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spk04: Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silvercorp first quarter 2023 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 Melliger, Vice President of Investor Relations. Please go ahead.
spk03: Thank you, Operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary 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 Dixon, Endeavour Silver's CEO, Christine West, our Chief Financial Officer, and Don Gray, Endeavour's COO. Following Dan's formal remarks, we will open the call for questions. Now over to Dan.
spk02: Thank you, Galena, and welcome everyone. 2023 is off to a strong start. Not only was it a good quarter for our operating minds, but we also attained a significant milestone towards building the long-term future of the company. Consolidate Q1 silver equivalent production was up 18% year-over-year to 2.4 million silver equivalent ounces. Ultimately, this performance puts us in great shape to achieve this year's production guidance of between 8.6 to 9.5 million silver equivalent ounces. Once again, from a production standpoint, Qantas V had a positive quarter, driven by robust silver and gold grades. Adam Finkelstein, Our middle performance was impacted to the extended maintenance of our on our mill liners and concentrate filter cloth changes in February, while throughput returned to plan levels in March, it was down 13% quarter over quarter averaging 1138 tons per day for the quarter. Adam Finkelstein, The performance of our other operating mind balanitos remain steady there is increased silver production offset by lower gold production. We continue to evaluate opportunities to increase mine life at Boloneros and are cognizant of Boloneros in the current landscape. Their operating team has done a good job meeting their targets. Moving to financials, we reported top line revenue of $56 million with cost of sales of $40 million for mine operating earnings of $16 million. After exploration and G&A, we reported net earnings of $6.5 million or $0.03 per share. At the site level, Guana City delivered mine free cash flow of $9 million, and Bolognese contributed just under $1 million for the quarter. Regarding operating costs, we've seen pressures across several inputs driven by foreign exchange and inflation. So our direct costs per ton were up 14%. Specifically, the maximum pace was strengthened substantially, up 7% from year end and 9% from Q1 2022. which increase our local costs in U.S. dollar terms. Additionally, Guana City and Baleno continues to increase labor costs, power and consumable costs in steel, and processing for items such as cyanide and zinc. Lastly, we source more production from royalty concession areas, which results in increased royalty fees. The combination of these cost pressures has placed both the quarterly cash costs and the all-in sustaining costs slightly above the upper bounds of our guidance. at $11.12 per ounce for cash costs and $20.16 per ounce for all-in sustaining costs. While inflation is an industry-wide issue that's expected to persist throughout the year, we're closely reviewing our purchasing practices to see where and how we can mitigate this impact. Containing costs will continue to be a key focus as we work to improve the efficiencies of our operations. The higher than planned ore grades continues to offset the higher direct costs per ton. And with the recent strengthening of the gold price, we benefit from a higher byproduct credit on a per ounce reporting metrics. But to be clear, cost improvement continues to be a focus. As at March 31st, we had a cash on hand of $62 million and working capital of $93 million. Cash decreased as $12 million was spent on development activities at Terra Nera, and prepaids went up to account for deposits and payments on various items. As mentioned earlier, we announced an exciting milestone in April. Board approval to formally proceed with the construction of an underground mine and mill at Terra Nera. The green light comes on the back of a financing commitment for $120 million in senior secured debt from SocGen and ING Capital. Overall, I'm very pleased with the terms and details of the project loan. We worked very hard to secure favorable terms to protect the upside of the project for our shareholders. The facility has a term of eight and a half years at a secured overnight financing rate of plus 3.75% once the project is in full production. The loan has a two-year grace period during the construction phase, and there are no hedging requirements on silver production. That said, there is a hedging program for foreign exchange and for up to 68,000 ounces of gold over the first two years of production at Terran Air. Given the additional cost pressures that the industry has faced, we updated our development plans and initial capital costs for Terran Air. As the last feasibility study was completed almost two years ago, The updated mine plan increases the initial capex to $230 million from 175, while the processing plant capacity increases to 2,000 tons per day from the 1,700 in the feasibility study. The updated plan provides increased operating flexibility, includes inflationary cost estimates, and brings forward capital investment. Life of mine sustaining capital estimates decreases to $88 million compared to 106 in the feasibility study, as those costs have been included in initial capex. The current plant design optimizes the recoveries while the construction schedule is 21 months with initial production expected in the fourth quarter of 2024. With a seasoned development team in place, we are committed to delivering on time and budget. With significant early works already underway, we've spent $58 million to date on direct development. If you're interested in seeing photos of the construction progress, I encourage you to visit our website under the Terra Nera page. Let me recap some of our recent developments. The full mobile mining fleet is now on site. We ordered all the major equipment, plant equipment, and expect most of that to arrive this summer. Upgrades to the access roads totaling almost seven kilometers is nearly complete. We're nearing completion of the permanent camp We are nearly finished excavating the plant site, and we are advancing underground mine access. Supported by these results, our main focus now is progressing mine development, finalizing earthworks, and pouring concrete for the mill platform before the rainy season. Through all these operational milestones and advances, we continue to demonstrate our commitment to responsible and sustainable mining. To learn more about these and other efforts, I encourage you to read our latest sustainability report, which we released yesterday. The report captures our efforts in 2022 to maximize our positive impacts on society and the environment. This past year, we started executing our 2022 to 2024 sustainability strategy. I'm pleased with how our team delivered on our priorities, especially in areas like health and safety and embedded ESG practices deeper into our operations. Let me highlight just a few examples. We continue to achieve commendable safety performance in 2022 as part of our four-year downward trend with our reportable injury rate dropping to 0.87. We recycled over 90% of water used in our operations, minimizing our fresh use of water. And we performed climate scenario analysis to assess potential climate related risks and impacts and prepared our inaugural climate report aligned to TCFD framework. Lastly, I want to touch on the recent development of the new Mexican mining laws. Of course, this has been a topic with a lot of uncertainty and unfortunately moved swiftly through the Mexican government. From an operating standpoint, our expectation is the new law will increase compliance requirements, specifically around water use and reclamation activities. but don't expect a disruption of our operations or construction activities. There is still uncertainty of the details, but unfortunately, these new laws could discourage future investment into Mexico's exploration sector. We will see these new laws challenged through the courts and ultimately have more clarity in the coming weeks and months with regarding its impact. I think that wraps up my formal comment for today. Myself, Don Gray, our COO, and Christine are happy to answer any questions that you may have. Over to you, operator, for Q&A.
spk04: 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. Once again, to join the question queue, please press star, then 1 now. Our first question comes from Craig Hutchison of TD Securities. Please go ahead.
spk01: Hi, good afternoon, guys. Hey, Craig. Hey, just a question on the inflationary pressures. On the labor front, are there any more pressures you see there over the next sort of 12 months? Have you have any labor negotiations to come here or is that largely wrapped up in just more of a broader inflation type theme?
spk02: Yeah, right now that's wrapped up. We finished that typically in February, sometimes spills into March. So we gave a 5% increase to the unions that want to see in Bolognese. The really where the impact hurting us from a labor standpoint really comes down to foreign exchange. So about 33% of our costs are incurred in Mexican pesos for labor. And with the appreciation of the peso this past quarter, obviously impact this rate to the bottom line and I think short-term we see some strength in the peso, but hopefully long-term it reverts back to what we've seen for the last 20 years, and that's kind of depreciation against the U.S.
spk01: dollar. Okay. And how about on the energy front? Are you seeing any pressures kind of coming off on that front, or is that still similar to the levels you guys experienced in Q1?
spk02: Yeah, I think we're going to see similar costs, and most of our power obviously comes through CFE, the commissioners. Electrical Commission in Mexico. Our expectation is it's going to stay where it's at from Q1. But as we've seen for the last kind of five, six quarters, inflation has been a factor. And if the next government or the Commission decides to increase rates, that will obviously impact us. For us, most of the power costs impact us through a plant standpoint, and then pumping water pumping at Guantanamo City as well. So again, hopefully we see that kind of flatten out here and maintain where the levels are.
spk01: Okay, maybe just one last question for me. Just at Guantanamo City, you guys look like you're tracking already kind of above guidance. When do you kind of expect maybe an inflection downwards in terms of grades, or do you expect maybe lower throughput? As I try to model through the kind of midpoint of your guidance, I just assume it comes down at some point. Otherwise, you guys look like you might exceed, but just curious in terms of any kind of color on grades and when you might see them.
spk02: Yeah, I mean, you've seen elevated grades because of El Curso for the last two years, and obviously we've been quite conservative in our reserve estimates on El Curso. Michael Bresalier, Frankly, we should see our tons per day come up they want to see we had a tough February just with maintenance requirements, mainly on the liner on some cloth work that we had to do on the tailings dry sack tailings facility. Michael Bresalier, So, ultimately, our expectation is our tons come up, which hopefully drives down our costs per ton. Michael Bresalier, As far as grades like I say we for the last two years kind of exceeded what we've had in reserves. I do essentially, and then us being conservative, see that kind of come back to what we have in our plan. We just had a nice area in Curacao, and we seem to continue to get these. So maybe it stays elevated, and if it does, we'll come into the upper range of our guidance. If not, maybe B. But if we revert to what's in the mine plan, then we end up being where we are. So we're not at this point really change guidance at Guanacui and ultimately consolidate it. Perfect. Thanks, guys. No problem. Thanks for the questions, Craig.
spk04: Once again, if you have a question, please press star, then one. Our next question comes from Matt Taylor of PI Financial. Please go ahead.
spk00: Hey, guys. Thanks for that. Just a couple of questions on our end. The spending at Terranera this quarter is a little lower than expected. Should we expect a ramp-up through Q2, or will it be likely later in the year?
spk02: no now that we have formal construction decision i would expect that ramp up um everything's kind of running now and and like i say with with the board's approval the quicker we can move the better obviously i mean i think if we can stay on time we can stay on budget and sometimes for things out of your control we build contingencies on that timeline and I guess we'd like to have spent a little bit more in Q1, meaning we've moved along, but at the same time, without having that formal construction decision, we've tried to be conservative with just looking at early works. As far as expenditures between now and the end of 2024 when we get into kind of production, I would say it's going to be relatively homogenous payments over that kind of next seven quarters. And again, hopefully things ramp up relatively quickly here in Q2.
spk00: Perfect. And then I'm just switching over to Bolonitos. Are we going to, should we expect an uptick in gold production later this year? I saw on Q1, it was slightly lagging. Just wondering what that's going to be.
spk02: Yeah, for sure. I mean, absolutely. Bolonitos has moved into kind of a gold operation. Our expectation was going to be more gold, less silver. And in this quarter, we saw flip kind of silver grades came up and gold grades come down. similar to Gowanus to be, I mean, we would expect that to revert to our mine plan. So on a proportional basis, I would expect gold to come up and silver to slightly come down. Partly that's going to be getting to certain areas that's in our mine plan. And like anything with the underground vein mining, sometimes there's areas that allow more ore times to be able to come out. Things that are in resources are actually not even in our mine plan that are there. But ultimately, if we follow mine plan, expectations are gold comes up, silver comes slightly down. Thanks for the questions, Matt.
spk04: This concludes the question and answer session. I would like to turn the conference back over to Dan Dixon for any closing remarks.
spk02: Well, thank you, operator. It's been an interesting quarter with regards to the changes in the Mexican mining laws and where we're seeing silver and gold prices. I think today's reflection of questions maybe just comes down to the what's happening in the marketplace. We see silver kind of flipping all over the place and it was up to start the day. Now it's down. And then I see some, the results in our, our share price suggests we're down. I think it's early in the year and our goal is to get our costs in line to where our expectations and where our guidance is. And ultimately we'll be working from that from an operation standpoint, but I think it's an exciting year for Endeavor. I think moving forward with the Terran Air projects are going to significantly change the profile of the company over the next two years. And it's something we're excited for. And I look forward to next quarter's conference call to be able to give an update on where we're at with Terran Air and hopefully continued good performance at Gowanus V and Bolognato. So thank you everyone for attending today and talk soon.
spk04: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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