Endeavour Silver Corporation

Thank you for standing by. This is the conference operator. Welcome to the Endeavor Silver Corp. Second 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 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.

Thank you, Operator, and good morning, 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 Dixon, Endeavor's CEO, Christine West, our Chief Financial Officer, and Dawn Gray, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now, over to Dan.

Thank you, Collina, and welcome, everyone. I would like to start by acknowledging the tremendous achievements we made at Katerinaira in Q2, which advances our strategy in pursuing high-margin production growth. During the quarter, we obtained formal board approval, committed to project loan financing, established a seasoned team, and now construction is well underway. Terran Air is a unique opportunity that will reposition the company to generate significant free cash flow, bringing us one step closer to achieving our mission of becoming a premier senior silver producer. Nevertheless, despite continued positive production performance, the headline for this quarter continues to be pressure on costs. As a company with operations in Mexico, we are facing the challenge of rising costs for which we remain vigilant to mitigate the impacts. Like all our peers, macroeconomic factors such as industry-wide inflation and a strengthening Mexican peso have continued to put pressure on consumables and labour costs across our operations. Unfortunately, we expect these trends to continue for the near term. In terms of production, Consolidate Q2 silver equivalent production was up 8% year over year to 2.3 million silver equivalent ounces, bringing us to 4.7 million silver equivalent ounces for the first half of the year. This performance puts us well and in line to achieve this year's production guidance of 8.6 to 9.5 million silver equivalent ounces. Compared to the same period prior year, both silver and gold production are up 10% and 6% respectively. While our Guana City operation was generally in line, higher tons milled were offset by lower grades. Adjustments to the mine sequencing during the quarter resulted in lower grades compared to our planned and recent quarters. However, we expect to return to higher grades for both the third and fourth quarters. As compared to Q1, both silver and gold grades decreased by 20% in Q2. The performance of our other operating mine, Bolonitos, remained steady. Increased gold production was offset by lower silver production in Q2. The Bolonitos operations team continued a strong effort to meet or beat their targets, including mined and processed tons. Moving to our financials, we reported top line revenue of $50 million with a cost of sales of $37.5 million for operating earnings of $12.5 million. After expiration, G&A, and other expenses, we reported a net loss of $1.1 million or negative one cent per share. Excluding non-cash mark-to-market adjustments on marketable securities, our adjusted earnings totaled $2.1 million or one cent per share this quarter. At the site level, Guantanamo City delivered mine-free cash flow of $5 million, and Ballinillos was pretty much breakeven. Regarding operating costs, we've seen pressures across several inputs. Our direct costs per ton were up 15% this quarter. At the time of guidance, our inflation assumptions were 5%. However, year to date, we've seen those costs, the costs of key inputs like steel used for ground support, and consumables such as zinc and cyanide continue to increase well above our assumption. Additionally, labor costs are having a significant effect with the strengthening of the Mexican peso. The peso has strengthened to a seven-year high. Originally, our 2023 guidance had assumed a 20 to 1 Mexican peso to U.S. dollar exchange rate. However, we're currently looking at 17 to 1. This is up 14% year to date, which is increased in our local costs in US dollar terms. All these factors manifest themselves into overall higher costs, both quarterly cash costs and the all in sustaining costs are above our upper bounds of our guidance at $13.52 per ounce for cash costs and $22.15 per ounce for silver or all in sustaining costs per ounce. As a result, management expects expects costs to be higher than cost metrics previously provided in our 2023 guidance. 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 the impact. Containing costs will continue to be a key focus as we work to improve the efficiencies of our operations. Management anticipates cost metrics for the remainder of the year to align with H1 2023 actual costs. At June 30th, we had cash on hand of $43 million and a working capital of $78 million. To maintain flexibility on project execution, we initiated a $60 million ATM filing in Q2. Completion of the definitive loan documentation for the $120 million senior secure debt facility It's expected soon with closing and drawdown expected in Q3. After the quarter, we further enhance our liquidity by selling a 1% stake in Capstone's Cozumine Royalty to Gold Royalty Corp. This sale will bring in a cash injection of $7.5 million in Q3. We originally obtained that royalty through a concession division agreement back in 2017 for less than $500,000. Let me give you a quick update on construction at Terranera. At the end of Q2, we reached 30% completion. We've spent $70 million to the end of Q2 on direct development. Project commitments total $144 million, and we are tracking in line with the optimized plan, both on timing and on budget. During the quarter, we'd had steady momentum on engineering, surface construction at the plant site, mine development, and establishing internal processes to best execute the project. If you're interested in seeing photos of the construction progress, I encourage you to visit our website under the Terra Nera page. A quick recap. On-site personnel has increased to over 450 employees and contractors. Detailed mill and surface facilities engineering is set over 70% complete. Engineering was finalized to request proposals for the mill construction contract. including structural steel, mechanical, piping, electrical, and instrumentation. Access road construction is substantially complete. The focus on early road improvements have greatly facilitated construction ramp up, especially prior to the rainy season. The camp to accommodate 550 personnel is substantially complete. Nearly all dormitory units have been installed. Several final living units remain pending. Mine development is advancing on two fronts with over 600 metres completed as of June 30th. In the meantime, a new portal is being prepped to access the lower part of the ore body. Bulk earthworks for the planter is nearing completion with nearly 300,000 cubic metres of material moved. Excavations were completed for the course ore reclaim tunnel, grinding areas, and now rebar installation has begun. On the procurement side, Deliveries are advancing on schedule with shipments arriving at the company's lay down warehouse. Major equipment deliveries in Q2 include jaw and pebble crushers, vibrating screens, flotation cells, and the concentrate bag system. And lastly, on the community side, we continue to partner with local schools to support education campaigns and cultural celebrations. Looking ahead, our main focus now progressing mine development, advancing concrete work for the mill platform, and awarding the mill construction contract, which will kick off the next major phase of construction. I think that wraps up today's formal comments. Myself, Don, and Christine are happy to answer any questions that you may have. Operator, could you please open it up for Q&A?