Endeavour Silver Corp. (EXK) Q2 2015 Earnings Report, Transcript and Summary

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Endeavour Silver Second Quarter 2015 Financial Results. 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] At this time, I would like to turn the conference over to Meg Brown, Director of Investor Relations. Please go ahead, Ms. Brown.

Thank you, operator and good morning, everyone. Welcome to Endeavour's 2015 First Quarter Conference Call. On the line today, we have the company's CEO, Brad Cooke; as well as our President and COO, Godfrey Walton; our CFO, Dan Dickson; and our VP Corporate Development, Terry Chandler. Before we get started, I'm required to remind you that certain statements on this call will contain forward-looking information within the meaning of applicable securities laws. This may include statements regarding Endeavour's anticipated performance in 2015 and future years, including revenue and cost forecast, silver and gold productions, grades and recoveries and the timing and expenditures required to develop new silver mines in mineralized zones. The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. And with that, I will turn the call over to our Endeavour’s CEO, Brad Cooke.

Thank you very much Meg, and welcome, everybody, to this Q2 financial results call. As usual, I would like to start with a quick summary of the news release this morning. In a nutshell Endeavour had another decent quarter in the pace of falling metal priices and our earninsg came in at a net loss of around $1 million or $0.01 per share. Cash flow from operations before working capital came in at $11 million or $ 25 million for the first half of year and revenue was about $48 million on the quarter. Cash costs decreased 13%, $8.60 per ounce of silver and net of the gold credit, all-in sustaining costs also decreased 18% to $16.86 per ounce of silver payable. We are on track to beat our cash cost and all-in sustaining cost guidance for the year. And with the successful ramp up of Phase II mine expansion at El Cubo there are addition declines in cash and all-in cost expected in Q3 and Q4. Working capital at the end of quarter was $27 million and we did have a net swing of $9.5 million net cash added to the balance sheet which we use to reduce the Scotia Bank line of credit by about $4 million to $25 million. And the balance is added to our cash holdings, so they grew by $5 million to $31.8 million at the end of Q2. Turing to our operations, silver production was ujp 8% to 1.8 million ounces, gold production was down 11% to 13,430 ounces, but equivalent production was basically flat at 2.7 million ounces on the quarter that’s using a 70:1 ratio. And we are on track to meet the high end of our silver production guidance in the line of our gold production guidance for 2015. As I already mentioned, the Phase II El Cubo mine expansion with 2200 tons per day was completed on time and on budget at the end of the quarter and while we didn’t see a lot of the benefit of that mine expansion during Q2, there as a slow ramp up until right at the end of June. And it was also a period of slightly higher capital spending, hence the all-in sustaining costs being a little bit higher than maybe we or others were expecting. But nonetheless, El Cubo was on track to meet it’s guidance for year end, it was these already ahead of plan for production this year and is expected to beat our guidance for while [indiscernible] on plan and expected to meet guidance. We did elect in July to slow our spending at Terronera, part in parcel of the lower level prices and we have postponed the pre feasibility study now until the New Year. We are however going to push ahead as best as we can, given the reduced metal prices and reduced cash flow. It is not our outlook so that we’ll have to put up with his for the rest of the year. We are not saying that the metal prices are going to go on a run but they do typically put in their year low during the summer, and don’t think we should allow the current metal prices to color our view for the rest of the year. Last but not least, I would like to congratulate our operations teams for once again outperforming in the regional mine rescue competitions in Mexico, El Cubo took first place in both the first aid and benhcman regin rescue competitions. We just took second place and this is up again 14 teams including [indiscernible]. So we are very pleased with our guys, put a clear focus on this and that the performance reflects that. With EL Cubo I’m going to see my rescue teams now move on to the Mexican National Competition later this summer. I think there is one other note, I’d like to focus on the before I open this up for Q&A. With the falling metal prices not just this year but every year now for four consecutive years all of the companies in our second have been looking at pairing costs both operating costs and outline costs and it’s become an annual ritual on what can we do this year. I would like to point out that Endeavour has been remarkably successful at pairing back our costs and if we would even just take a two year look back at our all-in sustaining costs, we are looking at 37% reduction in all-in sustaining cost from Q2 of 2013 in Q2 2015 that’s a reduction from $27 all-in, all the way down to the current $16.50 plus or minus. And with the, again the Phase II ramp up done at El Cubo we are planning for lower all-in sustaining cost for the rest of the year. That’s pretty remarkable achievement, a portion of that obviously is the lower peso foreign exchange rate to the US dollar but only about two-third of our costs are denominated in pesos. So of the translation is about half of our reduction comes from of the operating cost comes from the FX and other half is real savings. In fact if you look at our consolidated cost per ton trend in the last year, we’ve actually seen a 20% reduction just year-on-year from Q2 of 2014 we were at $104 all in direct class operating per ton and in Q2 of this year we came at $83. So, very significant reduction at operating cost only have which can be attributed to the change in exchange rate and the rest of is real savings. So, I think operator let know lets open this up for Q&A..

Thank you, we will now begin question and answer session. [Operator Instructions]. The first question is from Brian martin of Raymond James. Please go a head.

HI guys, thanks for taking my question. I - dig little more on these cost EBITDA delivered in the Q2. I think you will be tracking well below guidance for the year, should be looking for the similar numbers to the back half of the year given the fall in pesos?

Hi Brain it’s Dan, we have noted in our press release that we are on track to be our cost guidance for the year and we think it’s very deal at least meet our 1506 in the first half of the yea and pesos going to be bigger attribute of that and then I’ll show just what we have been doing at site, obviously at this price environment we are looking to cut cost, but we can’t over the last, alluded to over last four year we have been doing for several years. We were not taking but cuts anymore it’s kind of what we can put me flat [indiscernible] bone that we can describe of sort to speak but we’re focused on making to our cost stay where we can stay at least a free cash flow neutral.

Great, thanks. And just at El Cubo, what would be looking for tend to [indiscernible] levels and grades since that have been back half of year.

Hi Brian, it’s Godfrey, we during June-July of the it’s El Cubo’s assuming around 2200 tons of and so it is moving up and down a bit but it’s doing quite well, grade wise I think that you are going looking at very similar grades to what probably for Q2, I mean 112 in silver and about 1.5, 1.6 for those.

Great, thanks Godfrey. And I just last one on the credit you guys paid it down to its $25 million upon are you making anymore payments to that in the back half of the year.

Yeah, right now actually it fitting at $23 million remind other payments subsequent for quarter and we will how it goes depending on more prices are, we are looking to push that down and work with our banks se we’re going to be after the credit facility during July of 2016 but we are looking alternatives as we speak and indeed to push that up to 2017 or even 2018.

And or replace of this is very [indiscernible] on that table and so clearly part of our cash management plan is to be look to free cash flow first to reduce the line and second to fund the long-term and growth projects and third to be fund the balance sheets. So, it’s obviously a judgment call going forward, but we’ve been pretty successful at that managing our cash from reducing our line to-date.

Great, thanks a lot guys. Congrats on a good quarter.

Thank you.

[Operator Instructions]. The next question is from Paul Renken of VSA Capital. Please go ahead.

Thanks guys, I appreciate the call here and I just wanted to ask the question as given the cost environment that you’re looking at going forward are you going to make any adjustments to your underground with the cut off rates and that are you going to this second half.

Thanks Paul this is Godfrey, we are looking of that and we are evaluating just what will price actually to use for reserve results estimate as you get forward. We are probably going to be looking at a range of prices just to get a sense of how the reserves and resources do change with the price. So we are looking at it, we would have to call them with a new number at this point but its something that will be looked at in Q3.

And I think the point there Paul is that I think we need to see whether these new low prices are going to last rest of the year or if we are going to get a rebound, the other is we don’t want to allow today’s price to color our outlook even too much from now. We would like to see how Q3 looks before we make any commitments to. Changing cut-off grades or anything else like that.

Yes. thanks guys.

There are no more questions at this time. I will hand the call back over to Brad Cooke for closing comments.

Well that was short and sweet. Thank you very much guys for attending on this presumably hot summer’s day, it’s a little another bad day here in Vancouver. And we look forward to our next conference call in November for our Q3 financials, when we will have our first look at the new reduced operating cost at El Cubo. So operator, thank you very much.

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