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spk02: Thank you for standing by. This is the conference operator. Welcome to Endeavor Silver Corp. Full Year 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 Malager, Vice President of Investor Relations. Please go ahead.
spk01: Thank you, Operator, and good day, everyone. Before we get started, I ask that you view our MD&A precautionary 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 is Dan Vickson, Endeavor Silver's CEO, Christine West, our Chief Financial Officer, and Don Gray, Endeavor's COO. Following Dan's formal remarks, we will open up the call for questions. And now, over to Dan.
spk04: Thank you, Kalina, and welcome, everyone. I will keep today's call as brief as possible, as all the details were published in today's news release, but make sure I hit some of the key points for our investors. Endeavor Silver had a solid 2022 in what can be categorized as a challenging cost environment. Our production exceeded guidance, which helped alleviate the upward pressure on costs. Inflationary pressures across the entire spectrum of inputs were felt across the entire mining sector. and it was no different for us. We continued to de-risk and advance Terra Nera. Ideally, a financial package would be complete. However, things outside our control has pushed that into this year. I'm confident we will have clarity on this matter in short order. We continue to be excited about the acquisition of the Pizzeria project, both solidifying our presence in Mexico and furthering our strategy of delivering industry-leading growth. On a consolidated basis, We produced 9 million ounces of silver equivalent metal with both silver and gold production exceeding the upper range of guidance by 17% and 4% respectively. The second consecutive year, we've significantly exceeded production guidance. Quantis V was a star performer yet again, accounting for over 70% of consolidated production with silver and gold grades well above plan. In fact, Quantis V had record throughput grades averaging 512 grams per tonne silver and 1.44 grams per tonne gold, while the plant approached 1,300 tonnes per day average throughput in Q4. Overall, the mill performed well, with recoveries averaging just under 86% for silver and just below 90% for gold, demonstrating consistency and stability at the slightly higher throughput. The performance of our operating mine, Balanitos, remains steady. There was increased silver production offset by lower gold production. We continue to evaluate opportunities to increase mine life at Bolognese and are cognizant of Bolognese in the current landscape. The operating team has done a good job meeting their targets. Our strong operating performance enabled robust financial results. Particularly in Q4, as gold and silver prices strengthened, we were able to take advantage of the higher prices by selling most of the silver inventory. As a result, revenue rose by 27%, marking a 10-year best bolstered mostly by volume. The higher revenue translated into increased cash flow with mine operating earnings of $51.5 million, up 42% from 2021. Operating cash flow before working capital changes of $54 million, again, up 68% compared to 2021. And specifically at the site level, Kiwanis to be delivered mind free cash flow before taxes of $30 million and Bolo Nicos contributed just over a million dollars. Our earnings for the year were $6.2 million or three cents per share. I'm particularly pleased that we're able to deliver operating costs on a per ounce basis that are relatively in line with guidance, despite the industry wide inflationary pressures. We ended the year with cash costs of $10.65 per ounce, which is about 7% over our guidance, and all-in sustaining costs of $19.97 per ounce, which is below the lower-end guidance of $20 per ounce. However, industry-wide inflation has been and continues to be challenging. Our direct costs per time were up 16% compared to the previous year as we saw cost increases in a lot of our key inputs. Fortunately, the increased Guana Civic grades offset the increases in direct costs, but cost control will continue to be a key focus for the company going forward. Our financial performance led to a strong balance sheet at the year end. We had cash on hand of $84 million with no long-term debt, aside from normal course leases for equipment. Working capital totaled about $94 million, which includes unsold bullion held at costs of $6 million, but has a market value of $15 million. This past year, we were very busy and productive at Terranair preparing the site for full-scale construction. We spent $41 million on initial development using our own existing cash while we continue to confirm a viable debt package. During the year, the project team delivered several achievements. The full mobile mining fleet is now on site, comprised of 30 units. all the major plant equipment has been pre-ordered with the majority of the equipment scheduled to arrive in the first half of 2023 upgrades the road access totally seven kilometers are well advanced this work will improve slope stability stabilization and drainage as well as enhanced transportation access we commence construction of the permanent camp we commence the back excavation of the plant site and we convince first portal access We are optimistic and excited to provide the market with full details of the financing package in the near future and to announce a formal construction decision. The board has approved an additional $26 million in development expenditures for Q1 2023, while we continue to advance the project. At the outset of 2022, we began executing our three-year sustainability strategy, which is anchored on three pillars, people, planet, and business. We launched or expanded many initiatives to further embed sustainable practices across our organization and create real value for our stakeholders. We took several steps to increase employee development, engagement, and inclusion with positive results across the company. In addition, we amplified our community investments in Mexico, aligned with our priority areas of education and employability. Over the past year, we devoted a significant amount of time and effort across our organization to better understand the potential risks and opportunities related to climate change. These are discussed in our first climate disclosure report that will be published next week, aligning with the TCFD framework. While it's still early days on integrating climate initiatives, we are trying to be thoughtful and diligent in determining the most effective steps for us as we deepen our understanding of the the impact of climate change initiatives on our company. Most importantly, our view of climate change is not solely fixed on risk. There are also great opportunities in front of us. The world is beginning to realize the importance of metals to support the transition to a low-carbon economy. The products we provide sit at the very beginning of the supply chain for essentially everything needed and used in modern society. I encourage you to read our climate report when it's published next week. For 2023, our production outlook continues to be strong with another year of robust grades from GuanaCivi. We are targeting to produce between 8.6 and 9.5 million ounces of silver equivalents, a midpoint which marks a fourth consecutive year of production growth. The combination of higher consolidated throughput and produced ounces allows for a projected unit cost of $10 to $11 per ounce for cash costs and $19 to $20 per ounce for all-in sustaining costs. similar to 2022. At Guantanamo City and Balonitos, we have plans to invest more than $35 million in sustaining capital to optimize performance and maximize output. Of course, as everyone knows, this company has been built through the drill bit, and we are aiming to invest $10 million into exploration for 2023, with the largest portion, $3 million, being allocated to Pizzeria, while Perel has a $1.5 million budget. I want to emphasize how excited we are about the notion of unlocking value through exploration and advance both PITREA and PIREL. Both are expected to advance through economic studies early next year. The scale and impact of PITREA will be very significant for us. In December, we confirmed an indicated resource of nearly 600 million ounces of silver plus material amounts of lead and zinc. This year, we plan to extend a historical ramp to better understand the feeder structures we identified in the deposit. With continued exploration success, we ultimately hope to identify a business case to model an underground operation at Pit Theriault. In closing, it's going to be another busy year. I'm very excited about our outlook as we continue to exercise on our growth pipeline, particularly at a time when silver demand is beginning to strengthen. I think that wraps up my formal comments For today, let's open up the lines for questions. Operator.
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 2. We will pause a moment as the callers join the queue. The first question comes from Heiko Ehle from HC Wainwright. Please go ahead.
spk07: Hi, everyone. This is Marcus Janine calling in for Heiko. Thanks for taking our questions. Marcus, nice to hear from you. Yeah, yeah. Likewise. So you talk about cost control being a key focus for this year and in particular business improvements, given that we're now in March. Can you provide a bit of color as to where exactly you expect efficiencies and how much of that has already been incorporated year to date? And maybe if you could just touch on any cost improvements you've already seen, that would be great. Thanks.
spk04: Yeah, I mean, it's a difficult question because we saw a cost increase across the board last year. I mean, cyanide power costs were significant contributors in steel at Guantanamo City. At Bolognese, it was TCs and RCs power costs. For us, it really comes down to making sure that on a daily basis, a weekly basis, and a monthly basis, we're reviewing our cost reports, reviewing the inputs that are going in, particularly at Guantanamo City. We have significant pumping that happens at Guantanamo City that uses and costs effectively a lot of power and money. We have seen a little bit of a decrease from a kilowatt hour costs up at Guantanamo City and Bolonitos. When it comes to actual improvements, we think we do a really good job at Bolonitos. It's Guantanamo City where we can be better at waste management, managing our waste, managing the tons, being more efficient on a productivity basis of moving tons. I don't know if we've seen that come through yet here March 1st of 2023. It's something that will take time through the year. And there's not big cuts that can be had. The inputs that we need are the inputs that we need. The inflationary pressures on that have been there. We have seen that slow down in Q4 and hopefully that continues through 2023. But it's our job as management to continue to look at it and continue to cut costs where we can.
spk07: Okay, awesome. Yeah, thanks for the color. Obviously, a lot of moving parts there. And then switching over to Terranera, you're sitting on over $80 million in cash, just under $94 million of working capital. How far down would you be willing to take your balance sheet if it means minimizing capital raise and building out Terranera?
spk04: Yeah, I mean, I think the key part to that is the fact that we are looking for a debt financing package, and that debt package would be anywhere between $100 to $120 million. The initial feasibility study for Terran Air is $175 million. We recognize, and when we do have that debt package, we'll likely update the market of where that capital costs are. But to answer your question, ultimately what we want to see and we kind of have on hand just for the two operating assets, somewhere between $30 million and $40 million is a cushion. I think we can get there if we get that debt put in place.
spk07: Okay, excellent. Yeah, just one last quick one. Seeing as you incurred $3 million in smelting and refining costs, any thoughts on where you see these costs going? trending in 2023? I'm assuming the prices are set in advance under contract.
spk04: Yeah, we renew our concentrate contact, concentrate contracts or off take agreements on an annualized basis. I think the key component there is the relatively similar, a little bit lower for voluminous, the key component, all that, what it comes down to is the energy costs of refineries. And as those kind of oscillate, it does impact us. I think for the year we have, like I say, it's about similar to a little bit lower at voluminous. Of course, I want to be reproduced a door a bar that ship.
spk07: Got you. Okay, awesome. Thanks for taking my questions. I'll hop back in queue.
spk05: Thanks, Marcus.
spk02: The next question comes from Jake Tuchelski from Alliance Global Partners. Please go ahead.
spk06: Hey, Dan and team. Thanks for taking my questions.
spk04: No problem, Jake. Nice to hear from you.
spk06: You as well. So, Dan, you touched on moving Peteria and Peral toward the economic study stage. Do you guys have any visibility on the timeline there for those?
spk04: Yeah, I mean, part of that visibility also depends on our exploration program. So at Pitharia, we have a plan to do 5,000 meters, and really that drill meters will happen when the ramp extension is complete, which we expect it to be done mid-year, so the start of Q3, and then we'll drill. Ultimately, for Pitharia, the studies would happen in 2024, just because of the scale and scope of Pitharia. For Perel, we'd actually had a plan to put in place to start economic studies in 2022, but with the acquisition of Pitharia, that pushed it back a bit. This year, we're drilling close to 3,000 meters at Perel, and when that drilling's done, our expectation is we'd move towards economic studies at Perel. So start those studies at the end of the year, possibly with publishing early 2024. Okay, that's helpful.
spk06: And then just on inventory management for this year, I mean, obviously you guys did a good job of taking advantage of higher silver prices in the fourth quarter of last year. Silver prices have come down this quarter. You guys expect to take a similar approach just with respect to inventory management?
spk04: Yeah, a similar approach is probably the right way to say it. I think as we get into the build of Terranera, we get less flexibility just depending on where our balance sheet is. We made some sales at the beginning of the year here when we hit into the 24-run solar, but as you say, we've come down into the 20 handle. We'll see how it goes here in March. Obviously, our balance sheet's in great shape, so we do have that flexibility kind of for the first six months. And like I say, as we move through the year, we'll see how we do it.
spk05: Got it. Okay. That's all for me. Thanks again. Thanks, Jake. Good questions.
spk02: The next question comes from Craig Hutchinson from TD Cohen. Please go ahead.
spk05: Hi, good morning, guys.
spk03: Morning, Greg. Just a question on Terranero. So once the financing package is in place, just based on the work you guys have done today and the commitment to spend here in Q1, what's the timing to first production? How long will the construction period take?
spk04: Yeah, ultimately in the feasibility study, the construction period is a two-year process. Our goal with being able to advance it is still to be commissioning at the end of 2024, so a full year's production effectively in 2025, but hopefully if things go well, knock on wood, we could have first pour obviously back off 2024, maybe commercial production at the end of 2024.
spk03: Okay, great. Is there any color in terms of the timing of the amended permits and anything happening there?
spk04: Our permit team, as a lot of our listeners and investors know, Terran Air is fully permitted. With the feasibility study, we have the permits to start construction, which obviously we've advanced a lot of the things. there are amended permits for operational flexibility. So we don't particularly need the permits to construct, but over the 12 year mine life, we want various flexibility. One being a staging area that we want to push out 300 meters. We've submitted a lot of the stuff. We actually still have some things that we need to submit. We've actually had very good communication with the permitting departments, the different authorities, because there's a number that we have to go through Surmanac, Conagua, and all have been advancing, and over the last, I'd say, three months, we've gotten approval for smaller permits. So all that keeps going, and I reiterate that we have all the permits to start construction and ultimately go into operations. It's just amending permits for operation flexibility.
spk03: Are those amended permits, is that a consideration in terms of the due diligence that's being done by the financing groups? Yeah, yeah, they are. Okay. And just at, I want to say with respect to the royalties are obviously quite high in Q4. Can we expect kind of similar levels of, you know, dollar amount royalties kind of for the balance of this year, just given when you are kind of back into those same areas and portfolio, et cetera.
spk04: Yeah, it's, I'll be careful with that a little bit. The Q4 has an elevated royalties just on what we sold in the quarter. So on an absolute basis, we had sold over a million ounces of silver and there's royalties that would be recognized on sale as per the contract. So today where we sit at $20 silver, between $20 and $25 silver, we pay a 13% royalty. And that aligning with when it's produced doesn't necessarily line up when it's sold. So Q4 has an elevator royalty, but on an annualized basis, we're producing similar amount from that area, which we call El Curso, which is subject to that sliding scale royalty with Frisco.
spk03: James Forrest, Norcal PTAC, And let me just one last question with respected balanitos so how confident are you with respect to kind of reserve extensions to be able to to mine a similar rate next year and balanitos. James Forrest, Norcal PTAC, For 2024. James Forrest, Norcal PTAC, yeah just going to sense of.
spk04: James Forrest, Norcal PTAC, yeah I think it was their lives can be extended here. Yeah, we have resources that we can convert into reserves. I mean, clearly right now with Bolognitos, it's effectively operating at breakeven and there's a number of reasons to operate a mine at breakeven. Firstly, and obviously is the optionality to Bolognitos and to that production. The second is proportional allocation of our costs. Thirdly, we have talent there that ultimately, if one day Bolognese doesn't operate, we want to make sure we can keep that talent to move them to Terranera. That would come in, but we do expect and have confidence that we can extend Bolognese's life. We are getting to the point where we're getting to concession boundaries, so we're not discovering three years or two years. We're finding three months or six months at a time. Our exploration team continues to have some success. We've just got more work to do on that exploration. So level of confidence, I'm confident. I wouldn't say I'm jumping up with joy. I'm not depressed. So somewhere in the middle of all that. We've never had more than a two-year reserve life at Volano's for the last 16 years. And I can say our exploration team has done a very good job there. There's a lot of concessions that surround us that have a lot of opportunities still, and we just have to work through that.
spk03: Okay, great. Thanks, guys.
spk05: Thanks, Greg. Good questions.
spk02: The next question comes from Mark Reichman from Noble Capital Markets. Please go ahead.
spk08: Just a couple questions. You know, you've already laid out your guidance for 2023, and, you know, from a production standpoint, it looks relatively flattish compared to 2022, so it seems to me that grade and prices will make the big difference. So when you think about next year in terms of whether it's going to end up lower or higher in 2022, what do you see as kind of the key variables in terms of getting that cost down? You know, you've already laid out your guidance on the cash costs and the all-in sustaining costs. But, you know, if you do this financing package, I mean, interest rates have come up. So you would have the additional interest expense. But what would be the variables that you think that could drive a better year in 2023?
spk04: Yeah, of course, we put out the range of 8.6 to 9.5. And I think for us... The ability to exceed that plan or hit the high end of that range really comes down to our operating team at Guantanamo City and ultimately our operating team at Palo Alto for that matter. The El Curso, the Alondra area of Guantanamo City, I don't know if we're going to beat grades like we did in 2022, but I think there's an opportunity to stay a little bit above those grades or at those grades. I think we're set up really well. We did a lot of development in 2022 that will give us some efficiencies this year. But at the end of the day, the reason we put out our 2023 guidance is because we expect that's where we're going to be at. I would point to 2021 and 2022. We revised guidance upwards two years in a row, and we actually exceeded those revised upwards guidance. But we'll see how this year unfolds.
spk08: Well, I think a lot of people are looking at Terranera. So, you know, you talked about a construction decision in the coming months. When you're talking about the financing package, what's the biggest holdup there, the biggest hurdle to clear? Is it, you know, getting an acceptable rate? Is it those permitting issues? What do you think would be the breakthrough in securing that financing package? And And how early in the year do you think you would incur more debt?
spk04: Yeah, I mean, at the end of the day, it's project loan financing. And the key aspect to the project loan financing is ESG and ultimately getting commercial banks, so big banks, on side from an ESG standpoint. And what's required for that is an Equators Principle and an ESAP report. That includes over a hundred and... change of different specific reports. And we've spent over the last year documenting a lot of that and building processes and procedures to meet those equator principles. So it's not about terms. We know what those terms would be. It's about timeline and getting through that due diligence. And a project loan financing bank will typically hire an external engineering firm to do that due diligence and write reports and effectively pull apart our feasibility study or our plans. That's all happened. That's been completed. Like I say, I won't get into what happened necessarily this past year at this point, but there is things that were out of our hands. But it's been moving forward. Our team has done actually a really good job on it. I expect, like I said in my outset, clarity and relatively short order on that.
spk08: Okay. Thank you very much. That's really helpful.
spk05: No, thanks, Mark. Good to hear from you.
spk02: Once again, if you have a question, please press star, then 1. The next question comes from Lucas Pipes from B. Reilly Securities. Please go ahead.
spk00: Thank you very much, Operator. Good morning, Dan. Good morning, everyone.
spk04: Good morning, Lucas.
spk00: Dan, I also want to follow up on Terra Nera. I believe the 2021 feasibility study pointed to $175 million of capex. Obviously, things unfortunately changed quite a bit from 2021, and I think you mentioned there could be some offsets to inflation, but just order of magnitude, is a two-handle the right ballpark to think about, or do you think you can keep it below that? Thank you very much for any comment.
spk04: Yeah, Lucas, I mean, that's a very fair question. The two-handle, quick answer is two-handle is the right ballpark, but I'll get maybe a little bit more detail into that. Ultimately, we completed that report in March of 2021, and I think it's dated July of 2021, and we published it and ultimately filed it in September of 2021. I think our engineering team and our development team with the external engineers did a good job capturing some of that inflationary stuff that we started to see in 2021. But of course, nobody's perfect with that. say that because our mobile fleet is entirely on site with 30 units if you compare what we paid compared to what was in that feasibility study we're right on point the 12 key components that we've purchased for the plant are relatively in line to what we saw in our feasibility study there are changes though and there are things that we haven't locked in and ultimately what we've been looking at over the last year year and a half as we push through this financing package and advance terran era is optimizing from that feasibility study. So going from a 1,700 ton per day to 2,000 ton per day has been looked at and it's been looked at over time. And that can offset some of the inflationary costs that we've seen, A, come in from a capital standpoint and come in from an operating on a per ton basis standpoint as well. So we have been leaning towards a larger plant and ultimately more output from the mine to offset some of that inflationary costs. When we have the detailed financing package in place, we will provide the market with where we expect the capital to be, what type of size that Terranero will be. It's not significantly different, but as you say, higher throughput will help offset some of the inflationary pressures that we've seen.
spk00: Very helpful, Dan. I appreciate that. And then one of the earlier questions touched on 2024 all-in sustaining costs. And I wanted to follow up on that and maybe be slightly more pointed. I know it's early, but directionally, should we expect all-in sustaining costs to come down in 2024, or is the current level maybe the best ballpark for the coming years? Thank you very much.
spk04: Yeah. I mean, at the end of the day, Lucas, we put out 23 guidance We have clarity on that. For 2024, all in sustained costs, it's highly dependent on where we sit with Terranera. Quantus V and Balanitos, they're mature assets. We kind of know where their costs have been. They were very similar for about 12 years until the last couple of years they've really picked up. And like I say, I don't think that's specific to Endeavor Silver. I think that's what we've seen across the whole mining space. We try not to put guidance out for 2024. I always just would say you point to Guantanamo City and Buenos Aires would be similar. We know what we have. We know what we're at. But there are things that go into that on an all in sustaining cost per ounce. Grades at Guantanamo City will be important. Of course, our resource grades are very similar to what we have in reserves. So that might continue. But if Terran Air can come online at end of 2024 and the timing that that comes online in 2024 will be highly dependent on our consolidated all in sustaining costs. I think when we come to next year, we would probably give guidance on our existing operations and then guide Terra Nera separately, depending on when we see the end of construction or we expect the end of construction. That's probably the best way I can answer you at this point for next year. Let's see how we perform this year. Hopefully we can be in line or even beat it. And if we can, that will bode well for 2024.
spk00: That is very helpful and very clear. Dan, I really appreciate the color to you and the team. Best of luck.
spk05: Thanks, Lucas.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Dan Dixon for any closing remarks.
spk04: Thanks, operator, and thanks to all our investors and listeners today. Again, as I said in my formal comments, I think 2023 is going to be a very busy year for Endeavour. Of course, pushing forward at Pitharia and Perel is important for our pipeline, but if we can get to a formal construction decision on Terran Air in relatively short order, I think that would be the next catalyst for everyone. Thanks a lot and have a good day.
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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