Earnings Call Transcript - EXK Q4 2024

Operator, Operator

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 a listen-only mode. And the conference will be recorded. I would now like to turn the conference over to Allison Pettit, Director of Investor Relations. Please go ahead.

Allison Pettit, Director of Investor Relations

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. 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. And now over to Dan.

Dan Dickson, CEO

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 global tensions, economic slowdown fears, and concerns over U.S. trade policies. Silver often mirrors gold movements, 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 in 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 million to 7.6 million ounces. Guidance was lowered in Q3 2024 due to a trunnion failure at the Guanacevi mine, which impacted throughput from August to December. The team worked tirelessly to resolve the issue, and by December, Guanacevi resumed operations at its usual rate of 1,200 tonnes per day. I would like to extend my sincere gratitude to our operations team for their swift and effective actions in overcoming this challenge. While Guanacevi had its challenges, Bolañitos continued to remain steady with increased gold production driven by higher gold grades, offset by 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 adjusted net earnings of $8 million or adjusted earnings per share of $0.03, after excluding the 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 several drivers, including lower economies of scale from lower throughput, fixed costs incurred during the trunnion failure at Guanacevi, 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 tonne were up 8% for the year, primarily due to the lower throughput at Guanacevi. Consolidated cash cost 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 have working capital of $79 million. Cash and working capital saw an increase in Q4 following a $73 million deal 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 projects continue 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% completion, 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 completed 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 tailings storage facility main embankment reached 1,185 meters of elevation, and the tailings filter swing plates were installed, and the first floor concrete was poured. The structural steel installation advanced to the second floor, preparing to install the filter press as of 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 in mid-April. 2024 marked a pivotal year for Endeavour, and 2025 promises 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 comprehensive 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, Operator

Thank you. The first question comes from Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles, 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

Yes. 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 refers to $10 million allocated to drilling and $16 million is 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. But 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, Analyst

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

Dan Dickson, CEO

Yes. We haven't come off our $332 million budget. Things have been tracking extremely well since our news release on January 8, identifying the time-line of early Q2. We are on track for that with expected wet commissioning at the end of April. So everything is tracking well. Ramp up is expected in Q2 and ultimately, commercial production for Q3.

Nick Giles, Analyst

Thank you to hear. I’ll turn it over for now, but keep up the good work.

Dan Dickson, CEO

Thanks, Nick.

Operator, Operator

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

Wayne Lam, Analyst

Hi, 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 local currency?

Dan Dickson, CEO

Yes, it's a very good question. Obviously, there is 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. And 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. There is probably an expectation 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 Guanacevi and Bolañitos for the last 15 years, and we expect that similar ratio at Terronera. From the remaining costs, the 67% historically, it has been about 50-50 between U.S. dollars and pesos, and that moves back and forth. So roughly about 50% to 60% of our costs are tied to the Mexican peso. If we see further devaluation of the peso, obviously that benefits Endeavour from a cost standpoint. From a supply chain standpoint, we still don't know if there'd be reciprocal tariffs put in place and what that impact could have on cost. We don't think it will have a significant impact because after labor, power costs, which are obviously incurred in country, is our second. Our third highest cost is actually cyanide, which we source out of Mexico as well. So again, it is all dynamic and things will change. But ultimately, we've 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's a benefit for us on a cost-per-ton basis.

Wayne Lam, Analyst

Okay. Perfect. Thanks for the detail. And then 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 completed in mid-April, you guys roll right into commissioning?

Dan Dickson, CEO

Yes. Our e-houses are in place. I don't think there's much more to add to that. As you're probably aware, Wayne, we have an LNG vaporization plant that we will be building, and that will go into ultimately Q3. But again, we are on diesel gensets as we start up until the LNG vaporization plant is complete. You are correct in saying the filter presses are the bottleneck. That's a critical path item. Our concentrate filters are coming to completion here in March. And ultimately, the filter presses, the structure, steel structures have been in place. 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 the crusher all the way to that tailings dam. To remind everyone, 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, pushing us into effectively Q2 2025. Again, from January until today, March 10, things have progressed right on plan. The filter presses, which was the critical path then, still remains a critical path now, and those seem to be going in relatively smoothly. So hopefully in April, we can turn everything on and start putting ore, like I say, onto the tailings dam.

Wayne Lam, Analyst

Okay. Perfect. And then maybe just last one for me at Guanacevi. Can you give us an idea of the difference in the royalty structure from the ore mine from the El Curso concessions? And then what percentage of feed to the mill is that expected to be this year?

Dan Dickson, CEO

Yes. It is a very good question. El Curso, for those that aren't familiar with Wayne's question, is lease 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; we pay a 16% NSR. So it's a very significant royalty. It is north of $55 per tonne, north of $5 per ounce of silver. About 80% of our production is coming from El Curso. We still have our Malache area from which we do source some ore, and we obviously have that purchased ore. So it's a significant part of our cost structure. And like I say, El Curso is over 80% of our actual production, Wayne.

Wayne Lam, Analyst

Okay, perfect. Thanks for taking my questions.

Dan Dickson, CEO

Thanks a lot for the questions, Wayne.

Operator, Operator

The next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle, Analyst

Hi, Dan. Hi, team. Thanks for taking my question. Congratulations on all the progress on Terronera. 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 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

Yes. No, it's a very fair question. As of January 8, we put out the news release regarding our timing. If you recall, there was a steel beam that wasn't on site that we 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 laydown yard, and that's to be honest what we thought back in December. We've gone through and did a double check on that. The piping and electrical work is kind of off-the-shelf stuff and progressing. So 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.

Heiko Ihle, Analyst

Got it. I went through your release this morning and cash cost was all over the place. Just to control F4, it was listed in the release. Obviously, costs were quite good given the gold credits. Your figure used $2,647 gold; we're at $2,900 right now. But just maybe walk us through cash costs as Terronera comes online here in the very near future by quarter and 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

Let me address the company-wide aspect of your question. We provided guidance in January regarding all-in sustaining costs and cash costs, using a gold price assumption of $2,200. Given the current prices, or even $2,600, and factoring in our production of 30,000 ounces of gold, this could represent approximately $18 million of credit. If we produce 7 million ounces, our costs could be $2.5 to $3 lower than our guidance. We aim to be conservative in our guidance, and the $2,200 estimate might have been too conservative, but we made these estimates last October and November. I believe the Guanacevi and Bolañitos operations can exceed our expectations. Additionally, we assumed a Mexican peso rate of 18:1, but it has been over 20:1 and may continue to devalue. Having operated in Mexico for nearly 19 years, we feel confident in managing these aspects. Our conservative guidance positions us to potentially achieve better performance due to straightforward calculations. Regarding the ramp-up of Terronera, we are being cautious and will release more specific production details for 2025 closer to when we reach commercial production, whether that's in July or August. This timeline will influence our cash costs and cost per tonne based on the ramp-up speed. We plan to hold off on sharing this information until the end of Q2. I appreciate your inquiry about our current trajectory, and I refer you to the feasibility study, which indicated that the gold generated will cover the silver costs at Terronera. While our cost per tonne will initially be higher as we navigate the first year, we expect costs to align over our 10-year mine life, positioning us as one of the most efficient operating mines in our industry.

Heiko Ihle, Analyst

Very helpful for the comprehensive answer. Again, congratulations and I’ll get back in queue.

Dan Dickson, CEO

Thanks, Heiko.

Operator, Operator

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

Craig Stanley, Analyst

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

Dan Dickson, CEO

Yes, Craig, thanks for the question. We are trying to track towards a feasibility study. We just haven't come across that. There is 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 are looking at it from an underground standpoint, and in 2009, they put out a pre-feasibility study. We are going through that assessment with some of the technical studies that we're currently doing. Later in the year, we'll be able to 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, Analyst

Awesome. Thank you.

Dan Dickson, CEO

Thanks for the question, Craig.

Operator, Operator

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

Thank you, operator, and thanks to all our investors that called in today. 2024 was a very positive year for Endeavour. 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. So have a good day.

Operator, Operator

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