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Endeavour Silver Reports Financial Results for the First Quarter 2020

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Endeavour Silver Reports Financial Results for the First Quarter 2020

 

 

 

 

 

Endeavour Silver Corp. (NYSE: EXK) (TSX: EDR) released its financial results today for the three months ended March 31, 2020. The Company operates three silver-gold mines in Mexico: the Guanaceví mine in Durango state, the Bolañitos mine in Guanajuato state and the El Compas mine in Zacatecas state.

 

Bradford Cooke, Endeavour CEO, commented, “We are gratified to see that our operational performance improved significantly in the First Quarter, compared to both Q1 and Q4, 2019, in-line with our guidance prior to the government mandated suspension of mining operations. Notably, consolidated cash cost declined 37% year on year, reflecting the success of our operational turn-around and transition to higher grade orebodies at Guanacevi. All-in sustaining cost fell 5%, reflecting the elevated sustaining capex we invested to achieve a similar turn-around at Bolanitos over the next three months.”

 

“Almost half of our net loss was due to the 25% devaluation of the Mexican peso, which devalued our receivables and caused a deferred income tax expense.  Other extraordinary items included elevated care and maintenance costs at El Cubo which will decline going forward, and high mine depletion due to short reserve lives. Since the Mexican government has decreed that suspended businesses located in municipalities with low or no COVID-19 cases can start up again May 18, and each of our three mines are located in such municipalities, we are looking forward to putting our mines back into production in May.” 

 

2020 First Quarter Highlights 

 

  • Revenue: Total $21.9 million from the sale of 665,500 oz of silver and 7,454 oz gold at average realized prices of $15.33 per oz silver and $1,633 per oz gold.
  • Cash Flow: Negative $5.0 million cash flow from operations before working capital changes as the Company accumulated finished goods, invested in exploration activities and incurred a significant foreign exchange expense from the depreciation of the Mexican peso.
     
  • Net Income: Loss $15.9 million ($0.11 per share) due to reduced sales, increased depreciation and depletion related to current short reserve lives and significant foreign exchange expense as the depreciation of the Mexican peso impacts the value of VAT receivables and other working capital accounts. EBITDA(1) was negative $6.7 million.
     
  • Balance Sheet: Cash position $15.0 million and working capital $27.2 million.  Only term liabilities are equipment loans of $11.5 million to upgrade mobile fleet.
     
  • Metal Production: Produced 857,659 oz silver and 8,476 oz gold, in line with guidance prior to government mandated suspension of mining operations, for 1.5 million oz silver equivalent (AgEq) at an 80:1 silver:gold ratio (January) or 1.8 million oz AgEq at 110:1 ratio (current). 
  • Operating Costs: Cash cost(1) $7.85 per oz payable silver and all-in sustaining cost (AISC)(1) $18.38 per oz payable silver, both net of gold credits. Cash cost was substantially lower than Q1, 2019 due to reduced operating costs at Guanacevi, partly offset by increased operating costs at El Compas and the suspension of El Cubo.  AISC was slightly lower than Q1, 2019 a result of lower operating costs partly offset by, increased exploration costs and elevated capital expenditures at Guanaceví and Bolanitos. 
  • Guanacevi Outperformed Plan: Operating costs declined and productivity improved with rising production, tonnes and grades due to the operational turnaround and transition to mining the new, higher-grade El Curso, Milache and SCS orebodies. 
  • Advanced Terronera Project: Conducting a final PFS optimization in-house working with an independent engineering firm to achieve enhanced economics.
     
  • Continued Exploration Success: Positive exploration drill results at Guanacevi and Bolanitos 

 

(1) Mine operating cash flow, cash costs and all-in sustaining costs are non-IFRS measures. Please refer to the definitions in the Company’s Management Discussion & Analysis. 

 

Financial Overview

 

In Q1 2020, revenue decreased 22% to $21.9 million as a result of 18% lower silver equivalent production year on year due the suspension of operations at the El Cubo mine and the accumulation of metal inventory partly offset by higher gold prices compared to 2019.  As a result of the lower production, mine operating cash flows, operating cash flows and EBITDA all decreased compared to Q1, 2019. The Company recognized a loss of $15.9 million compared to a loss of $13.3 million in Q1, 2019.

 

Cost of sales for Q1, 2020 was $24.8 million, a decrease of 27% over the cost of sales of $33.8 million for the same period of 2019.  The 27% decrease was primarily related to the 20% decrease in tonnes processed, carrying larger finished goods inventory and implementing cost cutting and efficiency measures in 2019.  The goals of the 2019 remedial actions were to reduce operating costs and generate free cash flow at current metal prices.  Management notes that these actions have had a very positive impact on Guanacevi mine operating performance and a similar turn around is underway but not yet finished at Bolanitos. Management continued to invest in long term viability of the mines with additional equipment purchases, accelerated mine development and increased site exploration.

 

The Company recognized a foreign exchange loss of $4.9 million in Q1, 2020 compared to a foreign exchange loss of $0.4 million in Q1, 2019 due to the depreciation of the Mexican Peso which resulted in lower valuations of peso denominated tax receivables and cash balances. The Mexican Peso depreciated more than 25% due to the global COVID crisis.

 

Financial Results (Consolidated Statement of Operations Appended Below)

 

For the period ended March 31, 2020, the Company generated net revenue totaling $21.9 million (Q1, 2019 – $28.0 million). During the period, the Company sold 665,500 silver oz sold and 7,454 oz gold at realized prices of $15.33 and $1,633 per oz respectively, compared to sales of 1,069,385 oz silver and 9,559 oz gold at realized prices of $15.50 and $1,315 per oz respectively in the same period of 2019. The Company increased its finished goods silver and gold inventory to 279,320 silver oz and 1,452 gold oz, respectively at March 31, 2020 compared to 95,028 oz silver and 587 oz gold held at December 31, 2019. 

 

After cost of sales of $24.8 million (Q1, 2019 – $33.8 million), mine operating losses amounted to a $2.9 million (Q1, 2019 – loss of $5.8 million) from mining and milling operations in Mexico.

 

Excluding depreciation and depletion of $6.0 million (Q1, 2019 – $7.1 million), stock-based compensation of $0.1 million (Q1, 2019- $0.1 million) and the inventory write off of $1.1 million (Q1, 2019- $3.2 million) mine operating cash flow before taxes was $4.3 million in Q1, 2020 (Q1, 2019 – $4.6 million). Operating losses were $8.6 million (Q1, 2019 – loss of $12.2 million) after exploration expenditures of $2.4 million (Q1, 2019 – $2.3 million), general and administrative expense of $2.0 million (Q1, 2019 – $3.0 million) and El Cubo care and maintenance costs of $1.3 million. Net loss amounted to $15.9 million (loss of $0.11 per share) compared to a net loss of $13.3 million (loss of $0.10 per share) in Q1, 2019.

 

Current income tax expense decreased to $0.3 million (Q1 2019 – $0.7 million), while a deferred income tax expense of $1.8 million was recognized due to depreciation the Mexican peso against the US dollar reducing the value of recognized loss carry forwards (Q1 2019 – recovery of $0.4 million).  

 

Direct production costs per tonne in Q1, 2020 decreased 4% compared with Q1, 2019 due to improved operating cost at Guanacevi, offset by the higher cost of El Compas and the suspension of El Cubo. 

 

Consolidated cash costs per oz, net of by-product credits (a non-IFRS measure and a standard of the Silver Institute) decreased to $7.85 primarily due to lower operating costs per tonne, higher gold grade and the higher realized gold price compared to the same period in 2019.  All-in sustaining costs (also a non-IFRS measure) compared to Q1, 2019, decreased 5% to $18.38 per oz in Q1, 2020.  This decrease in all‑in sustaining costs was a result of lower operating costs partly offset by increased exploration at each operation and increased capital expenditures at Guanaceví and Bolanitos.

 

The Condensed Consolidated Interim Financial Statements and Management’s Discussion & Analysis can be viewed on the Company’s website at www.edrsilver.com, on SEDAR at www.sedar.com and EDGAR at www.sec.gov. All amounts are reported in US$. 

About Endeavour Silver 

 

Endeavour Silver Corp. is a mid-tier precious metals mining company that owns and operates three high-grade, underground, silver-gold mines in Mexico. Endeavour is currently advancing the Terronera mine project towards a development decision and exploring its portfolio of exploration and development projects in Mexico and Chile to facilitate its goal to become a premier senior silver producer.  Our philosophy of corporate social integrity creates value for all stakeholders. 

 

 

ENDEAVOUR SILVER CORP.
COMPARATIVE HIGHLIGHTS 

 

Q1 2020 Highlights Three Months Ended March 31
2020   2019   % Change
Production
Silver ounces produced 857,659   1,071,355   (20%)  
Gold ounces produced 8,476   10,055   (16%)  
Payable silver ounces produced 849,791   1,050,215   (19%)  
Payable gold ounces produced 8,320   9,809   (15%)  
Silver equivalent ounces produced 1,535,739   1,875,755   (18%)  
Cash costs per silver ounce 7.85   12.55   (37%)  
Total production costs per ounce 16.35   20.12   (19%)  
All-in sustaining costs per ounce 18.38   19.37   (5%)  
Processed tonnes 199,327   246,519   (19%)  
Direct production costs per tonne 101.63   105.84   (4%)  
Silver co-product cash costs 11.51   13.56   (15%)  
Gold co-product cash costs 1,226   1,150   7%   
Financial
Revenue ($ millions) 21.9   28.0   (22%)  
Silver ounces sold 665,500   1,069,385   (38%)  
Gold ounces sold 7,454   9,559   (22%)  
Realized silver price per ounce 15.33   15.50   (1%)  
Realized gold price per ounce 1,633   1,315   24%)  
Net earnings (loss) ($ millions) (15.9 ) (13.3 ) (20%)  
Mine operating earnings ($ millions) (2.9 ) (5.8 ) 50%   
Mine operating cash flow ($ millions) 4.3   4.6   (8%)  
Operating cash flow before working capital changes (5.0 ) (2.1 ) (133%)  
Earnings before ITDA ($ millions) (6.7 ) (4.6 ) (46%)  
Working capital ($ millions) 27.2   46.8   (42%)  
Shareholders
Earnings (loss) per share – basic (0.11 ) (0.10 ) (10%)  
Operating cash flow before working capital changes per share (0.04 ) (0.02 ) (100%)  
Weighted average shares outstanding 141,810,208   131,395,790   8%   

The above highlights are key measures used by management, however they should not be the sole measures used in determining the performance of the Company’s operations. The related definitions and reconciliations are contained in the Management Discussion and Analysis. 

 

ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of U.S. dollars)

 

 

      Three months ended
      March 31,   March 31,
        2020       2019  
           
Operating activities          
Net earnings (loss) for the period     $ (15,926 )   $ (13,278 )
           
Items not affecting cash:          
Share-based compensation       745       999  
Depreciation, depletion and amortization       6,268       7,227  
Deferred income tax expense (recovery)       1,864       (350 )
Unrealized foreign exchange loss (gain)       654       (4 )
Finance costs       311       92  
Write down of inventory to net realizable value       1,042       3,212  
Loss on asset disposal       78        
Unrealized loss (gain) on other investments       (7 )     (28 )
Net changes in non-cash working capital       2,622       (6,704 )
Cash from (used in) operating activities       (2,349 )     (8,834 )
           
           
Investing activities          
Proceeds on disposal of property, plant and equipment       27        
Mineral property, plant and equipment expenditures       (5,512 )     (3,923 )
Intangible asset expenditures             (203 )
Cash used in investing activities       (5,485 )     (4,126 )
           
           
Financing activities          
Repayment of loans payable       (772 )     (100 )
Repayment of lease liabilities       (43 )     (71 )
Interest paid       (218 )     (21 )
Public equity offerings       1,485       1,572  
Exercise of options       12        
Share issuance costs       (74 )     (65 )
Cash from financing activities       390       1,315  
           
Effect of exchange rate change on cash and cash equivalents       (934 )     45  
           
Decrease in cash and cash equivalents       (7,444 )     (11,645 )
Cash and cash equivalents, beginning of the year       23,368       33,376  
Cash and cash equivalents, end of the period     $ 14,990     $ 21,776  

 

This statement should be read in conjunction with the condensed consolidated interim financial statements for the period ended March 31, 2020 and the related notes contained therein. 

 

 

ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (expressed in thousands of US dollars, except for shares and per share amounts)

 

 

    Three months ended
    March 31,   March 31,
      2020       2019  
         
Revenue   $ 21,927     $ 28,021  
         
Cost of sales:        
Direct costs     16,800       23,072  
Royalties     857       317  
Share-based payments     91       55  
Depreciation, depletion and amortization     6,023       7,116  
Write down of inventory to net realizable value     1,042       3,212  
      24,813       33,772  
         
Mine operating earnings (loss)     (2,886 )     (5,751 )
         
Expenses:        
Exploration     2,382       2,333  
General and administrative     2,005       3,042  
Severance costs           1,100  
Care and maintenance costs     1,345        
      5,732       6,475  
         
Operating earnings (loss)     (8,618 )     (12,226 )
         
Finance costs     310       92  
         
Other income (expense):        
Foreign exchange     (4,917 )     (403 )
Investment and other     49       (209 )
      (4,868 )     (612 )
         
Earnings (loss) before income taxes     (13,796 )     (12,930 )
         
Income tax expense (recovery):        
Current income tax expense     266       698  
Deferred income tax expense (recovery)     1,864       (350 )
      2,130       348  
         
Net loss and comprehensive loss for the period     (15,926 )     (13,278 )
         
         
Basic and diluted earnings (loss) per share based on net earnings   $ (0.11 )   $ (0.10 )
         
Basic and diluted weighted average number of shares outstanding     141,810,208       131,395,790  

 

This statement should be read in conjunction with the condensed consolidated interim financial statements for the period ended March 31, 2020 and the related notes contained therein.

 

 

ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(expressed in thousands of US dollars)

 

 

    March 31,   December 31,
     2020     2019 
         
ASSETS        
         
Current assets        
Cash and cash equivalents   $ 14,990     $ 23,368  
Other investments     76       69  
Account and other receivables     14,225       18,572  
Income tax receivable     3,328       4,378  
Inventories     13,072       13,589  
Prepaid expenses     5,051       3,302  
Total current assets     50,742       63,278  
         
Non-current deposits     593       606  
Non-current IVA receivable     1,080       2,048  
Deferred income tax asset     5,354       7,136  
Intangible assets     853       975  
Right-of-use leased assets     1,243       1,337  
Mineral properties, plant and equipment     90,399       88,333  
Total assets   $ 150,264     $ 163,713  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
Current liabilities        
Accounts payable and accrued liabilities   $ 18,392     $ 19,775  
Income taxes payable     1,062       1,947  
Loans payable     3,946       2,958  
Lease liabilities     160       164  
Total current liabilities     23,560       24,844  
         
Loans payable     7,598       5,917  
Lease liabilities     938       1,074  
Provision for reclamation and rehabilitation     8,496       8,403  
Deferred income tax liability     656       682  
Total liabilities     41,248       40,920  
         
Shareholders’ equity        
Common shares, unlimited shares authorized, no par value, issued        
  and outstanding 142,614,304 shares (Dec 31, 2019 – 141,668,178 shares)   483,580       482,170  
Contributed surplus     12,221       11,482  
Retained earnings (deficit)     (386,785 )     (370,859 )
Total shareholders’ equity     109,016       122,793  
Total liabilities and shareholders’ equity   $ 150,264     $ 163,713  

 

This statement should be read in conjunction with the condensed consolidated interim financial statements for the period ended March 31, 2020 and the related notes contained therein. 

 

 

Posted May 8, 2020

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