We have $100 million of cash and $120 million of working capital on our books. It went a little slower here in Q4 and in Q1 because of the Omicron virus impact that technical due diligence by the banks, but we're through all that stuff. It's always going a little bit slower than expected, but our hope is to have a commitment from the banks by the end of this quarter.
spk05: And then the second question is, uh, you know, you, you, you, your plate's pretty full at this point, uh, with a good pipeline of projects. Um, but would you still entertain, uh, any, any smaller producing acquisitions and, and, uh, What does the landscape look like out there right now for M&A, I guess, in light of the higher prices?
spk02: Yeah, I mean, we have a corporate development group, Dale, on the call here with our management team today. And we're always looking, whether it's a growth asset, whether it's a greenfield exploration asset, for twofold. One, we think we can always improve our asset base, and if there is an asset we can get at the right price, we'd absolutely entertain putting it into our portfolio, especially if it provides cash flow. The landscape, it's ever-changing. I think in the world that we live in now, it changes faster than it ever has before, and there's a couple deals that we've seen over the past year. There's a scarcity in the silver market, and the Ultimately, we're trying to maintain to be a primary silver producer, so maintain our revenue mix above that 51% threshold, which not a lot of our peers have done. So we're interested in primary silver assets and trying to find them difficult and trying to find ones that are profitable or difficult, trying to find ones that are cost-effective. What we pay for it is also difficult. But nonetheless, we always look, and if there's something that makes sense, we'll pull the trigger on it.
spk05: Okay. And I think you'd already kind of touched on this earlier on the Peral project that, you know, you already have the indicated and inferred resources there of $435 million, and you're looking to kind of get to $60 to $65. You know, as it stands today, without any more additional drilling, what do you think you could end up with? I mean, do you feel like at this point you're pretty close to target? And so, you know, the updated report that you'll be putting out that there's pretty high confidence that you'll be meeting that threshold?
spk02: Yeah, I mean, the 60 to 65 and then doing a PA, that's our plan. And we budgeted PA for the end of the year. Now, of course, drilling has to continue and it has to, you know, put up positive results, but we expect that. And I think if you look at our 2021 drill results, They're more favorable than what we released in 2016 to 2018 on Corel. And like I say, I expect that to continue. And if it does continue, we should hit that mark. Okay, great.
spk05: Well, that's very helpful. Thank you very much.
spk02: Thanks, Mark. Very good questions. Much appreciated.
spk01: Once again, if you have a question, please press star, then 1. The next question comes from John Tommaso with John Tommaso's Very Independent Research. Please go ahead.
spk03: Thank you very much. I was noticing that your tons processed for the year, mined and milled, rose 17%. And the cost per ton also rose 17%. Usually the gain in volume helps to reduce the rate of increase in unit cost. Was there something special going on with the mine that was idled or a downtime or a special maintenance?
spk02: No, John. In our case, you're correct. Our protest times were slightly up, but ultimately our cost per ton and operating cost per ton were up as well. And I Like I said earlier in the call, it's a function of inflation, and we saw it hit a little bit of everywhere, most notably in power costs. From August to December, our power costs on a monthly basis went up about 30%. We saw labor costs increase last year and pressure on our professional labor, geologists and engineers. Ultimately, it's something that's prevalent right now through the industry, that we are seeing cost pressures, and we're doing our best to maintain that. as well as cost per ton as best we can. I think we had a very positive result in the fact that the grades out of Guana City are significantly higher. We also saw royalty costs increase last year because of the increased profitability. And ultimately, we paid a 16% royalty at our El Curso mine, which we leased from Crisco a couple of years ago. Of course, we'd like to keep our costs down as best we can. We're trying to manage it where we can, but we are seeing inflation and global supply constraints impact that.
spk03: I can ask another. I was very excited for you when you bought the Bruner project for $10 million cash. The predecessor company had permitted the project and represented that it was partly built i don't know if they spent 25 million on it or 50 million on it and initially your disclosures were very succinct i just assumed that you weren't talking much about it because you got such a good deal could you elaborate now that you've had possession of it for six months and uh Is it something that could be producing 40,000 ounces in a couple of years?
spk02: We like the Bruner project. We were opportunistic. We love the price that we got it for. I mean, for those that aren't familiar, it's got a historic resource of 300,000 ounces of gold, 13 million ounces of silver. It did have a historic PEA on it that had a NAV value of about 80 million, kind of contemplating 35,000 to 40,000 ton or 35 to 40,000 tons. gold ounce operation. There is nothing that's partly built on it. It is a greenfield exploration project. So there is no infrastructure of substance. So I'm not sure exactly what the predecessors had said in the past, but I can assure you it is a greenfield exploration project. We are advancing it this year. We'll turn that historical resource into a current resource. There are a lot of targets at Bruner that we're excited about, and we are excited about it. Like I say, a very opportunistic deal for us. The predecessor got into some debt trouble, and we were lucky enough to be able to acquire it for only $10 million. There's a lot of work left to be done there. We would like to acquire some more land and exploration potential around it. But nonetheless, we'll have more results from that at the end of this year.
spk03: So would this rank fourth in your queue after Pitoria, Peral, Terranera, or would El Cubio be ahead of it? Or where does it rank in your pecking order of projects?
spk02: At this point, it probably ranks behind Peral and Pitoria just because of where those have been advanced to. But ultimately, the work's got to be done. So we'll let the drill bit tell us where it ranks at the end of 2022.
spk03: Thank you very much and congratulations.
spk02: Thanks, John. Much appreciate the questions. I hope everything's going well.
spk01: This concludes the question and answer session. I would like to turn the conference back over to Dan Dixon for any closing remarks.
spk02: Well, thanks, operator, and thanks to everyone listening to our 2021 earnings call. I think 2022 is going to be a good year. Obviously, we see prices elevated. I hope things in Europe get a little bit more stable because ultimately we want to, hopefully there'll be a resolution there in the coming months, but we'll continue to do what we're doing. Again, trying to advance our development project with Terran Air and hopefully come to a construction decision on this shortly. And then ultimately continue to advance Perel and Pizzeria, where we think we have one of the leading growth profiles in the sector. So thanks for everyone attending, and I'm sure we'll talk again soon in the next coming months.
spk01: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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