Endeavour Silver Corporation

Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver Corp. 3rd 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 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 like to turn the conference over to Galina Meliger, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to today's conference call. Before we get started, I would 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 the Disclosure Portal. With us on the call today is Dan Dixon, Endeavour's Chief Executive Officer, Dawn Gray, our Chief Operating Officer, and Christine West, our Chief Financial Officer. On behalf of Endeavour Silver, I would like to thank you again for joining our call, and I'll now turn it over to Dan for his formal remarks.

Thanks, Colleen, and good morning, everyone. Before getting to the quarterly results, I want to take this opportunity to reflect on the sudden passing of our chairman and founder, Bradford Cook, this past August. All of us at Endeavour were shocked and very saddened when we learned of this tragic news. We've been deeply touched by the outpouring of love and support by the global business community and the many thoughtful messages of condolences. Brad co-founded Endeavor Silver in 2003, and he was a driving force behind its many successes, creating the strong foundations that underpin the company to this day. He was instrumental in building Endeavor from the ground up into a mid-tier silver producer with an industry-leading growth profile. While his vibrant personality, insight, and sense of humor will be deeply missed, we are inspired by his pursuit of creating shareholder value. Collectively, we now carry a greater sense of duty to deliver on our objectives and carry forward Brad's legacy. When we had our earnings call three months ago, I spoke about the economic backdrop and market turbulence. Certainly as an industry, we are facing significant external challenges. Many of the same risks and trends continue to impact equity valuations for miners in Q3. including cost inflation, rising interest rates, and lower prices. Both silver and gold reached two-year lows in September. Margins are being squeezed on both sides. While we remain proactive in managing this environment, I remain optimistic about our future. Our safe production performance, the strength of our balance sheet, and our management team allows this. We remain bullish in our long-term view given the demand fundamentals of silver. While short-term movements in price must be considered and managed, our overall strategic focus remains the same, which means advancing our exceptional growth projects. This quarter, we generated revenue of $40 million, which was impacted by withholding metal sales and lower realized silver prices. Earnings declined by 67% to a loss of $1.5 million, or a loss of one cent per share. Operating cash flow before working capital changes fell by 4% to $7.3 million, or 4 cents per share. We've continued to carry metal and finished goods inventory, with a market value of $35 million at quarter end. Given that almost one quarter's worth of metal remains in finished goods, our financial metrics remain muted. Our cash balance decreased from $103 million at the end of Q2 to just under $70 million at the end of Q3. This drop is largely due to the $35 million cash payment for the Pizzeria acquisition. While mine operating cash flow continues to be invested to prepare the Terra Nera project for construction. If we were to realize the sale of our carried inventory value at over $35 million, our cash balance would approach $100 million. Q3 was a quarter with several significant developments and decisions. First off, we had a 10% upwards revision to our consolidated production guidance, guiding 7.6 to 8 million silver equivalent ounces produced in 2022, which marks the second year in a row we've done so. On the exploration front, we released very positive drill results at Guana Seville, including encouraging results extending the per minute dose area. We also released positive drill results at Perel, where we see potential for resource expansion to depth and a long strike on the Beta Colorado structure. Drilling will lead to meaningful resource growth, and we look forward to publishing a resource update early next year. We divested El Compass, where we ceased operation in August 2021 for $5 million. And as previously noted, we completed the acquisition of the Pizzeria project from SSR Mining for $70 million in cash and shares. This is a big milestone and a noteworthy addition to our growth pipeline, as it's considered one of the world's largest undeveloped silver deposits. And lastly, following Brad's passing, Rex McLennan was appointed our chairman. I look forward to working closely with Rex to ensure Endeavour continues to create long-term value for all stakeholders, including our shareholders, employees, and communities. Operationally, I want to recognize the team at Guantanamo City for continuing to lead the way in safe production performance. This September, Guantanamo City reached over 2.5 million hours of work without a single lost time injury. We are proud to celebrate this milestone with all our team members. Consolidated silver production for the quarter was about 1.5 million ounces. This is a 12% year-on-year increase and a 7% higher quarter-over-quarter. The growth in silver production was primarily driven by the higher grades from the El Caruso Orb on Aquanis V, as production targets were reached despite lower grand-time throughput. Consolidated gold production decreased by 17%, primarily due to the closure of the El Compass operation last August. This quarter, we produced 2.2 million silver equivalent ounces, totaling 6.3 million silver equivalent ounces for the nine months ended September 30th, 2020-22. We are well positioned to meet or exceed the high end range of our improved production guidance. If we can exceed guidance, it will be the second consecutive year. For the quarter, our cost per ounce metrics have been tracking relatively in line with guidance and the first half of 2022. With cash costs averaging a little over $10 per ounce and all in sustaining costs averaging a little over $20 per ounce net of the gold credits. The additional production from the exceptional grades have allowed us to maintain our cost guidance on a per ounce metric. But industry-wide inflation continues to be highly relevant. Our direct operating cost per ton has increased 12% year over year due to the inflationary pressures across a number of inputs. We are aggressively pursuing cost management initiatives to mitigate inflationary pressures where possible, while working to ensure that our higher costs do not remain a permanent feature of the business going forward. Qantas V delivered yet again another stellar quarter. As compared to Q3 2021, silver production was up 13%, with silver grade being 21% higher. This more than offsets the 7% decrease in tons during the quarter. Similarly, higher gold grades were offset by the lower throughput, delivering flat gold production. The improved grades from the El Curso area, which is subject to a royalty that is based on silver prices and contributes about two-thirds of our mine output, is a primary factor. Grades from El Curso have slightly exceeded model estimates to date. At Bolognese, production results are largely in line with expectations, and we are on track to meet our annual target of 2.4 million ounce silver equivalent. While gold grades were below target, silver grades were up 36% year over year. Mine development continues to be important for Bolognese, which pushed our all-in sustaining costs of $48 per ounce in Q3. I would stress that our operating costs were $6.73 per ounce, and while all-in sustaining costs is an important metric management uses, we understand the long-term value of mine development, and ultimately expect to recover this investment over a period of time, not in a singular quarter. In Q3, Bollinger's free cash flow was negative $1.9 million, and that includes their capital and exploration expenditures, which totaled $3.7 million for the quarter. Annually, Bollinger's has generated $1.6 million of free cash flow and an annual operating cash flow of $11.4 million year-to-date. Clearly, improving cash flow at bull yields will continue to be an area of focus as we move into 2023. Moving to our growth pipeline, TerraNero remains a top priority. It's a transformative asset that will make Endeavor the fastest growing silver miner with close to 100% production growth in two years. It is strategic for the company for many reasons. One, it is a mine with reserves that supports over 10 years of operations. And two, it's a low-cost mine that will drive significant profitability. As many of you know on this call, we've been working diligently with project lenders to complete a financing package ahead of a formal construction decision and receipt of amended permits. As part of this, we've completed ESG requirements as laid out by the equator principles with third party verification. In the meantime, the board has approved and elected to de-risk various aspects of the project in a disciplined manner to minimize risk towards a construction decision. We currently have approved a $41 million budget of which 29 has been spent to date. As we commence with the procurement of many long lead items, we were fortunate to have secured a number of key contracts before the spike in costs and supply chain issues accelerated. The vast majority of the mobile mining fleet has now been delivered to site. To date, we've received 30 Sandvik and Getman units, including jumbos, bolters, scoops, dump trucks, cranes, and other support equipment. Major mill equipment has been ordered. We expect delivery of the sag mill, primary crusher, and pebble crushers in the first half of next year. And the team has kicked off earthworks for the plant area, started preparations on portal number two, and started to prepare the area for a permanent camp facility that will accommodate 550 personnel. As you can hear, we're working on multiple fronts to advance Terranera and achieve good momentum with pre-development activities. In the coming months, we look forward to providing an update on the financing. While Terranera is our nearest source of growth, we also completed the acquisition of the Pitoria project in Q3, one of the largest undeveloped silver assets in the world. Pitoria has the potential to be a large-scale cornerstone asset. We are nearly complete verifying this historic resource and believe it will add over 500 million ounces of silver to our consolidated mineral resource inventory, effectively tripling our total precious metals resource estimate. Next year, we will turn our attention to extending the underground ramp and developing cross cuts for underground drill pads to drill vertical feeder structures. Fully understanding these structures will be a crucial part of our next steps at the 3M. With this, Let's stop here and open up for questions, operator.