Title

Presentation

Endeavour Silver Corp. reports earnings inline with expectations. Reported EPS is $0.03 EPS, expectations were $0.03.

Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. First Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Galina Meleger, Vice President of Investor Relations. Please go ahead.

Galina Meleger: 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 Dickson, Endeavour Silver’s CEO; Christine West, our Chief Financial Officer; and Don Gray, Endeavour’s COO. Following Dan’s formal remarks, we will then open the call for questions. Now over to Dan.

Dan Dickson: Thank you, Galina, and welcome, everyone. 2023 is off to a strong start. Not only was it a good quarter for our operating mines, but we also attained a significant milestones towards building the long-term future of the company. Consolidated 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 million to 9.5 million silver equivalent ounces. Once again, from a production standpoint, Guanacevi had a positive quarter, driven by robust silver and gold grades. However, mill performance was impacted due to the extended maintenance of our — on our mill liners and concentrate filter cap changes in February.

While throughput returned to planned levels in March, it was down 13% quarter-over-quarter, averaging 1,138 tonnes per day for the quarter. The performance of our other operating mine, Bolañitos remained steady. There is increased silver production offset by lower gold production. We continue to evaluate opportunities to increase mine life at Bolañitos and are cognizant of Bolañitos 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, Guanacevi delivered mine free cash flow of $9 million, and Bolañitos 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 cost per ton, were up 14%. Specifically, the Mexican peso strengthened substantially, up 7% from year-end and 9% from Q1 2022, which increased our local cost in US dollar terms. Additionally, Guanacevi and Bolañitos continue to increase labor costs, power and consumable costs and steel and processing for items such as cyanide and zinc. Lastly, we sourced more production from royalty concession areas, which resulted 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 bound 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 expect 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 order rates, continues to offset the higher direct cost per ton. And with the recent strengthening of the gold price, we benefit from a higher by-product credit on a per-ounce reporting metrics. But to be clear, cost improvement continues to be a focus. As at March 31, we had a cash on hand of $62 million and working capital of $93 million. Cash decreased as $12 million is spent on development activities at Terronera and prepaids went up to account for deposits and payments on various items.

As mentioned earlier, we announced an exciting milestone in March — sorry, in April. Board approval to formally proceed with the construction of an underground mine and mill at Terronera. The green light comes on the back of a financing commitment for $120 million in senior secured debt from Softgen and ING Capital. Overall, I’m very pleased with the terms and details of the project loans. We worked very hard to secure favorable terms to protect the upside of the project for our shareholders. The facility has a term of 8.5 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 Terronera. Given the additional cost pressures that the industry has faced, we updated our development plans and initial capital costs for Terronera, as the last feasibility study was completed almost two years ago. The updated mine plan increases the initial CapEx to $230 million from $175 million, while the processing plant capacity increased to 2,000 tonnes per day from the 1,700 in the feasibility study. The updated plan provides increased operating flexibility includes inflationary cost estimates and bring forward capital investment. Life of mine sustaining capital estimate decreases to $88 million compared to $106 million 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 have 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 Terronera 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 7 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 line 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 challenge 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 comments 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.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Craig Hutchison of TD Securities. Please go ahead.

Operator: [Operator Instructions] Our next question comes from Matt Taylor [ph] of PI Financial. Please go ahead.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks.

Dan Dickson: Well, thank you, operator. It’s been an interesting quarter with regards to the changes in the Mexican mining laws where we’re seeing silver and gold prices. I think today’s reflection of questions maybe just comes down to what’s happening in the marketplace. We see silver flipping all over the place. And it was up at start of the day, now it’s down. And then I see some — the results and our share price just were 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 Endeavour. I think moving forward with the Terronera project 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, at Terronera and hopefully continued good performance at Guanacevi and Bolañitos.

So thank you, everyone, for attending today and talk soon.

Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.