Endeavour Silver enthralled at prospect of three new mines
By James Brewer
Endeavour Silver Corp, a mid-tier precious metals producer growing its operations in Mexico, is rolling out its story as if ‘to the power of three.’
The figure three threads its way by happenstance through much of the company’s latest news-flow and financial accounts.
Listed in Toronto and New York, Endeavour has developed three high-grade silver-gold underground mines in two historic mining districts of Mexico, the world’s largest silver producing country.
And there are plans to build three higher-grade and lower-cost mines in the next three years. This would expand production by between 50% and 100% and further reduce costs by 25% according to chief executive Bradford Cooke.
The three core assets have achieved a reduced AISC for three consecutive years. AISC, which stands for all-in sustaining costs, is a new metric that has rapidly become accepted in the industry after being introduced by the World Gold Council. Experts say the metric is a step towards greater transparency and should be extended to the whole mining sector. Fortunately for Endeavour, as its costs decline, the metal commodity price has begun to go up.
Mr Cooke says of the macro-scene; “We are looking at a three to five-year decline in new mine supply, at a time when investment demand for silver is taking off.” Electronics demand for silver is growing at 3% to 4% a year, in part thanks to the metal’s importance for cell phones, laptops, large-screen television and solar panels. World silver mine production peaked in 2015. Researchers at GFMS consultancy forecast a supply deficit of more than 40m ounces in 2016, said Mr Cooke. Coin and bar demand has been rising on the back of activity by buyers in North American and India.
Silver is on the third leg of a three-leg cycle – and the third leg is always the most volatile, Mr Cooke added. “I am a ‘bull’ on gold and silver and a ‘bear’ on the US dollar,” he told investors in London. He argues that the role of silver as a store of value and a hedge against monetary inflation is growing. “With assets incredibly cheap, we have gone shopping this year,” said Mr Cooke, who in his European trip also gave presentations in Zurich and Munich.
Company guidance on costs is for a reduction to $12 to $13 per ounce in 2016, a year which will see some 9m to 9.8m ounces production, from $15.62 in 2015..
Production in the first nine months of 2016 totalled 4.4m ounces of silver and 46,000 ounces of gold: consolidated output is well on track to meet full year revised guidance of 5.5m to 6m ounces of silver, and 49,000 to 54,000 ounces of gold: that is, 9m to 9.8m ounces of silver equivalent.
Its current three mines are Guanaceví mine in Durango state, and Bolañitos and El Cubo in Guanajuato state. Near-term, the fully permitted El Compas gold-silver project – acquired for $7m in stock – has the potential to become fourth mine to come on stream, scheduled by the fourth quarter of 2017.
The new Terronera silver-gold discovery is advancing to pre-feasibility stage and is expected to start producing within 15 months. Costs are projected at under $10 per ounce – lower than Endeavour’s current $11.47.
The Vancouver-headquartered company, which has a market capitalisation of around $655m, has minimal debt and working capital of $91.9m, which it says is sufficient to meet its short- and medium-term growth goals. In the light of its robust cash position, the company has decided to increase its capital budget to $17.4m and exploration budget to $10.1m.
Thanks to higher metal prices and lower operating costs, net earnings in the third quarter of 2016 improved to $5.6m from a $14.1m loss a year earlier.
Endeavour raised net proceeds of $13.9m in the third quarter in a second ATM (at-the-market) equity financing. In an ATM, a company sells newly issued shares incrementally at market prices into the existing trading market through a broker-dealer.
Mr Cooke said: “We currently have 12 drill rigs working on six projects to grow our resource base. With the recent acquisition of the Parral properties [in the state of Chihuahua] to our project pipeline, Endeavour now has one of the strongest organic growth profiles in the silver mining sector.” Endeavour paid $6m in stock for the Parral resource which historically produced 32m ounces of silver.
Exploration to extend mine life is going on at the three operating mines. Mr Cooke admitted that at Guanaceví, the company’s first mine acquired in 2004, plant continued to lag behind plan, but management expects throughput to improve in the fourth quarter. The company is initiating a $2.8m investment programme in the final quarter of 2016 as part of a three-year, $8.4m investment.
At Bolañitos, acquired in 2007 and the lowest cost property, plant throughput continued to exceed plan in part because of the draw-down of a historical ore stockpile and mining of new extensions. The company commenced a $1.7m investment there.
At the El Cubo mine which was brought into the group in 2012 had a high operating cost, but was seen as a turnaround candidate, there have been three years of what Mr Cooke described as “tough cost-cutting.” Plant throughput now exceeded plan, as development opened up new areas for mining. El Cubo is significantly ahead of production guidance for the year, and the company has just begun a $1.6m programme to access a further resource.
The company prides itself on its socially responsible relations with its mining communities, offering employment opportunities for both men and women, and running safety schemes and tree-planting projects.