Earnings Call Transcript - EXK Q2 2025

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Second Quarter 2025 Financial Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead.

Allison Lauren Pettit, Vice President, 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 Endeavour Silver's CEO, Dan Dickson; our CFO, Elizabeth Senez; and Endeavour's COO, Don Gray. Following Dan's formal remarks, we will open the call for questions. And now over to Dan.

Daniel W. Dickson, CEO

Thank you, Allison, and welcome, everyone. Q2 marked an eventful quarter for Endeavour Silver. The commissioning of Terronera and the acquisition of Kolpa and its ongoing integration is transforming our company. As we move forward, our focus remains firmly on achieving commercial production at Terronera. In Q2, Endeavour produced 1.5 million ounces of silver and 7,800 ounces of gold, totaling approximately 2.5 million silver equivalent ounces, including some of our base metals now. This represents a 13% increase compared to Q2 of 2024 with the inclusion of our new mine in Peru, Kolpa. We reported revenue of $85 million, an increase of 46% compared to prior year, benefiting from the higher precious metal prices and increased production. Mine operating cash flow before working capital changes rose by 21%, while operating costs remained below guidance, with cash costs coming in at $15.35 per ounce of payable silver, and all-in sustaining costs were $25 or $0.16 per ounce net of byproduct credits. Direct operating costs per ton were relatively flat compared to the same period last year. Mine operating earnings decreased to $7.7 million from $10.2 million in Q2 of 2024, impacted by a $6 million loss at Terronera during the commissioning phase and increased depreciation. The company reported a net loss of $20 million for the period, primarily due to Terronera's operating losses during commissioning, increased G&A related to the acquisition of Kolpa, a $10 million non-cash loss on derivatives, with increased depreciation and tax expenses during the quarter. As of June 30, the company's cash position was $52 million. However, working capital was negative. If we excluded the non-cash derivatives, there is a $14 million surplus; this is by design with Terronera nearing commercial production. On August 5, the company gave an update on throughput and recoveries as the mine makes its way towards commercial production. With throughputs averaging between 1,900 and 2,000 tonnes per day and silver and gold recoveries averaging 71% and 67% during the second half of July, the company will be introducing higher-grade material to help enhance recoveries and sustain the design throughput of 2,000 tonnes per day. With ramp-up advancing, Terronera continues to move closer to commercial production, adding a long-term asset to our portfolio while reinforcing the company's position as a leading mid-tier silver producer. Since the Minera Kolpa transaction closed on May 1, integration of the new asset and teams has been going well. The company has continued to work on validating and updating the historical resources prepared by the previous owners, and as such, is unable to provide production guidance for Kolpa until a current 43-101 resource exists. However, management expects a similar production profile to Kolpa's 2024 annual production of 5 million silver equivalent ounces. Kolpa's May and June production annualized our production output track to align with Kolpa's historical performance, which would be annualized at 4.8 million ounces of silver equivalent production. Kolpa has continued to assess and is planning towards a 2,500 tonne per day operation, and we've included additional capital in our outlook to achieve these production levels next year. When combined with Guanacevi and Bolanitos, and with Terronera coming online in the near term, Endeavour is on track to achieve an annualized production profile of 20 million silver equivalent ounces and expects that in 2026. Lastly, before we open this call to questions, we continue to advance the Pitarrilla project. Exploration work is focused on upgrading inferred resources to indicated and engineers are working on various studies to support tailings dam permits and an economic study. Again, it's been a very eventful and busy quarter. And with that, I'm happy to open this up to questions. Operator, please proceed to our Q&A session.

Operator, Operator

The first question comes from Heiko Ihle with H.C. Wainwright.

Heiko Felix Ihle, Analyst

Congratulations to Allison for becoming part of the management team, well done. Commercial production at Terronera is obviously nearing; in your experience, and just knowing exactly what goes on at the site on a daily basis, can you maybe just give a bit of color on what you're seeing there right now? I mean your lease, you discussed 71% silver recoveries and 67% gold recoveries, but these figures are from 2 weeks ago. And the same thing with the 1,900 to 2,000 tonne per day throughput rate. Any idea what we're seeing this week more recently? And then more importantly, is the ramp-up going faster than what you had previously thought? Because it's sure quicker than what we had in our model.

Daniel W. Dickson, CEO

Yes. Thanks for the question, Heiko. I mean I'll be able to answer that past one. We had always said we thought we could get through commissioning and ramp up in a relatively short period of time. And obviously, we were targeting kind of a commercial production on July 31, and we're very close to that. We really want to see our recoveries kind of getting within 90% of the historical life of mine recoveries. If I recall correctly, over life of mine for Terronera, in our optimized plan, it was about 88% or 89% recoveries of silver and 76% to 78% recoveries on gold. And obviously, we have kind of reached that from a gold standpoint. Silver grades have been slightly lower just on some of the lower grade ore that we're processing. And then some design, not necessarily modifications, just getting the SAG mill and the Bol mill to the correct grind size as designed. And with the grind size coming down, we'll see increased recoveries on silver. As far as the last couple of weeks on site, I haven't particularly been there, so there's nothing that I'm seeing. But on a daily reporting standpoint, we did bring back our tonnes a little bit just to focus on recoveries and make sure we get that grind size that we need again to align to the recoveries that we expect in the feasibility study along with the work we've subsequently done. I don't know if you've had anything to add to that, Don, with regards to what's happening on-site and things that we're seeing?

Donald P. Gray, COO

Yes. I think, like Dan said, the focus right now is on getting our, especially our grind size, to the design criteria that we had from the met testing. And the ore is very grind size dependent versus dependent on other things like reagents and things like that. So as we get the grind size zeroed in, like on the SAG mill, we'll see good recoveries on the flash cell, for example. So that's what they're focusing on at the site, and they're really zeroing in on that now.

Heiko Felix Ihle, Analyst

Okay. And then I know this was a lot, so I'll keep the other one very brief. Just conceptually with Minera Kolpa, the integration, I assume, has taken a decent amount of everybody's time here on this call. Is that making you essentially unable to go after another target? Or are you still looking for additional, meaningful acquisitions that are out there?

Daniel W. Dickson, CEO

Yes, no problem. Heiko, that's a good question. I mean there's only so much capacity that we can pick up as a management team. Definitely, when we announced the acquisition of Kolpa on May 1 and obviously, April 1 and closed it on May 1, it takes up some of our executive time. The one thing that is great about Kolpa is its management team reported into two groups. One was a closed-end fund. The other was a property management or a real estate company that was actually listed in Lima. So they do have the administrative capabilities to kind of report to us. We didn't have to add a lot of bodies. Obviously, it's probably been working our team a little bit harder than what they want and what I want, but there are certain times in the company's history that those opportunities present themselves, and we took a kick at it. And are we done? We're not done. We need a bit of a breather. We really need Terronera to be in commercial production and generate positive free cash flow, improve our balance sheet going forward, and ultimately pay down debt, and then focus on building our balance sheet to be able to take on something like Pitarrilla. But Dale, our VP of Corporate Development, continues to review things. We've had a lot of various assets or various opportunities coming to our desk in Peru now just because of that acquisition. But we need a bit of a breather. We need to get where we need to be and then obviously, continue to see something that we want to be accretive and makes sense for Endeavour and to stay silver-focused and continue to grow the company.

Operator, Operator

Our next question comes from Wayne Lam with TD.

Wayne Lam, Analyst

Yes, maybe just a follow-up at Terronera. Obviously, a lot of focus around the impending commercial production enhancement. So I guess with the tonnage being essentially over 90% in the month of July of design capacity. So just to clarify, you guys are just kind of trying to optimize the recoveries to get closer to the design, and that's the only impediment to a commercial production announcement? Or is there anything else? And just curious...

Daniel W. Dickson, CEO

Yes, that's it, Wayne. I mean, we don't want to pigeonhole ourselves to that. From a concentrate spec standpoint, we want to hit that, but we're generally there. So it really comes down to hitting recoveries, getting the design grind size down to design and necessary for recoveries. And we expect that to happen relatively soon. We're moving in a good direction, and hopefully, we're close.

Wayne Lam, Analyst

Okay. Yes. It seems like you guys are on the verge of an announcement, and given the expectation that the recoveries would also improve alongside the grade as well. Maybe turning to Kolpa. The operating cost per ton this quarter seems to be a little bit higher relative to those under the prior operator in the past 2 years. So just wanted to ask what's driving that? And should we anticipate that to come down as you guys kind of sink your teeth a little bit more into the operations of the mine?

Daniel W. Dickson, CEO

Yes, there are integration costs to consider for May and June. With a new arrival, there are extra flights involved. Everyone is working on matters like IT systems, and some of those costs are being recognized during this transition, which includes changes in accounting policies and understanding the overall situation. We aim to align more closely with their operations moving into 2024. There are inflationary pressures that come with a new company, and we want to be responsible stewards of the mine while supporting improvements. Although there are areas we want to enhance, they have performed very well overall. If we maintain production at 2,000 tonnes for the next six months, I would expect costs to decrease and align with 2024. However, we are planning to increase to 2,500 tonnes. We've allocated some growth capital in our outlook, but we have not finalized the timeline for that, as some permits are still needed. We anticipate an increase, and hopefully by 2026 we will reach 2,500 tonnes, possibly even sooner, but we still need more information to accurately define that timeline.

Wayne Lam, Analyst

Okay, I understand. I think that would be my last question. Regarding the expansion, which you indicated could involve optimizing the plant when the acquisition was announced, can you clarify if the $12.5 million is the additional capital needed to reach the 2,500 tonnes per day target? Also, what specific permits will be required for this incremental expansion?

Daniel W. Dickson, CEO

Yes. The $12.5 million is the additional cost needed to achieve that goal. In our sustaining capital, we have included some funds that would still support 2,000 tonnes per day even if we do not proceed with an expansion, such as mine development and partial tailings expansion. However, certain components, like installing flotation cells and the actual mill, account for the $12.5 million. They already have the permit for the expansion, but they still need the permit to operate. I'll let Don provide more details.

Donald P. Gray, COO

Yes. That's correct. That it's in the process, and of course, you know, in different countries with different agencies approved like the environmental permit and then approve the operating permit. And that's kind of where we're at on the expansion items.

Wayne Lam, Analyst

Okay. Perfect. Yes. It seems like a well-timed transaction and certainly looking forward to the optimization ahead.

Operator, Operator

Our next question comes from Nick Giles with B. Riley Securities.

Unidentified Analyst, Analyst

This is Andrea here on behalf of Nick Giles from B. Riley Securities. If I may, I just wanted to touch on the financials. How are you thinking about hedging on a go-forward basis, given that the equity appears to be impacted by the volatility in financial statements?

Daniel W. Dickson, CEO

Yes. Yes, I'm happy to answer that. Right now, we do have some hedge contracts on our balance sheet. We have 68,000 ounces of gold that we sold effectively at $2,325 in March 2024. And that's our derivative liability and ultimately our derivative loss. Our preference is not to hedge precious metals. Obviously, we're a silver company. We believe people that want to buy the Endeavour name and play; first and foremost, their hypothesis is that silver is going up. If you think silver is going down, I don't think you could buy a silver company, and we want to give that exposure to our shareholders. We do have some colors put in place that we did this quarter. We colored about 990,000 ounces of silver between $31 and $42; that's all designed around our lending facility, similar to our 6,000 to 8,000 ounces of gold. But as we start getting to cash flow at Terronera and start paying down that debt, I wouldn't expect us to really do any hedge programs around silver and ultimately, precious metals.

Unidentified Analyst, Analyst

That's helpful. Just maybe one more on the working capital side. So how should we think about working capital over the second half of 2025? Should we expect a release soon this year? Or would it be more towards achieving the throughput target?

Daniel W. Dickson, CEO

Yes. I mean it's all tied to commercial production at Terronera and the cash flows that Terronera is going to generate. And obviously, as I said in my earlier remarks, this was by design that our working capital got this low. I mean we have $52 million in cash, but we do have significant payables and that's all part of building a mine, getting through commissioning, and getting to positive cash flow. So our expectation is Terronera gets to positive cash flow and that working capital improves over the next 2 to 3 quarters and beyond that we start lowering our debt that we're carrying. And then ultimately looking at the next transaction and next build, but again, expect working capital to improve in the second half of the year as Terronera goes into production.

Operator, Operator

Our next question comes from Phil Ker with Ventum Financial.

Philip Ker, Analyst

Just a couple of questions on my end. Dan, at Bolanitos, the mill underperformed on the back of some component replacements. Has the throughput normalized now?

Daniel W. Dickson, CEO

Yes, it's a great question. I'm glad you brought that up, Phil. You're right. Our throughput out of the mill in Q2 was lower than what we've seen over the last 4 or 5 years. We replaced some parts in the crusher, and replaced the motor on one of the mills; it cost us about 10 to 12 days. We are back up to 1,200 tonnes per day. Ultimately, our costs of Bolanitos yields were higher because of that just with the lower throughput, same amount of costs over fewer tonnes. Obviously, Bolanitos is a big part going forward, but it's still important. They're a phenomenal little mine. It's been scrappy and continues to find resource and extend mine life. And good gas costs. So we expect Q3 and Q4 to be back in line. If you look at our guidance between Guanacevi and Bolanitos in January and where we're at, we're right in that range, with Bolanitos being slightly behind plan, but again, we expect that to catch up here in Q3 and Q4.

Philip Ker, Analyst

Perfect. That's great. And over at Kolpa, now that you've taken the keys and gotten under the hood a little bit more, assuming that maybe you've given some of the exploration potential there. Have you had a little bit more boots on the ground and evaluated some of the targets and opportunities there? And if you could highlight some of those prospects, that would be great.

Daniel W. Dickson, CEO

Yes. Yes, that's another great question. Obviously, when we bought Kolpa, we had explained to our audience that we really like the exploration potential. Luis Castro, our Senior Vice President of Exploration, has been down there a couple of times. We are aligning to where we thought we could find a lot of value, with exploration and kind of coming up with a more systematic approach, with a lot more surface work. They did a lot of what we see in Latin America: following the vein, where it pinches out, and doing cross cuts underground. Luis is trying to get them to go back to surface and some geochem, geophysics, and identify that way with surface work, and then be more systematic about how we're drilling and what we're doing. Assays have to go out to third parties so we can include that into our current resource. They've been putting those into their assay labs. So we are kind of reorganizing the exploration group. We do expect to get some exploration results out relatively soon. There's a thing called a 'discovery hole' that we touched on during the acquisition, which has shown good grades and good widths. But again, we want to get a group of holes together so it's actually meaningful, and we expect that to be up in the next couple of weeks. Things have been aligning exactly as per our expectations. When I say next couple of weeks, I mean by mid-September. Everything is lining up to our expectations. Work needs to continue, but we're happy with the acquisition as it is now.

Philip Ker, Analyst

Very good. So it's fair to say that as you prioritize and evaluate the various targets that maybe more aggressive efforts will be laid out in 2026?

Daniel W. Dickson, CEO

Yes. I mean under the agreement, there’s a contingent payment of $10 million based on the resource that we publish. If we publish between $100 million to $120 million, we pay a sliding scale payment up to $10 million. We have to spend $12 million on exploration over 24 months over that 2-year period. Otherwise, if we don't spend that $12 million, that goes towards the $10 million payment. So we expect a program of $12 million over the next 24 months.

Operator, Operator

Our next question comes from Alex Terentiew with National Bank.

Alexander Terentiew, Analyst

I apologize if you've already answered this question. I'm traveling at the moment, so I just got on a bit late. But at Kolpa on the expansion, you said that development capital you're spending about $13 million this year; or that's your guidance. Does that mean there is going to be more for an expansion to get 2,500 next year? Or I'm just trying to understand kind of the timing of getting there, what would be required to operate at those levels?

Daniel W. Dickson, CEO

We have included in our disclosure $18 million for sustaining capital and $13 million for expansion. The $18 million includes items related to expansion, and if we didn't expand, it would still contribute value going forward. The $13 million is primarily for the size and scale of the tailings, filter press, and the installation of the mill and flotation cells, which we discussed earlier. We anticipate reaching a capacity of 2,500 tonnes per day, but it depends on timing. Don expects that some necessary operating permits will be obtained soon, which will affect that timing. If everything goes perfectly, we could complete all of this and reach the 2,500 tonnes.

Donald P. Gray, COO

And we're going through the budgeting right now. So we'll be evaluating that. But the major push is for this expansion capital and getting that completed on time. And so that's our big push right now.

Alexander Terentiew, Analyst

Yes, that's good. I was kind of assuming a bit more spending next year, but it seems like you've brought forward some of that this year instead. So that's fine.

Operator, Operator

Our next question comes from Craig Stanley with Raymond James.

Craig Philip Stanley, Analyst

A couple of quick questions for me. Terronera, how's the filter press working?

Daniel W. Dickson, CEO

Thanks for the question. The filter presses are performing very well. It took about a month to get the first filter press operational. We have a capacity of about 4,000 tons on our filter press at the back end of the plant. We ensured we had redundancy for the start-up and future operations, and for any potential increase in production. We have two similar filter presses that each process 2,000 tons per day, referred to as filter press 1 and filter press 2. With filter press 1 now commissioned, we utilized some parts and sensors from filter press 2, which took about a month to get up and running as expected. The necessary parts and sensors for filter press 2 were provided, and that process only took about a week to get commissioned. We have been switching between the two presses. Our numbers for July were strong, and the filter presses have performed well. We incurred some initial costs, but we were fortunate that the first class put on the filter press went smoothly. The concentrate filter started up successfully, and we were pleased with the output. We are still addressing some minor issues and are adjusting some specifications regarding the concentrate. Overall, it has gone much smoother than anticipated, which is a nice surprise.

Donald P. Gray, COO

Yes. I think anyone that's been historically involved with filter press commissioning and operation knows sometimes it becomes the bottleneck for your production. Once it got up and running, it just wasn't the tailing or the concentrate filters. Now the concentrate filter is running really well. We're getting good moisture content; it's gone really well. We're really pleased with the performance there.

Alexander Terentiew, Analyst

Kolpa, when would we think you put out a press release with the results of an updated technical report? I guess under you guys.

Daniel W. Dickson, CEO

Yes. Well, on acquisition, we actually put out a 43-101. It just had resources and referred to the historical resources. We've engaged SGS to go through that, and we have to twin holes. There's work to be done to validate all the work that they have done. Obviously, we want to make sure that number aligns a little bit to what we expect with their historical resource, and that's going to take some time. It's probably mid-2026. We try to really push for the beginning of next year, but it looks difficult to get it done that soon. But we'll see. We know what we're doing. We have an operating plan, but just to get clarity out there in the marketplace, we want to make sure we get that current resource updated. So it will take some time.

Alexander Terentiew, Analyst

And then just finally, Pitarrilla, is the updated study still coming out here in the early new year?

Daniel W. Dickson, CEO

Early New Year is probably optimistic at this point just because Terronera split a little bit on us, and we want to move some bodies from Terronera into the Pitarrilla. We do have various engineering groups, SRP and SGS, working on studies. The biggest thing that we've been focusing on is the tailings dam and the tailings dam site so we can complete all that work. Part of that study and then ultimately get to the government is the one key permit that's needed. Again, for everybody on the call, we have EMEA. We have our environmental impact assessment there. We have a permit to build the plant. We have a permit for underground mining. We've got a 2-kilometer adit already into Pitarrilla. The biggest concern from a permitting standpoint will be the tailings. We own over 5,000 hectares there. It's in a great jurisdiction, the state of Durango in Mexico. It will take a little bit of work, but we feel like we'll be able to get that permit and then hopefully move on and continue to advance Pitarrilla.

Operator, Operator

We have no further questions at this time. I would like to turn the conference back over to Dan Dickson for any closing remarks.

Daniel W. Dickson, CEO

Thanks, operator. Thanks to all our shareholders. Q2 had a lot going on, and we're getting very close on Terronera. We completely realize as a management team that the focus is on Terronera and delivering commercial production and ultimately cash flows. And ultimately getting Terronera to what we expect it can do. And then beyond that, growth with Pitarrilla, but with Kolpa coming in and Guanacevi and Bolanitos continuing to perform, we are on track to improve our balance sheet significantly here over the next 6 months and then hopefully continue to grow after that. So have a good day, and talk to everybody soon.

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.