Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver 2018 Year-end Financial Results Call. [Operator Instructions]. I would now like to turn the conference over to Galina Meleger, Director, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Endeavour Silver Corp. 2018 Year-end Financial Results Conference Call. With me on the line today, we have the company's CEO, Bradford Cooke; as well as our President and Chief Operating Officer, Godfrey Walton; and our Chief Financial Officer, Dan Dickson. 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. These may include statements regarding Endeavour's anticipated performance in 2018 and future year, including revenue and cost forecasts, silver and gold production, grades and recoveries and the timing and expenditures required to develop new silver mines in mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information other than as required by applicable law. So with that and on behalf of Endeavour Silver, I'd like to thank you again for joining our call today. And I will now turn it over to our CEO, Bradford Cooke.

Thanks, Galina, and welcome everybody to this year-end conference call on our 2018 financial results. I'd like to start with some of our financial and operating highlights and then a brief discussion and then we'll open it up for Q&A. So in 2018, the company recorded a headline loss of $12.5 million compared to about $10 million of earnings last year. I should point out right off the bat those are -- virtually all of that loss was a noncash item related to depreciation and depletion of the reserves at our Guanaceví operating unit. And we did actually have a very successful year in the resource conversion last year, so that the reserve tonnes at Guanaceví were actually up 150% and equivalent ounces were up 200%, meaning that we shouldn't have to face this depletion issue next year in 2019. EBITDA was down 14% year-on-year to $22 million. Cash flow from operations before working capital changes were down 6% to $22 million. Our mine operating cash flow was down a little bit, 3% to $44 million and revenue was relatively flat at $150 million based on 5.5 million ounces of silver sold and 51,000 ounces of gold sold. Our cash costs were flat on the year at about $8 per ounce of silver payable, net of the gold credit. And our all-in sustaining costs actually decreased 9% to about $15.5 per payable silver ounce last year. We finished off the year with working capital of about $54.5 million, $33 million of which was cash and no debt. So those financial metrics were really driven by slightly higher production and slightly lower metal prices. Our consolidated production costs drifted a bit higher last year, due to -- primarily due to operational challenges at one mine, Guanaceví, and it was offset partially…

[Operator Instructions]. Our first question comes from Heiko Ihle with H.C. Wainwright.

So on El Compas, you mentioned in the release and also in the presentation that Galina sent around earlier today that the El Compas commissioning has been delayed for a number of reasons. Just going through them one by one, can you just give some detail on the excess clay in the ore that caused a recovery issue on the plant and the cash impact from this? I mean, it sounds like another metallurgical study is ongoing, and how much of a solution do we have and what are the longer-term impacts, please?

Heiko, I'll just give you a brief overview and then Godfrey can fill in the details. In a nutshell, we discovered more clay in the ore when we started the -- feeding the ore to the plant. And so it actually hung up each successive circuit. Initially, it was crushing issues then it was causing recovery problems in the flotation cells. We managed get through both of those and pushed the clay out into the tailings only to have the clay block the drains in the tailings facility, and that caused us to shut down actually in August and actively completely clean out the tailings facility and expand it, so we can handle not only the clay, but more material. The other issue that we had recently was some breakages in the mill. And I guess, for that -- for those two things, I'd like to turn over to Godfrey, maybe he can fill you in on some details.

Heiko, this is Godfrey. Yes, we did have this clay issues that went right to the plant, and ends up in the tailings pond, and that was combined with very high rainfall. And so,we actually filled the tailings pond pretty quickly. And as Brad mentioned, we did shut it down and we got it organized now so that we can handle: A, the water if we get that much rain again; and B, the clay, we’ve got two settling areas to help us settle that clay out of tailings. And then we had a [indiscernible] on the mill break, and we had to -- that's the last thing that could happen, so we have had to recast that and that is now up and running. It's just been running for about 10 days now. So we expect to be able to continue with the mill, and as Brad mentioned, we’ll keep going and getting commercial production by the end of this quarter. Recovery wise, the clay did affect the recoveries. We are working on a number of ways to increase that recovery, and I think we will have a solution here in the near future.

Very helpful. On that same talk, now this might be a Godfrey question as well. Can you provide some color on the cost of the water issue in the tailings facilities? I mean, it sounds like it has been resolved, but -- and also the cost impact from the three-month shut down of the ball mill? And I assume you guys stockpile the ore rather than anything actually getting held up, correct?

Yes, we stockpile the ore. I think, we have somewhere around 15,000 tonnes or maybe as high as 20,000 tonnes building in front of a plant. The cost was about $400,000 to – a lot of work on the tailings pond where we did a lot of work on that and prepared a lot for the future there. So it wasn't just looking at the clay, it was just looking at potential issues down the road. I think that's answered your question.

Yes, the last part -- Heiko, it's Dan here. The last part is just the trunnion and to recast that trunnion with [indiscernible]. Some additional costs of having staff in Mexico if you cannot do layoff, it doesn't make financial sense unless we're going to be down for more than three months. So we'll be carrying [indiscernible] operation. Other than that, there is no significant capital requirement, like Godfrey said, there’s about $400,000 to $500,000 on the tailings, and then the ball mill effectively, which was small, but we didn't have that part. Now we have that third part as well.

Got it. And just sort of a slight clarification. At Guanaceví, and I'm not sure if you're willing to answer this scientifically, but maybe just guide us in the right direction. You had a silver equivalent grade of 269 grams per tonne in 2018. In the presentation, you mentioned that grades will rise this year, and you're probably not going to tell me the exact amount, but can you just sort of tell us where January and February, which is essentially overcame in please. Just doing the math at the 1,100 tonnes per day and doing the same recovery and everything else, I mean, it looks like 280, 285 grams per tonne. Is that about in line with what you're thinking?

Heiko, it's Dan again. It's -- that -- your number there is a little bit higher than what's in our plan. Brad touched on it. Milache is going to bring up our grades this year. Milache is a higher-grade zone, but we're not fully pulling from there. We're not getting -- when we're at 300 to 400, you should see that grades come up into that area, but in Q1, we're going to be more in the 250, 240 range.

Oh, no, I meant the 280 was for the full year. Is that in line with what you're expecting?

No, still a little bit high for the full year.

Our next question comes from Joseph Reagor with Roth Capital Partners.

Heiko hit on some smaller items already. So I'll try to take the other approach, a big picture. What you guys are thinking on the M&A front right now? I know there is a few companies that have announced that are putting some Mexican assets up for sale both on the silver and gold side? And then there is, obviously, some larger mergers going on in the gold space, and could that create some opportunities for you guys as well? What do you think there?

Thanks for your question, Joe. We are active on M&A, have been for many years. And if you look back, we've actually pulled the trigger on six asset acquisitions in the last 15 years. So we are active in the space. We haven't yet done a corporate transaction, but that's really for valuation reasons. We're pretty tough on -- a pretty disciplined choice, say, on our valuations to acquisitions and our ability to add value post-acquisition. So what are we looking for and would any other current assets up there would be of interest? Yes, we're looking at a couple of things. We typically would like to go up the ladder in terms of size and quality and anything that we look at has to compete with what's already in our pipeline. So 5,200 million ounces per year of silver equivalent reserve resource with ability to grow 5 to 10 million ounce per year production profile with ability to grow. Perhaps one of the most important things is that for the first four mines that we bought in Mexico all basically had zero reserve life when we started, and we've now been operating Guanaceví for 15 years and we're still running a one year reserve life there as well as 2 or 3 years of resources. So building Terronera with initially a 10-year-plus mine life is very important for us. And anything we acquire, we don't want to be -- we'd like to see our material mine life as well. So that's kind of our shopping list, and it is hard to find all the projects in the silver space, as you know. So you just have to have cash a very broad net and look at everything. We've kissed a lot of frogs in the last few years.

Fair enough. And then kind of another big picture item. Can you walk us through what the corporate plan is for financing Terronera given that you're hoping to be in a position to make that construction decision soon?

Yes. Joe, I think, there's actually two answers there because we published prefeas in August of last year with a $76 million Phase I CapEx in our public guidance and in our presentations was that we'd like to do $50 million of debt and about $30 million of equity and there is $30 million cash in the kitty right now. And we have about $30 million left in our ATM facility. So one could argue that once the debts are in place then we're good to go. We are, because of the success in drilling last year, updating and optimizing the prefeasibility study. We do think there's a bigger and better project there. So the CapEx number will probably move. And conceptually, if you included the Phase II from last year's PFS, we're looking at $100 million in total CapEx. So conceptually, we would like to see half of that is debt and the balance is cash and equity.

Okay. And do you think it would be done all upfront or kind of as you go so you can see how much cash flow you can generate along the way?

Well, it's been as we go so far because we don't yet have our final permit. But as soon as we have the final permit, then we can go to the board and get our development decision and then I think we would like to see either all or the larger part of the financing package in place. We hope to have a debt announcement shortly, and we'd also hope to have permitting and decision announcement shortly, certainly looking for that this quarter and the financing will flow from that.

[Operator Instructions]. Our next question comes from Chris Thompson with PI Financial.

A couple of quick questions. A number of my questions have been asked. But just looking at the assets here, starting off with Bolañitos, you guys said about looking at great here 82 gram per tonne silver and 1.77 gram per tonne gold in the fourth quarter. What should we be looking at for this year by way of grade?

Godfrey?

Chris, thanks for the question. We're looking at very similar grades as we did in the fourth quarter. So it should be the same.

And at about 1,200 tonne a day?

At around 1,200 tonnes a day, yes, that's correct.

Perfect. All right. Just moving on to El Cubo. Obviously, you guys are guiding that you're going to reducing the, I guess, the throughput output to 750 tonne a day. What should we be sort of modeling by way of stepping down to that as far as timelines?

So Chris, thanks again for your question. And our announcement that we're going to have the plant capacities intended primarily to buy more time for the exploration group to replace this year's reserves. But for modeling purposes, one year at 750 tonnes per day will have to do for now.

All right. And just wanted to be -- looking -- if I get this right, I mean, you're basically -- you're pulling it over from Milache, you've got Santa Cruz as well. Is Porvenir also supplementing the production from the asset, Porvenir Norte?

Yes. Dan probably has the better breakdown on that.

Yes, no problem, I don't have the answer to that question in front of me, but I do have it. We get -- we're -- Santa Cruz and Porvenir Norte are a big chunk of it right now, probably 800 tonnes, 200 tonnes coming from the Milache. Porvenir Norte in itself is about 250 tonnes per day and the remainder coming from Santa Cruz. And then when Santa Cruz Sur comes online, that will be about another 200 tonnes to 300.

Perfect. Great. Final question, actually final 1 or 2. You got stockpiles obviously at El Compas, can you give us a sense of grade on this?

Godfrey?

Yes, thanks, Chris. It's -- the grade is sitting somewhere in the order of 3 to 4.5 grams per tonne gold.

Okay, great. All right. Final question, obviously. Just looking, I guess, you guys are sort of neutral on the cash flow from operations before working capital adjustments in the fourth quarter. At current metal prices, do you see that being the case for much of this year?

At today's prices, no. We should see an improvement for most of the year and really it's going to stem from Guanaceví, making sure we can hit our production tonnes at Guanaceví. With Milache and Santa Cruz Sur coming online, that should help them. Obviously, prices of gold in Sur have increased since the Q4 averages. So we should get a little bit of a pickup there as well.

This concludes the question-and-answer session. I would now like to turn the conference back over to Bradford Cooke for any closing remarks.

Thanks, operator. And I think I just want to say that it was a challenging year last year in the silver mining business for all operators. We came through at reasonably well, and we are looking at a much better year in 2019. Operationally, it's critical that we do 3 or 4 things well this year, finish off the development to turn off Milache and Santa Cruz Sur to turn around to Guanaceví operation. Finish off the commissioning. So we have a commercial operation at El Compas. Getting our final permits and financing in place, so we can start building Terronera. And obviously, filing more reserves at Bolañitos and El Cubo. I think that we've got a good start to the year and don't be surprised if we do find something on the M&A side. So with that, I'd like to close the call. Thank you.

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