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Endeavour Silver Reports Financial Results for Third Quarter 2020

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Endeavour Silver Reports Financial Results for Third Quarter 2020

 

 

 

 

 

Endeavour Silver Corp. (NYSE: EXK) (TSX: EDR) released its financial results for the three month and nine month periods ended September 30, 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, “Revenue, operating cash flow and net earnings were all sharply higher in Q3, 2020 compared to Q3, 2019. Cash cost and all-in sustaining cost (AISC) were significantly lower year-on-year. The improved operating performance and higher precious metal prices generated the Company’s return to profitability for the first time in 18 months. The Company’s cash and working capital positions increased substantially during the Third Quarter 2020.”

 

“Our consolidated operating costs continue to trend lower, generating significant operating cash flow and improving our net earnings performance. We held a significant portion of our production as inventory at quarter end due to the sharp sell-off of metal prices in September, which muted our revenue and earnings performance this quarter, but we expect to sell this inventory this quarter based on an anticipated rebound of metal prices.”

 

2020 Third Quarter Highlights (all dollar amounts in US$)

 

  • Net Income: Income of $0.5 million ($0.00 per share), compared to loss of $6.8 million in Q3, 2019. Earnings would have been higher but for the increased metal inventory at quarter-end and the $1.6 million general and administrative expense related to the mark to market of deferred share units at the higher share price.
  • Cash Flow: $10.3 million cash flow from operations before working capital changes, an increase of 397% and EBITDA(1) of $10.6 million, an increase of 936%, both compared to Q3, 2019.
  • Revenue: $35.6 million revenue, up 29% compared to Q3, 2019 from the sale of 741,262 oz of silver and 8,997 oz gold at average realized prices of $25.08 per oz silver and $1,952 per oz gold.
  • Balance Sheet: Cash position of $44.9 million, up 47% and working capital of $53.8 million, up 21%, both compared to Q2, 2020. Term liabilities consist solely of equipment loans of $10.7 million. Raised $2.1 million in ATM equity financing and $5.6 million from exercised stock options during the quarter, net of issuance costs.
  • Metal Production: Produced 932,837 oz silver and 10,041 oz gold for a total of 1.8 million oz silver equivalent  at an 80:1 silver:gold ratio.
  • Metal Inventory: The Company increased metal holdings 81% to 462,674 silver oz and 53% to 2,995 gold oz. The cost allocated on the balance sheet to this metal is $6.0 million, while the fair market value at September 30, 2020 is $15.7 million. 
  • Operating Costs: Cash cost(1) decreased 68% to $3.69 per oz payable silver and all-in sustaining cost (AISC)(1) was down 19% to $17.48 per oz payable silver, both net of gold credits. Cash cost and AISC were substantially lower compared to Q3, 2019 year-on-year due to the improved operating performance at Guanacevi, and the higher realized gold price that increased the by-product credit. The AISC was elevated due to higher general and administration costs. 
  • Guanacevi Out-Performed: Silver and gold grades continued well above plan, however throughput was affected by significant rainfall in Q3, 2020. The improved grades and higher metal prices significantly increased royalty costs during the quarter. Additionally, management increased its processing of toll ores as higher prices increased mining activity from small local miners in the district.
  • Bolanitos Continued to Improve: Throughput averaged 1,075 tpd while gold grades aligned with plan and silver grades remain lower than plan, and costs were in line with budget.
  • El Compas Throughput Steady: Throughput remained steady with gold grades similar to plan, while silver grades remained lower than plan. Increased mine development and administrative costs (COVID protocols, training, security) significantly impacted financial performance.

 

(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 Results (Consolidated Statement of Operations Appended Below)

 

For the three-month period ended September 30, 2020, the Company generated net revenue totaling $35.6 million (Q2, 2019 – $27.6 million). During the period, the Company sold 741,262 silver oz sold and 8,997 oz gold at realized prices of $25.08 and $1,952 per oz respectively, compared to sales of 835,045 oz silver and 9,373 oz gold at realized prices of $17.52 and $1,489 per oz respectively in the same period of 2019. The Company increased its finished goods silver and gold inventories to 462,674 silver oz and 2,995 gold oz, respectively at September 30, 2020. The finished goods inventory is held on the balance sheet at $6.0 million, the cost to produce the metal, compared to the market value of $15.7 million.   

 

Cost of sales for Q3, 2020 was $29.3 million, a 1% decrease over the cost of sales of $29.4 million for the same period of 2019. The 1% decrease in cost of sales was primarily related to improved productivity at the Guanacevi and Bolanitos operations and the deprecation of the Mexican Peso offset by significantly higher royalty costs and higher costs incurred at the El Compas operation.

 

After cost of sales of $29.3 million (Q3, 2019 – $29.4 million), mine operating earnings was $6.3 million (Q3, 2019 – loss of $1.7 million) from mining and milling operations in Mexico.

 

Exploration expenses were relatively flat in Q3, 2020 to $1.6 million from $1.7 million for the same period of 2019 as activities resumed planned levels following the suspension of activities in Q2, 2020 due to the pandemic. General and administrative expenses increased to $3.7 million in Q2, 2020 compared to $2.4 million for the same period of 2019, primarily due to mark-to-market fluctuations for director’s deferred share units. The quarter included $0.6 million of care and maintenance costs at the El Cubo mine shutdown in November 2019.

 

Excluding depreciation and depletion of $8.1 million (Q3, 2019 – $7.1 million), stock-based compensation of $0.1 million (Q3, 2019- $0.1 million) and the inventory write off of $0.6 million (Q3, 2019- $1.2 million) mine operating cash flow before taxes was $15.1 million in Q3, 2020 (Q3, 2019 – $6.6 million). Operating earnings was $0.4 million (Q3, 2019 – loss of $5.8 million) after exploration expenditures, general and administrative expense and care and maintenance costs.

 

Net earnings amounted to $0.5 million (break-even per share) compared to a net loss of $6.8 million (loss of $0.05 per share) in Q3, 2019.

 

Direct production costs per tonne in Q3, 2020 increased 4%, to $112.37 compared with Q3, 2019 due to a significant increase in royalty costs and purchased ore at the Guanaceví operation, higher costs incurred at the El Compas operation, offset by the lower costs at the Bolañitos.

 

Consolidated cash costs per oz, net of by-product credits (a non-IFRS measure and a standard of the Silver Institute) decreased 68% to $3.69 primarily due to higher gold grades and higher realized gold price that increased the by-product credit compared to the same period in 2019. The higher proportional gold production, and rising gold price, which increased 31% compared to the same period ended in 2019, were significant drivers in the lower cash cost net of by-product credits.

 

On a co-product cash costs basis, both silver and gold cost per ounce improved compared to the Q3, 2019. Silver co-product cash costs fell 5%, while gold co-product costs fell 13% to $13.32 per ounce and $1,037 per ounce respectively. The improvement was primarily driven by the higher grade ore.

 

All-in sustaining costs (also a non-IFRS measure) decreased 19% to $17.48 per oz in Q3, 2020 as a result of lower operating costs offset by higher corporate general and administrative costs, increased brownfield expenditures and increased capital expenditures to accelerate mine development to improve daily mine output. General and administrative costs increased due to mark to market deferred share units. Exploration expenditures increased compared to prior year at Guanacevi and Bolanitos to in-fill and extent recent discoveries. At El Compas, exploration expenditures increased to test regional targets to grow resources in the district to process at the El Compas plant.

 

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

 

Three Months Ended September 30 Q3 2020 Highlights Nine Months Ended September 30
2020 2019   % Change 2020   2019   % Change
Production
942,274 948,547   (1 %)  Silver ounces produced 2,396,478   3,079,224   (22 %)
10,260 9,716   6 % Gold ounces produced 24,553   29,329   (16 %)
932,837 938,572   (1 %) Payable silver ounces produced 2,373,246   3,028,383   (22 %)
10,041 9,465   6 % Payable gold ounces produced 24,078   28,606   (16 %)
1,763,074 1,725,827   2 % Silver equivalent ounces produced 4,360,718   5,425,544   (20 %)
3.69 11.51   (68 %) Cash costs per silver ounce 4.95   12.61   (61 %)
13.53 19.33   (30 %)  Total production costs per ounce 13.74   20.82   (34 %)
17.48 21.53   (19 %) All-in sustaining costs per ounce 17.16   20.58   (17 %)
206,324 234,196   (12 %) Processed tonnes 519,771   718,355   (28 %)
112.37 106.76   5 % Direct production costs per tonne 107.68   108.97   (1 %)
13.32 14.09   (5 %)  Silver co-product cash costs 11.91   13.87   (14 %)
1,037 1,198   (13 %) Gold co-product cash costs 1,117   1,213   (8 %)
Financial
35.6 27.6   29 % Revenue ($ millions) 77.7   84.0   (8 %)
741,262 835,045   (11 %) Silver ounces sold 2,041,601   3,004,495   (32 %)
8,997 9,373   (4 %) Gold ounces sold 21,669   28,348   (24 %)
25.08 17.52   43 % Realized silver price per ounce 19.40   15.88   22 %
1,952 1,489   31 % Realized gold price per ounce 1,820   1,389   31 %
0.5 (6.8)   107 % Net earnings (loss) ($ millions) (18.8)   (30.2)   38 %
6.3 (1.7)   467 % Mine operating earnings (loss) ($ millions) 6.5   (13.6)   148 %
15.1 6.6   129 % Mine operating cash flow ($ millions) 27.1   13.9   95 %
10.3 2.1   397 % Operating cash flow before working capital changes 7.2   (1.0)   805 %
10.6 1.0   936 % Earnings before ITDA ($ millions) 5.1   (6.3)   181 %
53.8 49.4   9 % Working capital ($ millions) 53.8   49.4   9 %
Shareholders
0.00 (0.05)   100 % Earnings (loss) per share – basic (0.13)   (0.23)   43 %
0.07 0.02   250 % Operating cash flow before working capital changes per share 0.05   (0.01)   600 %
156,265,280 137,739,857   13 % Weighted average shares outstanding 148,673,768   133,788,084   11 %
             

 

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 Nine months ended
  September 30,   September 30, September 30,   September 30,
    2020       2019     2020       2019  
             
Operating activities            
Net earnings (loss) for the period $ 451     $ (6,768 ) $ (18,764 )   $ (30,169 )
             
Items not affecting cash:            
Share-based compensation   793       763     2,386       2,613  
Depreciation, depletion and amortization   8,296       7,194     18,777       21,735  
Deferred income tax expense (recovery)   556       (567 )   1,906       (1,740 )
Unrealized foreign exchange loss (gain)   (779 )     48     (265 )     155  
Finance costs   377       177     1,025       372  
Write off of mineral properties                   45  
Write down of inventory to net realizable value   639       1,224     2,167       5,943  
Loss on asset disposal   27           162        
Unrealized loss (gain) on other investments   (76 )     (3 )   (190 )     24  
Net changes in non-cash working capital   5,288       (7,333 )   5,110       (13,213 )
Cash from (used in) operating activities   15,572       (5,265 )   12,314       (14,235 )
             
             
Investing activities            
Proceeds on disposal of property, plant and equipment   50           150        
Mineral property, plant and equipment expenditures   (8,561 )     (5,497 )   (18,945 )     (15,160 )
Intangible asset expenditures                   (204 )
Cash used in investing activities   (8,511 )     (5,497 )   (18,795 )     (15,364 )
             
             
Financing activities            
Repayment of loans payable   (847 )     (410 )   (2,173 )     (662 )
Repayment of lease liabilities   (45 )     (51 )   (137 )     (154 )
Interest paid   (235 )     (125 )   (696 )     (216 )
Public equity offerings   2,179       10,255     26,367       19,446  
Exercise of options   5,569       343     5,589       343  
Share issuance costs   (96 )     (298 )   (1,133 )     (586 )
Cash from financing activities   6,525       9,714     27,817       18,171  
             
Effect of exchange rate change on cash and cash equivalents   833       (72 )   213       38  
             
Increase (decrease) in cash and cash equivalents   13,586       (1,048 )   21,336       (11,428 )
Cash and cash equivalents, beginning of the period   30,498       23,106     23,368       33,376  
Cash and cash equivalents, end of the period $ 44,917     $ 21,986   $ 44,917     $ 21,986  
             
Supplemental cash flow information (Note 14)            

This statement should be read in conjunction with the condensed consolidated interim financial
statements for the periods ended September 30, 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 Nine months ended
    September 30,   September 30, September 30,   September 30,
      2020     2019     2020       2019  
               
Revenue   $ 35,586   $ 27,642   $ 77,714     $ 83,956  
               
Cost of sales:              
Direct costs     18,418     20,582     46,940       69,007  
Royalties     2,029     446     3,720       1,099  
Share-based payments     87     50     270       158  
Depreciation, depletion and amortization     8,122     7,054     18,096       21,319  
Write down of inventory to net realizable value     639     1,224     2,167       5,943  
      29,295     29,356     71,193       97,526  
               
Mine operating earnings (loss)     6,291     (1,714 )   6,521       (13,570 )
               
Expenses:              
Exploration     1,670     1,724     5,717       7,264  
General and administrative     3,695     2,341     8,837       7,392  
Severance costs                   1,100  
Care and maintenance costs     533         4,789        
      5,898     4,065     19,343       15,756  
               
Operating earnings (loss)     393     (5,779 )   (12,822 )     (29,326 )
               
Finance costs     359     177     1,025       372  
               
Other income (expense):              
Write off of IVA receivable                    
Foreign exchange     890     (946 )   (3,287 )     (703 )
Investment and other     678     79     1,332       (114 )
      1,568     (867 )   (1,955 )     (817 )
               
Earnings (loss) before income taxes     1,602     (6,823 )   (15,802 )     (30,515 )
               
Income tax expense (recovery):              
Current income tax expense     595     512     1,056       1,394  
Deferred income tax expense (recovery)     556     (567 )   1,906       (1,740 )
      1,151     (55 )   2,962       (346 )
               
Net and comprehensive income (loss) for the period     451     (6,768 )   (18,764 )     (30,169 )
               
               
Basic and diluted earnings (loss) per share based on net earnings $ 0.00   $ (0.05 ) $ (0.13 )   $ (0.23 )
               
Basic and diluted weighted average number of shares outstanding   156,265,280     137,739,857     148,673,768       133,788,084  

This statement should be read in conjunction with the condensed consolidated interim financial statements for the period ended September 30, 2020 and the related notes contained therein.

 

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

 

 

         
    September 30,   December 31,
      2020       2019  
         
ASSETS        
         
Current assets        
Cash and cash equivalents   $ 44,917     $ 23,368  
Other investments     259       69  
Account and other receivables     17,203       18,572  
Income tax receivable     77       4,378  
Inventories     17,571       13,589  
Prepaid expenses     1,910       3,302  
Total current assets     81,937       63,278  
         
Non-current deposits     591       606  
Deferred financing costs     146      
Non-current IVA receivable     2,983       2,048  
Deferred income tax asset     5,324       7,136  
Intangible assets     614       975  
Right-of-use leased assets     1,014       1,337  
Mineral properties, plant and equipment     90,008       88,333  
Total assets   $ 182,617     $ 163,713  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
Current liabilities        
Accounts payable and accrued liabilities   $ 23,048     $ 19,775  
Income taxes payable     1,107       1,947  
Loans payable     3,783       2,958  
Lease liabilities     166       164  
Total current liabilities     28,104       24,844  
         
Loans payable     6,924       5,917  
Lease liabilities     918       1,074  
Provision for reclamation and rehabilitation     8,683       8,403  
Deferred income tax liability     778       682  
Total liabilities     45,407       40,920  
         
Shareholders’ equity        
Common shares, unlimited shares authorized, no par value, issued        
  and outstanding 157,412,308 shares (Dec 31, 2019 – 141,668,178 shares)   515,797       482,170  
Contributed surplus     9,638       11,482  
Retained earnings (deficit)     (388,225 )     (370,859 )
Total shareholders’ equity     137,210       122,793  
Total liabilities and shareholders’ equity   $ 182,617     $ 163,713  
         

 

This statement should be read in conjunction with the condensed consolidated interim financial
statements for the period ended September 30, 2020 and the related notes contained therein. 

 

Posted November 5, 2020

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