Endeavour Silver Corporation

Thank you for standing by. This is the conference operator and welcome to the Endeavour Silver second quarter 2022 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 one 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 Galena Melgar, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to today's call. Before we get started, I would like to ask that you view our MD&A for cautionary language regarding forward-looking statements and risk factors pertaining to these statements. Our MD&A and financial statements are available on our website under our Disclosure Portal. You will have seen that there was a retransmission to today's news release that went through about 30 minutes ago. The amendment was with regards to a correct estimate for our 2022 all-in sustaining cost forecast of $20 to $21 per ounce net of the gold credit. This was the only change made to the news release. With us on today's call, we have Dan Dixon, Endeavor's CEO, and Christine West, our CFO. On behalf of Endeavor Silver, I'd like to thank you again for joining our call today, and I'll now turn it over to our CEO, Dan, for his formal remarks.

Thank you, Galina, and welcome everyone to this conference call for the second quarter of 2022. Before we discuss our Q2 results, I'd like to touch on current market conditions. While our operational performance has been strong, our stock price has been impacted by sell-offs across equities in both the broader markets and in the precious metals. The gold miners' equities have disconnected from the actual metal prices and have underperformed their underlying commodities. Year-to-date, the S&P is down over 20%, gold and silver equities are down 30%, and similarly, our stock is trading down about 30%, despite our robust operational performance. We remain confident that the current environment is bullish for gold and silver, especially as we are nearing peak rate expectations in this hiking cycle and inflation remains persistent. Recently, we've seen positive movements in our space. We expect this trend to accelerate in the second half of this year with the potential for precious metals to make a strong rebound. So with that view on pricing, we have once again made a strategic decision to withhold the sale of a meaningful amount of metal. At the end of June, we were carrying approximately 1.6 million silver equivalent ounces in finished goods inventory with a market value of almost $35 million. Given that almost one full quarter's worth of metal remains in finished goods, our financial metrics were negatively impacted. Revenue decreased by 35%, earnings declined by 275%, and operating cash flow before working capital fell by 60%. With the benefit of having more than $115 million in cash on the balance sheet and no material debt, we have both the liquidity and flexibility to support this short-term sales strategy. However, We do expect to put cash back on the balance sheet by selling our finished goods inventory when silver prices strengthen. Our two operating mines, Guana Seville and Balanitos, have generated excellent results during Q2. Silver production increased by nearly 30%, driven by strong performance at Guana Seville, while gold production decreased by 17%, primarily due to the closure of the El Compass mine last August. Guantanamo City has been outperforming due to the mining of higher grade ore within the El Curso ore body and increased purchase ore from local third-party miners. While it's been very rewarding to see grades reach these levels, we expect the grades to be lower going forward, but still higher than planned. Additionally, in Q2, throughput was lower than planned as we invested in a new cone crusher at Guantanamo City. This will allow us to increase throughput in the second half of the year. For the quarter, our cost per ounce metrics have been tracking relatively in line, with cash costs averaging a little over $10 per ounce and all-in sustaining costs averaging a little over $19.50 per ounce, net of the gold credit. Our direct operating costs per ton have increased by 10% due to inflationary pressures across a number of inputs. The additional production from the exceptional grades at Guana City have allowed us to maintain our cost guidance on a per ounce metrics, but industry-wide inflation continues to be relevant. Like other miners, we were impacted by similar inflationary trends. Increases in prices of raw materials such as reagents, explosives, steel, diesel, and power are all driving continued cost escalation across the industry. As you saw in today's news release, we increased our annual production outlook. to reflect better the anticipated operating performance mainly at Gowanus V. We are now targeting to produce 7.6 to 8.0 million silver equivalent ounces for this year. Overall, and after factoring in positive operating results in the first half of 2022, we increased our production outlook at Gowanus V by 12% in response to the higher than planned ore grades along the El Curso ore body. and we tightened up the forecast at Bolonidos to meet the upper end of its previous guidance. While we maintain our original cost outlook, costs are likely to be at the upper end of the respective ranges, with cash costs expected to average closer to $10 per ounce and all-in sustaining costs expected to average closer to $21. We acknowledge that global inflationary pressures are expected to persist for the rest of the year. As such, we have identified efficiencies to mitigate pressures on costs and cost metrics. With our operations running well, we are getting closer to reaching a financing deal and a subsequent development decision at Terranera. To continue with the advancement of the project, the Board has approved an additional $23 million in development expenditures until the end of October. This investment is on top of the $18 million already spent up to June 30, 2022. This brings the 2022 development budget to $41 million, signaling a vote of confidence by the board and allow us to move ahead with early works while we work tirelessly to complete a financing plan. At the same time, we are moving forward with engineering, construction of access roads, site clearing, and purchasing of long lead items. With respect to equipment, I'm pleased to say that we've locked in prices on much of our long lead items to mitigate these inflationary pressures. Since Terran Air will be our largest and lowest cost mine, it's a significant priority for our management team. We're working very hard to complete a financing package and look forward to providing Mark with an update in the coming months. Along with Terran Air, we're building an impressive pipeline of new projects to fuel our future growth. Subsequent to quarter end, we complete the acquisition of the Pitoria project from SSR Mining, which is the world's largest undeveloped silver deposit. Not only does this important acquisition allow us to maintain a high leverage to silver on our pathway to growth, but it strengthens and complements our regional expertise. For the remainder of the year, our exploration team will focus initially on verifying the historic resources and then turn their attention to the many exploration targets on this highly promising property. Let me wrap this up. This is truly an exciting time for Endeavor Silver. For the potential we see in the capital markets, and for our operational performance. We've made operational and strategic improvements in all areas of our business and built a remarkable pipeline of growth focused on benefiting from longer-term strength in silver prices with Terranera, Pitharia, and Perel. Let's just stop there and let's open up for questions. Operator, over to you.