Endeavour Silver Corp. (EXK) Q1 2025 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2025 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 Allison Pettit, Director of Investor Relations. Please go ahead.

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 CEO; Elizabeth Senez, our CFO; and Don Gray, Endeavour's COO. Following Dan's formal remarks, we'll open the call for questions. And now over to Dan.

Thank you, Allison, and welcome, everyone. Q1 marked a strong start to the year for Endeavour Silver with solid production figures and continued progress on key developments. With Guanacevi and Bolañitos performing in line with plan, and Terronera now producing concentrate as it approaches the final stages of construction, we are quickly approaching a major milestone. The addition of this transformational asset will soon become a key contributor to our production profile, marking a significant step forward in our growth strategy. In Q1, Endeavour produced 1.2 million ounces of silver and 8,300 ounces of gold, totaling 1.9 million silver equivalent ounces. We reported revenue of $64 million, in line with the prior year, benefiting from the higher precious metal prices. Direct operating costs per ton increased by 6% compared to Q1 2024 caused by 6% lower throughput, while total direct operating costs remained relatively flat. The company reported a net loss of $32.9 million for the period primarily due to unrealized non-cash impact of gold hedging and forward swap contracts entered into March 2024. These contracts, which relate to the portion of the forecasted gold production from the Terronera project were implemented as part of the senior debt facility used to finance its construction. As gold rose from $2,600 to $3,100 in the quarter, the loss reflects a mark-to-market accounting adjustment and does not represent cash outflow. Excluding mark-to-market adjustments, the company reported a small adjusted loss of $200,000 compared to income of $300,000 in Q1 2024. Cash costs were $15.89 per ounce of silver and all-in sustaining costs were $24.48 net of gold credits, both slightly below annual guidance, primarily driven by the higher byproduct gold credits. As of March 31, 2025, the company's cash position was $65 million and working capital was $15 million. Cash and working capital decreased from December 31, 2024, as the company continued investment in development activities at Terronera. Terronera is in its final stages of construction and started producing its first batch of concentrate at the end of Q1. And as of our latest news release on May 6, commissioning is currently underway. Terronera represents a game-changing opportunity for Endeavour Silver and is poised to redefine the trajectory of our company. As we move closer to commercial production, we remain excited about the transformational impact this asset will have on our business. With the projected mine life spanning well over a decade, Terronera will serve as a long-term cornerstone asset in our portfolio, underpinning our growth strategy and reinforcing our position as a leading mid-tier silver producer. As the commissioning phase progresses, attention will be given to increasing feed and run times and ramping up to full throughput. The company will provide operational guidance as ramp-up advances. On April 1, we announced the acquisition of the Kolpa mine in Peru, and on May 1, we closed that transaction. We are excited about the addition of Kolpa to Endeavour's operating and growth pipeline as it significantly enhances our current production profile with significant exploration upside and existing infrastructure to support a long mine life. Kolpa represents a compelling opportunity where we can leverage our proven technical expertise and development capabilities. The project aligns with our existing operations and supports our strategy of building a scalable silver dominant asset base. The company is working towards validating and updating the historical resource estimate prepared by the previous owners. In the meantime, using Kolpa's 2024 annual production of 5 million silver equivalent ounces as a guide, and with Terronera expected to come online in the near-term, we are well positioned for a significant step change in production. When combined with our two producing assets, Guanacevi and Bolañitos, Endeavour is on track to achieve annualized production of approaching 20 million silver equivalent ounces. With that, I'm happy to open up to questions. Operator, please proceed to our Q&A session.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Nick Giles with B. Riley Securities. Please go ahead.

Thank you, operator, and good afternoon, everyone. Dan and team, congrats on all the progress this quarter, really good to see. And my first one is just on Terronera. I think you said you'll provide guidance as the ramp-up advances. So my question is, what do you ultimately need to see in the ramp to have the confidence to come out with something more formal, specifically on the cost side?

Yes. I mean, first and foremost, it's going to come down to production and throughput, and we want to see that we maintain consistent throughput through the mill and all the way to the filter press. That way, we have confidence on timelines of that ramp-up. Ultimately, we have a very short planned ramp-up of about 90 days, and that obviously could be plus or minus the 90 days. And because of that uncertainty, we don't want to give production guidance until we know at a higher probability of how many months we'll be operating at Terronera. It doesn't make a lot of sense to get to the market six months if we're only going to be operating for five months or six months, we're going to be seven months. So that's the first and foremost is the production guidance. And then behind that comes the cost and the impact of the cost. Obviously, in the first three to six months of commercial production, we'll be running lower grade ore than what would be deemed in our long-term mine plan just to make sure we're getting through all the bugs, and we just want to go through that when we understand grades and ultimately the timeline that we'll be operating for 2025 and then provide guidance around costs with that. Obviously, for 2026, we'll come out with operational guidance and costs with the other mines.

Yes, that all makes sense. I appreciate those comments. Maybe just as a follow-up, it seems like wet commissioning has gone well to date, but what are kind of the most near-term priorities and just ensuring that the ramp kind of stays on path specifically at the plant?

Yes. I'm going to defer that to Don. I mean – but before I give it to Don, ultimately, I'd say wet commissioning, it's hard to say how well it's going to date because it's a start-and-stop process. Ultimately, some days, we feel like you're making steps forward. Other days, you take a break. And I think that's just part of the nature of commissioning. You've got punchless items that you need to do. But as far as particulars of what's required, I'll defer to Don on that.

Yes. So Nick, thanks for your question. To stay on path, our team there is really focused on going system by system, and you start at the upper end of the plant and work through to the lower end of the plant. And that's what we've been doing now. We've been running the mills and checking systems out, making sure bearings and clearances and things like that are running well. And then we've just started to feed water and shortly the tailing down into the tailings filter area, that will really get things rolling. So it's just a process of working down through the system.

Got it, Don. That's all very helpful. Guys, one more if I could. Just can you remind me, what's ultimately the capital intensity – this is at Kolpa. What's the capital intensity of the throughput expansion from 1,800 tons per day to the 2,500 level?

Yes. At this point in time, just early estimates work that was previously done by the predecessors. And it's anywhere from $12 million to $16 million to 2,000 to 2,500 tons per day capacity.

Got it. Okay. Very clear. Well guys, again, congrats on the progress and keep up the good work.

Thanks for the questions, Nick.

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

Yes. Thanks, guys. Sorry, maybe just one follow-up question on the previous ramp-up period. Can you just clarify on that 90-day ramp-up? Is that 90 days from when you've started wet commissioning? Or if you could just clarify what specific timeline period you're kind of referring to?

Yes, it'd be from May 1. May 6, we put that out, just to keep it easy, May 1.

Okay. Great. And then just curious on the cost of completion on the $332 million at Terronera. It looks like you guys have about $7 million remaining in guide spend. Is that inclusive of all the costs through the commissioning and the ramp-up phase? Or just wondering if perhaps we should be baking in a modest increase in the funding requirement as you guys kind of continue to ramp-up?

Hi, Wayne, this is Libby Senez. So to answer your question on how much to complete. The build cost, yes, you're right, we're about $10 million off from the guided total. And we're not anticipating many more costs to go into that build cost during the operating phase – during the ramp-up phase, all those costs are operating costs and go into the cost of the inventory, not into the build cost of the project.

Okay. Great. Thanks. And then maybe just last one on the balance sheet. How comfortable are you guys in terms of the cash balance and working capital requirements need to fund Terronera through the ramp-up? And just curious how you're thinking about the flexibility here on the balance sheet? And if there's potential to quickly refinance once you've declared commercial production?

Yes, there's a handful in there. I mean any time with ramp-up and going through commission, there's a lot of uncertainty. Obviously, our cash balance being at $65 million at March 31 feels healthy. At the end of the day, working capital is about $15 million. We're at that phase of the project where it's high stress, high anxiety and pushing to get it there to make sure we don't run too low in cash and it's something that we're going to be monitoring very closely over the next kind of two, three months to see how ramp-up is going, to see where cash balances are. As far as when we get into commercial production and what we do with the project loan facility. And again, that's at the overnight rate plus 4.25% right now, it falls to 3.75%. Always looking to lower our cost of capital. Obviously, it completely changes the project because it's now derisked and in operations. As the management team, it's our job to find the best cost of capital and also with that, to make sure that we have sufficient liquidity to get through what we need to get through. Obviously, Guanacevi and Bolañitos right now are creating cash flow for us. But like I say, we're at the stress point of the build and we're coming down to the end. And the sooner we can get into commercial production, obviously, the better for Terronera and ultimately, the company.

Okay, perfect. Thanks for taking my questions and best of luck with the ramp up in the months ahead.

Thanks, Wayne. Appreciate the questions.

[Operator Instructions] The next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Hi, there. Dan and team, thanks for taking my questions. Just building on your prepared remarks from earlier and the first question that was asked in the Q&A portion earlier. Are there still meaningful cash flows going into Terronera in Q2? And if so, you might give us a best guess estimate how much is getting shipped here in Q2 and what it's being spent on?

Yes. We are still sending money in April. We were sending money down there to get everything completed, get into the commissioning process. Libby touched on it a little bit, too. What's changed in the accounting world is ultimately revenues are recognized in the income statement and cost of sales are recognized in the income statement. Obviously, from going from zero tons hopefully up to 2,000 tons. They'll be making a loss here in Q2 as we're commissioning. But we don't capitalize that anymore, and there is cash outflow. Unfortunately, we don't have April data ready and complete. So I don't want to comment exactly how much cash we sent down in April, but we did continue to fund in April. But now with kind of the full plant being done, tailings pressed in there, it's about instrumentation and going through commissioning. There's still costs incurred with that. Obviously, there's going to be costs incurred with finishing up various little things. But the big spend has been done. That's hopefully have slowed down, and now it's just about commissioning going into operations.

That's a good answer. And obviously, I wrote these questions before I joined the question queue. So I had to adjust a little bit. Shifting gears completely on Kolpa, and purely out of curiosity, it's obviously a huge operation on 25,000 hectares of claims. And in your press release announcing the deal, there was a little note in there that only 10% of the claims have seen work thus far. Can you walk us through some of the higher priority targets that you have for this year and even beyond that, now that the deal is formally closed?

Yes. I mean we actually have a significant budget at Kolpa, again, it was from predecessors and what they have worked on from October to December. They made a new discovery on a vein they called Poderosa. That wasn't in their historical resource estimate. We have just got our boots on the ground with regards to our exploration team and trying to help the Kolpa team out with their exploration plans. I think we've done a phenomenal job mining the Kolpa asset. They've done a phenomenal job growing that asset. We think where we can help them out is exploration, the work that we can do on it. There is a main structure that supports about half the production at Kolpa. We think there's opportunities for additional structures like that, and perhaps Poderosa is one of those. And we have effectively a $12 million exploration program for the next 24 months or from when we acquired it in 24 months. Then there's also tension veins coming off the main structure that were recently discovered again by the predecessors, and we're working on that. So right now, on near-term, we're going to continue to focus on some of these veins that they were previously working on. And we're going to take a step back with our exploration team, look at some brownfield opportunities and look for markers on surface through geochem work, trenching work, geophysics to try to identify some of the more significant structures. There's a lot of veins. There's a lot of workings over the history. So it's very similar to almost Bolañitos, Guanacevi that we went through 20 years ago where we can bring in exploration techniques and expertise and hopefully, uncover more resources. I would point that there is a historical resource of about 118 million ounces. We are working to validate that and ultimately eventually grow from there. So we have some time. They have a mine plan in place. And before we get too much comment, we just want to get more into the data and validate a lot of the historical work they've done just to our standards, we're more comfortable talking about it, Heiko.

That's extremely helpful. I'm going to get back in queue and thanks again for the answer and good quarter.

Thank you, Heiko.

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

Thank you, operator, and thanks for everybody attending our Q1 session. As everyone likely knows, Q2 is going to be a very important quarter for us. Obviously, we're really focused to get Terronera ramped up and into commercial production as soon as possible and look forward to our Q2 earnings call in July or August. Thank you.

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