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spk07: 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.
spk05: 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.
spk02: 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.
spk07: 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 2. We will pause for a moment as callers join the queue. The first question is from Heiko Ille with HC Wainwright. Please go ahead.
spk01: Can you hear me okay? We can hear you well, Heiko. Very good. You mentioned ongoing inflation in your release. Not a big secret there, obviously, but more important than the inflation almost Are there any parts and availability bottlenecks that you're encountering already? And building off of that last question, are you pre-buying any components because you anticipate shortages or you feel like delivery timelines are getting worse? And if so, what are they?
spk02: Yeah, that's a very good question. I think we've been insulated from that a little bit because of all the equipment that we've been buying from Sandvik since 2019. So we replenished our mobile fleet at both Bolognese and Guanesi over the last three years. And a lot of the parts that we're getting from Sandvik as critical parts from a mobile fleet standpoint, we haven't had any issue with and ultimately no disruptions. From a plant standpoint, a lot of our critical spares sit on site, the ones that we've identified. And I mean, I'm sure there's things time to time that we need to get various parts, but I've not heard of any issues that we've had lately with that. So for us, it hasn't been much of an issue, maybe because we've been situated. But I have heard that across the industry a little bit from other groups. It's just, like I say, it hasn't really impacted us to this date. And we think we're in really good shape going forward.
spk01: Very good. Thank you. And I apologize for bringing up inflation again. Just a quick clarification there. You're spending $41 million at Terranera this year. Any idea on what you think you'll need for the site in calendar 23? I mean, is there any big ticket or long lead time items that aren't there or like in a certain part of the supply chain? And would you be willing to guesstimate maybe the development expenses or just in general expense to the site for next year?
spk02: Yeah. I can't give overly clarity on that until we actually have a formal construction decision. I mean, ultimately right now, build costs for the feasibility study is $175 million. And of course, we've seen inflation since that 175. And as I alluded to kind of in my preamble is ultimately that we've locked in a lot of our costs with the mobile fleet already being there and a lot of 12 critical parts for our mill being already ordered. And I think we did a good job of that this year to kind of get ahead. and lock some of those prices in, we will see cost creep from that 175 when it's all said and done. We've been trying to optimize that project this year as we work through kind of the amended permits and trying to get this debt package in place. Ultimately, when we come out with that, we'll probably at that point be able to discuss more in detail the total cost to build Terra Nera, which would be slightly higher. I don't expect significantly higher, but slightly higher. and then give that timeline. The timeline to build it is still about two years. Hopefully we can beat that a little bit. And I would guess that $175 million plus inflation is pretty homogenous over that two-year period. So until we come out with budgets, which will be January of 2023, I'd probably leave it at that, Aiko.
spk01: Fair answer. I appreciate it. I'll get back to you.
spk02: And God bless, Brad. Yeah. Thanks, Aiko. Thanks for your questions.
spk07: The next question is from Jasper Widge with Valpol. Please go ahead.
spk03: Thank you. So, can you hear me? The silver and gold grades have been elevated at Granachevi over the entire year due to high-grade ore from Del Curso ore body. Do you expect similar grades moving into 2023, or do you expect them to come down a little bit
spk02: Yeah, it's a very good question Jasper. Thank you. We have seen elevated gold grades from the El Curso ore body and if you follow this year's drill results from Guana City, we've actually put out some really nice results from a width standpoint and from a grade standpoint. And ultimately we might see that grade come down a little bit, but I think it will be higher than where our reserves sit at this point going into 2023.
spk03: Thank you. A follow up question. So now we have roughly two-thirds of the work coming from Del Corso. Moving into next year, do you think that will increase or roughly remain the same in percentage?
spk02: We expect it to stay relatively the same for next year as well.
spk03: Okay, and the overall trend, if we look three years from now, Will it become more dominant or do you think it will stay the same?
spk02: The expectation would be the same. So with the contract that we have with Ocampo, which is a Frisco company, we're required to produce about 600 tons per day. We've been doing a bit better than that, 650 tons per day from El Curso. Based on the reserves and resources and kind of the allocation or the split between our reserves over at Santa Cruz Sewer or Malachi, the expectation kind of over the next two to three years would be that El Curso production remains about 650 tons per day.
spk04: Okay, okay. Thank you. Well, that was everything for me. Thanks, Jasper. Good questions.
spk07: Once again, if you have a question, please press star, then one. The next question is from Craig Hutchison with TD Securities. Please go ahead.
spk02: Hi, guys. I was going to ask a similar question with regards to quantity in the grades, but I think you kind of answered that. But just maybe for Q4 specifically, you guys are trending above guidance. Is there anything to, you know, believe that it wouldn't be very similar to Q3 and Q4? Yeah, the only change between Q4 and Q3 will come down to December. Obviously, around Christmas period times, things do slow down a little bit. Sometimes we see throughput decrease a bit. But I would agree through observation that if we have a similar quarter in Q4 as we did at Q3, we'll be able to exceed guidance. We always try to be a little bit conservative and cautious here. And like I say, there's things in December that impact kind of a slowdown a little bit around operations. But if everything goes well, we could exceed guidance two years in a row. Okay, great. And then just at the financing for Terranera, I know you mentioned it's still a couple months out, but any kind of updates on that? What are the final due diligence procedures here? And then maybe a similar question with the amended permits, timing around that. Yeah, from a debt standpoint, I mean, we've gone through a lot of work with regards to ESG and documentation, obviously the feasibility study. And then we've done work around optimizing that feasibility study as well. So getting kind of advisors to the banks, updated kind of narratives and support for any optimizations that we're doing. And ultimately, we see projects that's relatively the same, like the inflation project. increase on capital hopefully can be offset potentially by increases in throughput or slight little changes into the operations that will offset a little bit of those inflationary costs that we've seen. Hopefully we can get through some of this stuff by the end of this year, probably into next year a little bit. Things take a little bit of time and I understand that, but we want to push and get moving on that. As far as the amended permits go, same thing. We've actually submitted a lot of our amended permits that we required a little bit of work to be done to recharacterize some things that we've got to do internally. But normal core stuff that we expect to get, it's just sometimes things slow down in the government and it's out of our hands and out of our control. And We're doing our best to be able to push that and make it as easy as possible in the government. We have been getting permits on various projects with Guantanamo or various movements in permits at Terranera. So nothing's been stalled. It's just, I'd say, the flowiness of the government. And hopefully we can get that done. Some of it by the end of this year, some of it will go into next year. But I would state from a permit standpoint, we have all the permits to start construction. The amended permits will give us flexibility for operations. Some will need, because of timelines, some do need some renewals, but those renewals are kind of normal course items as well. In terms of the permits for, I guess, production or operation, is it around tailings? Only what specifically is required. Yeah, so we're amending permits around one of the portals for higher staging area. We're amending permits to get bigger waste dump areas. Aneha, which is the archaeological department, they're clearing the tailings facility, but that's already been cleared by Kanagua and Sermonat. So, like I say, it's generally normal course stuff. Okay. Thanks, guys. Thanks, Greg. Thanks for those questions.
spk07: The next question is from Lucas Pipes with B Reilly Securities. Please go ahead.
spk06: Yeah, thank you so much, operator. This is Nick Giles calling in on behalf of Lucas. I think most of my questions have been answered so far, but maybe just one quick one. You know, when you look a little further down the pipeline, which exploration assets could be next? What kind of looks most promising for maybe near to medium-term development? Thank you so much.
spk02: Yeah, thanks, Nick. I think that's a very good question. One project we haven't really touched on much. We did put out good results this year at the Peral project, which is in Chihuahua. We've been working on Peral now. We acquired it in 2016, put out a resource by the end of 2019, which defined about 43 million ounces of silver. Unfortunately, with COVID, we didn't start drilling there again until mid-2021. And since then, we've actually put out really good results with better width and better grades than we've seen. And we're targeting a certain resource number, which is about 60, 65 million ounces of silver. And then we're going to put an economic study on it. And I think with the acquisition of Pizzeria and having Peral, we've got a nice growth pipeline behind Terran Air even. And ultimately, they're totally different scale projects. Pizzeria is obviously one of the world's largest undeveloped uh silver projects and we're going to look at that and kind of with an open mind but with the idea that perhaps that will be an underground operation as well and corral is just a bit smaller than what pizzeria would be it's an old historical district um there's old historical workings there so we actually have development already down to where we're drilling from an exploration standpoint um and with the success that we have at corral from a from a drilling standpoint and if we can continue to have that success We will put an economic study on Perel, and that could be option B if PITREA takes longer, if we need different economics there. So, between Terranera, Perel, and PITREA, I think we have one of the best growth profiles in the space.
spk06: Great. Great. Well, that's really great to hear. And maybe, if I'm not mistaken, just with the proximity of Perel to Guanacaville, do you see any operational synergies there, or do you see those as kind of two standard-like projects?
spk02: They'd be two standalone projects. I mean, ultimately, there still needs to be a plant at Perel. And there are plants in that district, privately run, some old government plants. But just the way that those operations are, I think they're still three and a half, four hours apart. There wouldn't be all that much. I mean, of course, spreading across our centralized systems, which are regional works, our technical advisors, our accounting groups, our legal groups, you get synergies that way. But they would be standalone operations when it's all said and done.
spk06: Got it. Got it.
spk04: Well, thanks for the detail and continue best of luck. Thank you. Thanks for the questions, Nick.
spk07: Once again, if you have a question, please press star then one. The next question is from Joseph Rieger with Roth Capital Partners. Please go ahead.
spk00: Hey, Dan and team. Thanks for taking the questions. Hey, Joe. Happy to hear from you. Yeah. Yeah. So on Terranera, theoretically sometime early next year, you guys make a official construction decision. I know you can't officially say that, but theoretically, let's assume you did. What would be the expected timeline to production from a construction decision, given you guys have done some work already? Like I'm assuming it's changed a little bit for maybe the PFS? Yeah.
spk02: Yeah, ultimately the feasibility study had a two-year timeline to build because of what we've been doing and all the early works that we've been doing. Hopefully from when we announce a construction decision, it would be shorter than that two years, but I'm not willing to kind of put it out there until we actually have that construction decision, that timeline. Okay.
spk00: And could you quantify like how much time you've taken off so far or is that – you know, something you'd rather wait on. That's a roundabout way to ask the same questions.
spk02: But ultimately, I think we could be under the two years. Okay.
spk00: Fair enough. And then Bolinitos, you know, kind of looking at what the resource was at the beginning of the year, what your, you know, how many times you've taken out of it this year, it would, you know, unless you've added significant amount, which I guess we'll find out in the year-end resource update, but would you expect that mine to start winding down towards the end of next year or the year after? And then when it does wind down, would the expectation be to do something similar to sell it off like you did El Cubo? Or would you repurpose some of the equipment from there to one of your other projects?
spk02: Yeah, I mean, I'll be able to answer that in the way that At Bolanitos, we do have, like you say, two kind of years of reserves based off the reserves and resources last year. And we've been drilling there this year, and we've been adding some resources, and we'll get that out when we put out new reserves and resources. It'll actually be in January as opposed to the end of this year. And Bolanitos, we've been there for 15 years. We've never had more than two to three years of reserves in Bolanitos. There are times, especially where we're seeing today, where prices are, maybe yesterday would be a better example. It makes it look like millennials is probably coming closer to the end, but take into account the resources as well, our indicated resources and our inferred resources. I'm hoping we can get past 2024 and into 2025, and we still have a lot of expiration potential there. areas that we can go drill. It's not necessarily we'll find big, large structures that give us 10 years, but if we can keep on incrementally adding another year or two years, we can keep pushing forward. So the idea, hopefully, is that we end up being at Ballinato's kind of three, four, five more years. And at the end of that life, when it does happen, we'll look at all alternatives, whether that's selling the asset, um or or dismantling and moving parts of it but we consider what we have else to move but um i'm not it wouldn't be giving up on polonidos yet i think there's also ability to acquire concessions in that area as well that will help extend mine life so there's lots of time and lots of optionality still left at polonidos great to hear all right i'll turn it over thanks dan thanks joseph good questions
spk07: This concludes the question and answer session. I would like to turn the conference back over to Dan Dixon for any closing remarks.
spk02: Thanks, Operator. Again, I'd like to thank our operating team at Guanesi with a successful safe production quarter, again, reaching 2.5 million ounces of man hours without an LTI, and I think that's a very important thing. And ultimately, we're in an interesting period We'll see where silver and gold prices go. And I think it's important to note that our management's job is to manage through these periods. But the long-term outlook with PITREA, Perel, and Terran Air, I think the company set up to do very well over the next handful of years. Thank you, everyone.
spk07: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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