Endeavour Silver - Earnings Call - Q4 2024

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver 2024 year-end 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, then zero. I would now like to turn the conference over to Allison Pettit, Director of Investor Relations. Please go ahead.

Allison Pettit (VP of Investor Relations)

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. On today's call, we have Dan Dickson, Endeavour Silver's Chief Executive Officer, Elizabeth Senez, our Chief Financial Officer, and Don Gray, Endeavour's Chief Operating Officer. Following Dan's formal remarks, we'll open the call for questions. Now, over to Dan.

Dan Dickson (CEO and Director)

Thank you, Allison, and welcome, everyone. As we commence this year's earnings call, it's important to acknowledge the dynamic landscape that shaped the mining sector in 2024. Gold prices surged 27%, closing the year at $2,624 per ounce, the largest annual rise since 2010. Gold hit a record of $2,786 per ounce in October and surpassed $2,900 earlier this year due to the global tensions, economic slowdown fears, and concerns over U.S. trade policies. Silver often mirrors gold's movement, and we expect this correlation to continue. Silver's rise has been driven by industrial demand and supply constraints. The global shift to electrification, renewable energy, and electric vehicles is driving demand for silver and solar panels, batteries, and key technologies. At the same time, supply deficits have emerged as new production struggles to keep pace with mine depletion.

Rising industrial demand and supply changes continue to put upward pressure on silver prices. We also expect demand as a safe haven asset to have a greater impact on the silver market going forward. Endeavour Silver is well-positioned to benefit from these favorable market dynamics. Now, let's discuss production in more detail. In 2024, Endeavour Silver produced 7.6 million ounces of silver equivalent, achieving the higher end of the revised guidance range of 7.3-7.6 million ounces. Guidance was lowered in Q3 2024 due to a trunnion failure at the Guanaceví mine, which impacted throughput from August to December. The team worked tirelessly to resolve the issue, and by December, Guanaceví resumed operations at its usual rate of 1,200 tons per day. I'd like to extend my sincere gratitude to our operations team for their swift and effective actions in overcoming this challenge.

While Guanaceví had its challenges, Bolañitos has continued to remain steady with increased gold production driven by higher gold grades, offset by the lower silver production due to slightly lower silver grades. In 2024, the company reported total revenue of $218 million, up 6% compared to 2023, with cost of sales of $176 million, mine operating earnings of $42 million, and mine operating cash flow of $72 million. Endeavour recognized an adjusted net earnings of $8 million, or an adjusted earnings per share of $0.03, after excluding loss on derivative contracts, mark-to-market deferred share units, gain on disposal, and unrealized foreign exchange and investment losses. Cost of sales increased approximately 4% compared to the previous year. While there are a number of drivers, including lower economies of scale from lower throughput, fixed costs incurred during the trunnion failure at Guanaceví and inflationary pressures early in 2024.

The company did benefit from the weakening of the Mexican peso in the second half of the year. Direct operating costs per ton were up 8% for the year, primarily due to the lower throughput at Guanaceví. Consolidated cash costs per ounce net of byproduct credits decreased by 4% to $12.99 in 2024, predominantly driven by higher byproduct gold sales. All-in sustaining costs increased by 4% to $23.88 per ounce compared to the prior year, again due to lower production of silver ounces, partially offset by the lower cash costs. As of December 31, 2024, the company's cash position was $106 million, and we had working capital of $79 million. Cash and working capital saw an increase in Q4 following a $73 million bought deal of financing aimed at advancing the Pitarrilla project and strengthening general working capital. As a reminder, Pitarrilla is the company's next major growth project.

Located in Durango, Mexico, it is one of the largest undeveloped silver deposits globally, with nearly 600 million ounces of silver. The company has allocated a $26 million budget to advance exploration, evaluation efforts, and underground development. This includes drilling and technical studies aimed at supporting an economic assessment by Q1 2026. While progress continues at Pitarrilla, the company's primary focus remains on bringing Terronera online in Q2 2025. As of December 31, 2024, overall construction at Terronera reached 89%, with $302 million allocated budget spent. The total estimated project cost is $332 million, as announced by the company earlier this year. During the fourth quarter, 1.7 kilometers of underground mine development was completed for a total project development of 7.2 kilometers. The underground explosive magazine storage permit was also approved, improving development efficiencies.

Most of the upper platform construction was complete, with final punch list items to be addressed before being handed over to the commissioning operations team. The main area of focus continues to be the lower platform area, which was 42% complete at the end of the fourth quarter. The tailing storage facility's main embankments reached 1,185 meters of elevation, and the tailing filter swing plates were installed when the first floor concrete was poured. The structural steel installation advanced to the second floor, preparing to install the filter press again at the end of the fourth quarter. The event pond liner was installed and completed in January of this year, and the upper surface water diversion canal was nearly 90% complete.

As we approach the wet commissioning phase at Terronera and prepare to bring Endeavour's next operating mine online, key critical path items include the tailing filter presses, which are on track for completion mid-April. 2024 marked a pivotal year for Endeavour, and 2025 promised to be a transformative milestone for the company. We extend our sincere gratitude to our shareholders and stakeholders for their steadfast support as we embark on this new era of growth and operational efficiency. As we advance, we remain committed to delivering sustained value, achieving operational excellence, and fostering a sustainable future for all our partners. For a more wholesome construction update at Terronera, I encourage you to visit our website, where you'll find our quarterly photo gallery showcasing the latest developments, progress, and information. With that, I'm happy to open this up to questions. Operator, please proceed to our Q&A session.

Operator (participant)

Thank you. To join the question queue, you may press star, then one 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 two. The first question comes from Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles (Senior Research Analyst)

Yeah, thank you very much, Operator. Good morning, everyone. Guys, congrats on all the progress. I guess my first question, I wanted to work backwards a little bit and start with Pitarrilla. Can you remind us of CapEx in 2025, and then how could we see that step up in 2026? Thanks very much.

Dan Dickson (CEO and Director)

Yeah, good question, Nick. Thanks for the positive comments. Pitarrilla, as you likely know, we have a $26.6 million budget there in 2025. Ultimately, most of that budget's regards to $10 million allocated to drilling and $16 million allocated to various budget items or capital items like mobile equipment and mine development and further evaluation and studies for an economic assessment that we expect to deliver in Q1 of next year. Ultimately, we're focused on 2025, so we don't have capital expenditure planned for 2026 until we see that feasibility study completed. As I touched on, it is what we expect to be our next growth asset and fully expect a positive result from the economic assessment, but we can't really say much until we get there.

Nick Giles (Senior Research Analyst)

Fair enough. I appreciate that, Dan. Maybe just on Terronera, apologies if I missed it, but should we still think about commercial production in the third quarter? Are there any other puts and takes that you'd highlight just from a cost perspective for the balance of 2025?

Dan Dickson (CEO and Director)

Yeah, we have not come off our $332 million budget. Things have been tracking extremely well since our news released January 8, identifying a timeline of early Q2. We are on track for that with expected to go to wet commission at the end of April. Everything is tracking well. Ramp-up is expected in Q2 and ultimately commercial production for Q3.

Nick Giles (Senior Research Analyst)

Dan, good to hear. I'll turn it over for now, but keep up the good work.

Dan Dickson (CEO and Director)

Thanks, Nick.

Operator (participant)

The next question comes from Wayne Lam with TD Securities. Please go ahead.

Wayne Lam (Director of Mining Research)

Hey, thanks, guys. Just wondering if you could talk a bit about the cost pressures you're seeing in Mexico. Just wondering how much exposure you have to the peso in general and how much of those pressures might be offset by the weakness seen in the local currency.

Dan Dickson (CEO and Director)

Yeah, that's a very good question. Obviously, there's a lot of concern around the world right now, especially in North America with what seems to be a tariff war that's been kicking off. We've taken a lot of questions with regards to the cost pressures that will put on our operations in Mexico and then ultimately what that means from a currency standpoint and probably expectations that you'll see more devaluation in the Canadian dollar and the Mexican peso. From a Mexican peso standpoint, about 33% of our costs are tied to labor, and that's been generally the case at Guanaceví and Bolañitos for the last 15 years, and we expect that similar ratio at Terronera. From the remaining costs, the 67%, historically, it's been about 50/50 between U.S. dollars and pesos, and that moves back and forth.

Roughly about 50-60% of our costs are tied to the Mexican peso, and if we see further devaluation of the peso, obviously that benefits Endeavour from a cost standpoint. From a supply chain standpoint, we still do not know if there would be reciprocal tariffs put in place and what that impact has on costs. We do not think it will have a significant impact because after labor, power costs, which have obviously incurred in-country, is our second, and our third highest cost is actually cyanide, which we source out of Mexico as well. Again, it is all dynamic and things will change, but ultimately, we have seen overall cost pressures decrease primarily because of the devaluation of the Mexican peso over the last six months of 2024, and if that continues, I think that is a benefit for us on a cost-per-ton basis.

Wayne Lam (Director of Mining Research)

Okay, perfect. Thanks for the detail. Maybe at Terronera, how have things progressed with the construction of the e-houses and then with the tailings construction? Are the filter presses the remaining bottleneck here, and once that's complete in mid-April, you guys roll right into commissioning?

Dan Dickson (CEO and Director)

Yeah, our e-houses are in place. I do not think there is much more to add to that. As you are probably aware, Wayne, that we have an LNG vaporization plant that we will be building, and that will go into ultimately Q3. We are on diesel gensets as we start up and until that LNG vaporization plant is complete. You are correct in to say it is the filter presses that is the bottleneck. That is a critical path item. Our concentrate filters are coming to completion here in March, and ultimately, the filter presses, the steel structures have been in place, so it is really going to come down to electrical and piping and then ultimately turning on both filter presses and start putting ore through from crusher all the way onto that tailings stack.

Just as a reminder for those, at December 31, our upper platform was relatively complete, and we were doing a lot of dry commissioning and pre-commissioning, and it was the lower platform that ultimately was the delay and pushed us into effectively Q2 2025. Again, from January till today, March 10, things have progressed right on plan, and the filter presses, which was the critical path then, still remains the critical path now, and those seem to be going in relatively smoothly. Hopefully in April, we can turn everything on and start putting ore, like I say, onto the tailings stack.

Wayne Lam (Director of Mining Research)

Okay, perfect. Maybe just last one for me at Guanaceví. Can you give us an idea of the difference in the royalty structure from the Porvenir mine from the El Curso concessions? What percentage of feed to the mill is that expected to be this year?

Dan Dickson (CEO and Director)

Yeah, that's a very good question. El Curso, for those that aren't familiar with Wayne's question, is ultimately leased land that we signed in October 2019 with Minera Frisco, which is a company owned by Carlos Slim. We pay a sliding scale royalty there. When silver was below $15, we paid 4% NSR, and it scaled all the way up to over $25, which is obviously where we sit now, and we pay a 16% NSR. It is a very significant royalty. It is north of $55 per ton, north of $5 per ounce of silver, and about 80% of our production is coming from El Curso.

We still have our Milache area that we do source some ore from, and then we obviously have that purchased ore. It is a significant part of our cost structure, and like I say, El Curso is over 80% of our actual production weighing.

Wayne Lam (Director of Mining Research)

Okay, perfect. Thanks for taking my questions, and nice to see the share price performance today.

Dan Dickson (CEO and Director)

Yeah, thanks a lot for the questions, Wayne.

Operator (participant)

Once again, if you have a question, please press star, then one. The next question comes from Michael Eley with J.C. Vineyard.

Michael Eley (Analyst)

Hey, Dan. Hey, team. Thanks for taking my questions, and congratulations on all of the progress on Terronera.

Dan Dickson (CEO and Director)

Thanks, Heiko.

Michael Eley (Analyst)

I'm going to do my follow-up first because it actually goes well with the last question that was asked here. Your progress at Terronera obviously was 89.4% as of December 31. Is there anything that hasn't been physically received at the site? I mean, you discussed the filter press earlier, but that's presumably a component that's made specifically for you. I mean, I guess I'll say, is there anything stuck with customs? Anything stuck in the wrong village? You mentioned electrical and piping still needed, but I guess that's probably mostly just off-the-shelf stuff that's sitting in big boxes and just waiting, right?

Dan Dickson (CEO and Director)

Yeah, no, it's a very fair question. As of January 8, we put out the news release with regards to our timing, and if you recall, there was a steel beam that was not on site that we just determined in December, and that got delivered early January. We went through that process of what else could be missing. At this point in time, we think everything is either on site or in our lay-down yard, and that is, to be honest, what we thought back in December. We have gone through, did a double-check on that, and as you say, the piping and electrical work, that is kind of off-the-shelf stuff and progressing. Everything is there that we needed to get done for that filter press. Again, targeting April for that to be turned on so we can start wet commissioning.

Michael Eley (Analyst)

Got it. I went through your release this morning, and cash cost was all over the place, so it's like all over the place. I control F4, it was listed 20. One times in the release. Obviously, costs were quite good given the gold credits, and your figure used $2,647 gold, we're at $2,900 right now. Just maybe walk us through cash costs as Terronera comes online here in the very near future, and by quarter, maybe for the remainder of the year, as you see pricing from that side impact your company cash costs. I guess what I'm saying is walk me through how we should model the ramp-up without specifically making you say that.

Dan Dickson (CEO and Director)

Let me answer the first part of your or second part of your question when it's company-wide. We put out guidance in January on all-in sustaining costs and cash costs. We did use a $2,200 gold price in our assumptions. Obviously, if you take what we're at now or even $2,800, $600 difference there times our 30,000 ounces of gold, that amounts to about $18 million of credit. And if we produce 7 million ounces, you're looking at almost or two and a half to $3 less compared to our stated guidance. We like to be conservative in our guidance, and maybe the $2,200 was overly conservative, but again, we started doing all that back in October and November of last year. I think Guanaceví and Bolañitos can outperform. The other side of that, Heiko, is the Mexican pesos.

We again used an assumption of 18 to 1. We've been sitting north of 20 to 1, and it seems to be the peso will continue to devalue from there. For existing operations, we've been there 18 years, 18 years respectively. I think we have a really good handle on that. In our guidance, we were quite conservative, so it allowed us to probably perform better than that, and that's just math and pretty straightforward. With regards to the ramp-up of Terronera, we're trying to be cautious with that. As we come into ramp-up, we were going to put out more detail around A, production totals for the year for 2025 because it really depends on when we actually hit commercial production, whether that's July or August. With that, that drives that cash cost and our cost per ton, how fast we can ramp up.

We're holding that back until the end of Q2 would be the expectations that we put that out in the marketplace. I appreciate that you're asking the question of where we're going to be at right now, and I will still point to the feasibility study that showed that we had basically all the gold pays for the silver at Terronera. Our cost per ton will be obviously a little bit higher in the first year as we work through things, but as we get through our 10-year mine life, we expect costs to line up that it's going to be one of the lowest cost operating mines in our space.

Michael Eley (Analyst)

Cool. Very helpful, very comprehensive answer. Again, congratulations, and I'll get back to you.

Dan Dickson (CEO and Director)

Thanks. Thanks, Heiko.

Operator (participant)

The next question comes from Craig Stanley with Raymond James. Please go ahead.

Craig Stanley (Director and Analyst)

Thank you, and thanks for taking my call here. Pitarrilla, you're coming out with an economic assessment. What form will that take, like a PEAs or PFS, and will the results be announced to the market?

Dan Dickson (CEO and Director)

Yeah, Craig, thanks for the question. We are trying to track towards a feasibility study. We just haven't come across that. There's a lot of information from the SSR days when they held it. As you probably know, the feasibility study they put out was on an open pit operation in 2012. We're looking at it from an underground standpoint, and in 2009, they put out a pre-feasibility study. We're going through that assessment with some of the technical studies that we're doing right now, and later in the year, we'll be able to really identify whether we have enough information to go right to a feasibility study, but it is kind of our expectation at this time.

Craig Stanley (Director and Analyst)

Awesome. Thank you.

Dan Dickson (CEO and Director)

Thanks for the question, Craig.

Operator (participant)

This concludes the question and answer session. I would like to turn the call back over to Dan Dickson for any closing remarks. Please go ahead.

Dan Dickson (CEO and Director)

Thank you, operator, and thanks to all our investors that called in today. 2024 was a very positive year for Endeavour, and ultimately, I think we've set up very well for 2025 to get Terronera into production and ultimately take advantage of what we see is coming down the line with the silver price. Have a good day.

Operator (participant)

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.