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spk02: 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.
spk00: 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.
spk01: 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.
spk02: 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're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We'll pause for a moment as callers join the queue. The first question is from Heiko Ihl with HC Wainwright. Please go ahead.
spk04: Hi, everyone. This is Marcus Gianni calling in for Heiko. Thanks for taking my questions, and congrats on the good quarter with raising guidance. So you guys speak about cost control and the release, obviously not easy to do in the current environment, but keep focused with the firm right now and pretty much for everyone else in the industry as well. Out of curiosity, can you break down where you think you can wring out some efficiencies out of the business and maybe even quantify the savings by category?
spk01: Yeah, it'll be difficult, Marcus, to quantify some of the savings by category. Some of the things that we're looking at is mainly on our development side with the amount of meshing and bolting we're doing. So we're seeing a high increase in our bolting and meshing costs, which is really the inflationary we're seeing in steel. We're kind of re-looking at how we can better deploy that going forward. Obviously, the biggest thing for us is that Gowanus V, and it's really an economies of scale. You can see that Our mining rate actually hasn't hit what our plan has been for the year and ultimately our processing tons also haven't hit as planned for the year. We're slightly below on a tons per day or on the lower end of our original guidance for tons per day through the plant. And that's a function of a couple of things that we did in the first half of the year. One, changing out a cone crusher. Other stuff's been maintenance on leach tanks. And a lot of that work's been done and the cone crusher is installed. And I think that's going to allow us to get closer to 1200 tons per day. As we get up to the 1200 tons per day for Guana Civi, we're going to see our cost per ton come down and ultimately that will make its way through. That's some of the efficiencies that we've been looking at for the second half of the year is ensuring that we're hitting our throughput tons to get the economies of scale in some of those inflationary things. Things like diesel and power costs. There's very little we can do. We're obviously accepting those costs as is. It's just finding efficiencies and productivity throughout the operations and I think there's still a lot of opportunity at Guana Seville to be able to do that. Secondly, as prices have come down, our royalty costs at Guana Seville are going to come down as well. A big portion of our costs is the royalties that come from El Curso. Again, when silver was over $25, we paid it 16%. Royalty on it between $20 and $25, we paid 13%, and below $20, we paid 9%. Ultimately, we are getting some cost savings in the royalties with these lower prices that will help push down some of our costs going forward as well. But of course, we would prefer to have higher prices and paying higher royalties. Okay, perfect.
spk04: Yeah, that was really helpful. And then lastly, congrats on Peteria. Would you be willing to venture a guess as to how much you've spent on the site since closing and an approximate estimate as to what you expect to see for the remainder of the year on a monthly basis? And then I guess pushing our luck a bit further here, any idea how these combined funds break down into labor and claims fees, et cetera?
spk01: Yeah. I mean, you're not pushing too much. Claim fees and labor, most of our costs that we're carrying, there's 28 individuals that work that we've acquired when we acquired the Pizzeria project. On a monthly basis, a burn rate there is about $100,000 to $200,000 just with keeping the plant, or sorry, the camp and those individuals employed and going through that. Since we've acquired it, which closed shortly after Q2 here, we haven't incurred all that much. I mean, we're kind of mobilizing our exploration team to start a project. And at the beginning of the year, we've had a $1.8 million exploration budget for pizzeria. We think we are going to come close to that 1.8 in the six months, depending on how we can get mobilized. As far as breakdown between labor and actual costs, I would say probably about 1.8. Labor costs can be somewhere between $500,000 to $700,000. Some of that would be on new exploration geologists, contractors in there, but I don't know if I need to give much more breakdown in those terms for Pitoria. We do have good plans. Like I said, we have to prove out the historic resource. That will take some time. And then ultimately, we have a couple plans with regards to exploration. One, there's an exploration ramp that's about 1.1 kilometers in. It needs a workaround. It's come through a fault that's collapsed. We'll have to work on that. And then there's targets from surface that we're going to consider. And ultimately, we'll get some of that work done here in the next four to five months. and then come up with a new plan for 2023 for PIT3O. The carrying costs on claims is very small. I'd say less than $200,000 for the year. That would have been all paid. Normally, that's paid in January and July. Gotcha. Okay, perfect. Thanks a lot. That's it for me. Thanks for the questions, Marcus.
spk02: The next question is from Jake Sikelski with Alliance Global Partners. Please go ahead.
spk05: Hey, Dan and team. Thanks for taking my questions.
spk02: Hey, happy to.
spk05: Obviously, we had a strong first half on the back of higher grades. And you mentioned they'll moderate a bit, Dan, in the second half, but still remain a little bit elevated. Are you able to quantify this at all? I'm trying to get a handle on what type of profile we might see in the second half.
spk01: Yeah, I think we just always concerned that some of the grades that we're seeing come through going to see have been higher than what our reserve grades are. We are continually seeing the grades in this area being higher and you can even point to some of the drill results that we put out earlier this year on an extension of El Curso, which had a significantly higher grades even that we've mined and ultimately. We do think there'll be a reversion to what the reserves actually are, and we want to be kind of protective to that. But still, again, we expect that we're going to be higher than planned. I can't put a specific number on it at this point. I think we averaged close to 450 grams per ton of silver equivalents in the last quarter, and I think that would come down almost kind of 8 to 10%. So we're close to the 400 grams silver equivalent per ton. Okay, that's helpful.
spk05: And then just looking at the disconnect, you know, that you mentioned between precious metals equities and where prices are right now, you know, realizing that development's accelerating at Terra Nera, you know, you just closed on Peteria. Do you think you'll continue to take an opportunistic stance from an M&A standpoint, or do you sort of feel that your plate's kind of full right now?
spk01: No, yeah, our plate is definitely full right now. But at the same time, we haven't put down the pens with regards to potential that's out there to build the company. And ultimately, I think being opportunistic is a good approach to take, especially on M&A. And we do have a long-term view that silver prices are going to be higher than where they are now. And ultimately, we think that will persist for a long time. And it's hard to find silver assets predominantly silver assets in the space and I don't think it's prudent to kind of put pens down and not look at things so we continue to look at things of course as we grow cash flow is going to become more meaningful and trying to find cash flowing operations would probably take a priority over a development project just on you'd be able to use the funds but at the same time we don't stop looking at those things because if there's value to be had we want to be able to take advantage of that Got it. Okay, that's all for me. Thanks again. Thanks for the questions, Jake.
spk02: The next question is from Joseph Rieger with Roth Capital Partners. Please go ahead.
spk06: Hey, Dan and team. Thanks for taking my questions. I think most of the stuff I want to touch on was already touched on by the prior two people, but maybe a little bit more detail on cost inflation. How do you guys think about the impact of these cost inflations you're seeing when it comes to the TerraNero project? Do you feel that the estimates you have out there publicly you're comfortable with? Do you expect that you'll have to change them? Do you take a proactive approach of doing a larger financing package? What are the puts and takes there?
spk01: Yeah, thanks Joseph. I think that's a very fair question. It's something that we are very mindful of. I think the good news from our standpoint with Terran Air is we've locked in a lot of lead items. So our mobile equipment fleet with Sandvik, I think 22 of 33 pieces of equipment have arrived and are on site. A number of plant equipment items that have locked in those prices so really it's going to come down to the inflation on the infrastructure and we've looked at it and. it's not that we're uncomfortable with 175 million dollars that's in that feasibility study but things have obviously changed over the past year with regards to inflation and I think that's going to come its way through. I think when we come out with a development decision for Terra Nera, we're going to be able to come out with a new estimate from a capital standpoint, taking in consideration what we've already purchased, which would be locked in and then inflationary costs that would be built into the project. Again, I think we'll come out with that when we come out with a development decision, but there's definitely been inflation across the space and we're quite mindful of that and want to make sure that When we go to build Terran Air, we have a budget that's actually reflective of what's happened out there and what we can purchase for and be able to guide the market appropriately.
spk06: Okay. Maybe a little bit further detail there. What percentage of the $175 did you guys already lock in?
spk01: We've locked in almost. So we've got a $41 million development budget, which includes equipment, that we've already purchased. As far as the $175 million of what percentage is already locked in, I don't have that in front of me, but I'm guessing it's more towards the 25, 30% range.
spk06: Okay. Okay. Fair enough. I'll figure something else in there. And then, you know, looking at Guantanamo City, and I think Jake tried to get at this too, even with the guidance raised, it It feels as though there's still some room to the upside there. You know, if grades were even, you know, for silver at least 50 grams lower than they were even in Q1, you know, you would easily get to the midpoint of guidance, of the revised guidance there. You know, and that's even at the low end of your tonnage guidance. So, you know, is it that... You guys have some concerns that the times may end up being a little lighter than originally expected? I know you said you've been behind schedule, but is there some thought that you might not be able to catch up? Or is the grade really going to fall that much? How do I account for that?
spk01: Yeah, no, I think it's a fair question. We don't expect our tonnage in the second half of the year to be lighter. In fact, we expect it to be better than the first half of the year, just because of the work that we've done in the plant and our expectations. One of the things that makes it difficult for us to guide is how much third party ore comes to the plant. With the higher prices, more ore comes to the plant. We actually saw some of the highest grade ore delivered to the plant by third party miners in the first half of the year. So that's one aspect of it that we have to be cautious of when we guide what grades are ultimately going forward. And that can vary, like I say, just because of prices or we don't specifically have transparency into the minds of some of the third local miners of what grades they're going to have. And ultimately, they don't probably really know either. So we're taking a guess submit there. And ultimately, as we move into down the El Curso ore body, we do have estimates done through reserves, and we have to use that as a guide. Now, we have been seeing higher grades than those reserves, but we can't just go and change our reserve grades with the idea that it's going to improve other than us putting out further data on it. And I think we're being relatively cautious with our expectations of where grades are going to be in the second half of the year. But yeah, there's quite a possibility that we beat that middle of guidance for sure if grades continue to be elevated compared to what we had in our operating plan.
spk06: Okay. And then on the third-party order, just real quick, how many tons of third-party order did you process in the first half?
spk01: In the first half, we did about 13% of our tons were in third-party order. I think almost 15% in Q2 and 11% in Q1. Okay. All right.
spk06: Thanks. I'll turn it over.
spk01: Thanks, Joseph. Very good questions. Thank you.
spk02: As a reminder, if you wish to ask a question, please press star, then 1 on your phone. The next question is from Justin Stevens with PI Financial. Please go ahead.
spk03: Hey, guys. Yeah, congrats on a really solid start to the year here. I think I was going to start just by following on from Joe's question there. When you guys pay for third-party ore, is that at a percentage of metal content or do you pay sort of a flat rate per ton?
spk01: No, we pay at a percentage of metal content. So when it's delivered, we actually make a payment and it's about 60% to 66%, just depending on what's in that ore, of payment per ton on metal content. So with the higher metal content coming in with higher prices, we pay more on a third-party ore basis. And that shows up in our overall cost per ton. Got it. Yeah, that makes sense.
spk03: I think the other sort of question I had was in terms of the El Curso, you know, obviously you guys are paying higher royalty rates for all the oil that comes off that lease. Do you have a rough idea in terms of either tonnage or metal content in terms of the Guantanamo City feed, what is coming from the lease properties versus sort of the existing wholly owned stuff?
spk01: At El Curso, we're required under our agreement with Frisco that minimum 600 tons per day comes from El Curso, so ultimately almost half. I think we've been closer to 60 to 65% of our throughputs related to the El Curso material over the first six months of the year. Perfect. That's great.
spk03: And I guess the only other question I had was, I know obviously you put out a couple lines on Brenner Gold, looking to twin some holes and sort of validate the historical resource there. Any updates just on the timeline or sort of how that's going?
spk01: Yeah, we've got geologists on the ground. We actually don't have drills on the ground yet. That was planned in the fourth quarter, end of third quarter into the fourth quarter. With where prices are, we could look to slow that down. But at this point in time, it's on schedule for, like I say, end of third quarter, early fourth quarter.
spk03: That's for the drilling. And then, you know, by the time I guess you get results, QAQC and then actually look at the modeling and probably be into the next year then, right?
spk01: The next year or the end of Q4.
spk03: Got it.
spk01: Great. All right. That's it for me. Thanks so much. Thanks, Justin. Good questions.
spk02: There seems to be no more questions. This concludes the question and answer session. I'd like to turn the conference back over to Dan Dixon, CEO, for any closing remarks.
spk01: Thanks, Operator, and I want to thank everybody for attending today's call. I know it's the doldrums of summer. I think we put together a really good first half of the year with our operational performance, and I expect the second half of the year to be hopefully as good as the first half of the year. Of course, the main thing that we're working on as a company is trying to push Perinara forward and ultimately put a finance package together so we can announce a development decision. for us to continue to grow in the silver space and keep pushing to what our goal is to become a senior silver producer. Thanks again for everybody attending and talk again.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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