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spk00: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2022 Financial Results Conference Call. As a reminder, all participants are in 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.
spk05: Thank you and good day everyone. Before we get started, I would ask that you 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 at edrsilver.com. With us on today's call, we have Dan Dixon, Endeavor's CEO, Christine West, our CFO, and Don Gray, our Chief Operating Officer. Following Dan's formal remarks, we will then open the call for questions. And now over to you, Dan.
spk01: Thanks, Trish, and welcome, everyone. 2022 is off to a strong start. Not only was it a good quarter for our operating minds, we have been very active on building out the long-term future of the company. First, let's talk about operations. Consolidated Q1 production was up 4% year-over-year to 2 million silver equivalent ounces. This was more than enough to offset the impact of suspending our Elk Compass operations last August. Qantas V had a great quarter, driven by higher silver and gold grades. And based on where we're mining this high-grade ore, it's expected to continue in the near term. In addition, we're purchasing ore from local miners, which is further enhancing our grades. This is also expected to continue into the second quarter. At Bolognese, gold grade and gold ounces produced were down in Q1, while our silver ounces and silver grades reach up significantly higher. Paulino's production is expected to remain steady and continue to provide mine-free cash flow throughout 2022. Ultimately, the first quarter puts us in great shape to achieve this year's production guidance of between 6.7 and 7.6 million silver equivalent ounces. As noted, consolidated production increased by 4% in the first quarter. However, revenue rose close to 67%. A lot of you listening today on today's call are aware that we've opportunistically withheld metal in 2021. The bullion held at year end had a market value of about $31 million. Spike in this quarter's revenue is attributable to the sale of about half of that unsold bullion that we held at year end. This bullion was sold throughout the first quarter at significantly higher prices than what we saw in December, which contribute to cash flow from operating activities of more than $22 million. As at March 31st, we had $151 million and no long-term debt aside from normal course equipment leases and working capital of $168 million. For the quarter, our all-in sustaining cost per ounce metrics were 5% higher than the previous year, just inside our guidance range of $20 to $21 per ounce. Containing costs continues to be a major focus in this inflationary, supply-constrained environment. While this is an industry-wide issue that is expected to prevail throughout the course of the year, we're closely reviewing our purchasing practices to see where and how we can mitigate the impact. A moment ago, I mentioned that we've been actively building out the long-term future of the company. We are tracking two major milestones here in the second quarter, securing financing for Terranera and closing the Pizzeria acquisition. First, let me update you where things stand with respect to Terranera, which is our biggest priority. Once completed, Terranera is expected to double our production and cut our cost profile in half. We're advancing sustainability documentation to meet commercial banking requirements required for project loan financing. We believe this documentation will be beneficial with regards to the long-term sustainability of the project and comes up consultation with the communities and various levels of government. Aside from the delays to site visits and other due diligence caused by COVID, activity on this documentation has been underway for several months and is expected to wrap up by the end of May. While this has put us slightly behind our original schedule, the project continues to move forward. In terms of our schedule, we are still expecting to complete commissioning in the first half of 2024 if we can secure the debt portion of the project financing by the end of this quarter. Last year, the board approved $21 million to advance the Terranera project while we're working through this financing. We spent $12 million prior to year end and an additional $6 million in Q1. We are well down the road on site clearing, detailed engineering, early earthworks, and camp infrastructure. We have another $9.5 million earmarked to spend at Terranera in the second quarter to complete earthworks, phase one of detailed engineering, and the commencement of the permanent camp construction. For us, Terran Air is a game changer, and it's a very important part of our future. During the first quarter, we also announced the addition of an exciting advanced stage exploration project called PIT3A. Situated in Durango State, Mexico, it's one of the world's largest undeveloped silver deposits, and we believe has the potential to be a Tier 1 asset. We announced this acquisition in mid-January and expect it to close before the end of June. at which time work will immediately commence to define the historical resource as a current resource, assess a number of targets, and advance the project to an updated economic study. To close the transaction, we're waiting approval for the Mexican Federal Economic Competition Commission that's expected imminently. The $70 million acquisition of PITREA is fully financed. 50% of the purchase price will be Endeavor shares, and 50% will be paid in cash. To fund the cash portion, we completed a bought deal for $46 million in March. This equity raised together with the strong operating cash flow this quarter has really strengthened our balance sheet. One last very important item I want to highlight before we move to Q&A. At the outset of the year, you'll recall we introduced a new sustainability strategy focusing on three pillars, our people, our planet, and our business. I'm pleased to say that tomorrow we will be releasing our 2021 sustainability report. It reflects our commitment to transparency and reflects our new strategy and branding. We recognize that our long-term success goes beyond achieving financial metrics. This year's report speaks to our ongoing actions and commitment to help shape a more inclusive and sustainable future for our business and our stakeholders to prosper. I highly recommend you take time to view our new report after it's published online tomorrow. That wraps up my formal comments for today. Myself, Dawn, and Christine are happy to answer any questions that you may have. So over to you, operator, for Q&A.
spk00: Thank you. 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 two. To join the question queue, please press star, then one now. Our first question comes from Heiko Ehle of HC Wainwright & Co. Please go ahead.
spk02: Hey there. Thank you guys for taking my questions. I assume you can hear me okay?
spk01: Yeah, you sound great, Heiko.
spk02: Wonderful. Hey, earlier on this call, you spoke about adjusting some of your purchasing. I felt that quite interesting as a frustrated consumer who's been trying to more or less do the same thing when I hire contractors and whatnot, obviously on a much smaller scale. But frankly, I've really had no or very little success because people just won't show up for jobs or just quote you stupid prices. So maybe if you'd be so kind, just give us some examples where like negotiating with workers is actually working and maybe some areas where things are not working and where you really haven't been able to mitigate the impact of the inflationary pressures, please.
spk01: Yeah, sure. I mean, I think some of the obvious areas where we can't mitigate inflation pressures and that's on power costs. And we get most of our power from CFP, the Mexican Federal Commission of Electricity. We've seen a significant increase in that. And for us, power costs are our third largest cost. The other, our largest cost, and obviously where it's most difficult to get concessions is labor. And at the end of the day, with our union contract with Balneos and Gowanus City, obviously, you don't never see wages come down. Where we can push is on contractors, but obviously they're seeing inflationary costs. But where we do have a little bit of power, it comes down to combining purchasing between Bolonetos and Gwana City. And obviously we've seen cost increases in cyanide and steel, and those are going to be prevalent because they're primary sources. inputs but we can get some purchasing power if we can combine that stuff but we haven't been overly successful to this date with with much and it's obviously something that we're looking at and we're going to build Terranera and I think we're very lucky in the Terranera front that we've sourced a lot of our equipment a lot of our set we've gone through Sandvik and a lot of the equipment we've purchased with regards to operating is actually already on site uh we have a ball mill already on site so we have been in front of it in that sense at Terranera From an operations standpoint, again, it's looking at purchasing more volumes that we can share between Bolognese and Guanesi, and then hopefully ultimately Terran Air when it comes online.
spk02: Very good. Very helpful. Thank you. Thank you very much. And I'll get back to you.
spk00: Our next question comes from Joseph Rigor of Roth Capital Partners. Please go ahead.
spk03: Hey, Dan and team. Thanks for taking the questions.
spk01: Hey, thank you.
spk03: Yeah, so your G&A expense has kind of fluctuated a bit from quarter to quarter last year or so. And I know some of that has to do with the way you guys account for G&A expenses and stock expense. But on a cash basis, how should we forecast quarterly going forward? What's a safe cash basis G&A number?
spk01: Yeah, you're right. There is a fluctuation, and that's from the mark-to-market on deferred share units that are paid to our board. And as you know, our stock price can be very volatile because of the underlying metal, and that causes a lot of mark-to-market fluctuations. But ultimately, our G&A on a cash portion budget is somewhere between $6 and $8 million, so ultimately $7 million. And it's a pretty straight line. I think Q1 generally has higher costs just because of the administration stuff with regards to audits. Uh, but in general for the year, if you kind of use one, one and a half to $2 million per quarter, it kind of gets you there.
spk03: Okay. That, that, that's, that's helpful. And then, um, you mentioned the pit of reacquisition. You're hoping to get it closed by June. Um, it seems like that's a little longer than maybe originally was expected. You know, is it, COVID-related delays in Mexico for getting approvals? And, you know, how comfortable are you with that June target at this point?
spk01: I think I'm very comfortable with the June target. The biggest thing is COFISI, which is the Commission Against Antitrust. And we've been going back and forth with them and submitting information on ultimately Endeavor Silver's market share globally and in Mexico with regards to silver. And so we've submitted all our documentation. They came back with a number of questions, actually a number of times. So it's our belief we've completely answered all their questions. So it's now just getting through that process, which we actually think is quite imminent. We think we could have that before May's out. I think we're being conservative with the June timeline. But if we do get that in the coming weeks, we should be able to close relatively quickly after that. But at this point, we're just waiting for a regulatory approval.
spk03: Okay. Fair enough. Thanks. I'll turn it over.
spk01: Thanks, Joseph, for your questions.
spk00: Once again, if you have a question, please press star, then 1. Our next question comes from Lucas Types of B. Reilly Securities. Please go ahead.
spk04: Thank you very much and good afternoon, everyone. Good afternoon, Lucas. I also wanted to ask about the inflationary pressures, and I wondered if you could maybe distinguish a bit between the inflation rates you're seeing in local currency versus on the US dollar rate and what percentage of your cost is approximately in local currency? Thank you very much.
spk01: Yeah, very fair question. So again, labor being our largest cost, which is about 33% of our kind of operating costs, direct operating costs, those are obviously incurred in Mexican pesos. And then of the last 66%, about half comes out of Mexico and half is tied to the U.S. dollar. So ultimately, we're about 60% to 65% tied to the Mexican peso. Now, last year in 2021, the Mexican peso's inflation rate was just shy of 6%. This year, it's tracking a little bit higher than that, similar to what we're seeing in Canada and the United States. But ultimately, it's lining up to where the U.S. is. So it's not like the Mexican peso is running... at a higher inflation rate impacting the Mexican peso or giving us less purchase power with our peso. I would imagine that will continue. With oil prices being higher, Mexican peso generally does a little bit better because they are tied quite a bit. And I do expect the tourism industry to pick up with people traveling again with COVID almost behind us.
spk04: That's very helpful. Thank you for that. Just turning to the balance sheet for a moment, you've been shoring up financing, and congratulations on that. It feels like things are a bit choppier across the broader capital markets, and I wondered if you could share your perspective on how you look at the balance sheet today, if there might be desire for more dry powder or if you'd say it's pretty bulletproof from here. So I appreciate your perspective on that. Thank you.
spk01: Yeah, as I touched on, I mean, our working capital is $168 million as of March 31st. Our cash balance was north of $150 million. Of course, $35 million of that cash will be paid out to SSR when we close Pizzeria. So we're still in a very strong cash position. obviously the big thing that's coming down the pipe for us is a formal construction decision on taranera and right now in our feasibility study the taranera initial capex is 175 million dollars it's going to be paid over two years so we do have and been working on for the last six months a debt portion so we feel like we have the equity portion with the cash that we have on hand and the cash flow coming from the operations but ultimately you want to carry a float in the company and put in about 80 to $90 million of debt on the book at a project loan financing ability. I think we're still going to go down that path. We've done a lot of work with regards to our sustainability around the Terran Air asset for project loan financing. We think it's the best use of capital. We think it's the best route for our shareholders. Carrying $80 million of debt on our balance sheet, I think it's very prudent for our shareholders. And ultimately, that's where we're going to go. So as far as putting more powder on the balance sheet, there's none at this time. Of course, our corporate development group is always looking at potential to further grow with assets that would be accretive. And if it means we have to go out and raise more capital, it means we go out and raise more capital. That's not something that we're looking at at this time. I think with the acquisition of Pitharia, with the construction coming of Terran Air, we're quite busy. We've got lots going on. I don't want to absolutely kill our staff. So hopefully we can kind of swallow those and get moving on that and then look to see what we can do in 2023 or 2024.
spk04: No, that's very helpful. And yes, you've been busy. So congrats on all the good work.
spk01: Thank you.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Dan Dixon for any closing remarks.
spk01: Thank you, Operator. And thank you again for everyone for joining us today. Just a reminder that tomorrow is our annual general meeting of shareholders. It's being held at the Metropolitan Hotel in Vancouver at 10 a.m. We hope to see you there and have a good day.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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