Endeavour Silver forecasts 20% production growth in 2018
By James Brewer
Endeavour Silver Corp, a mid-tier precious metals miner that operates three high-grade, underground, silver-gold mines in Mexico, is forecasting a 20% increase in its production during 2018, targeting 10.2m to 11.2m ounces of silver equivalent. Over the next three years, Endeavour’s goal is to boost production by 50% to 15m ounces of silver equivalent annually, supporting the company ambition to become a premier senior producer.
Chief executive Bradford Cooke said that this surge comes at a time when global conditions for the commodity are moving towards “a perfect storm” that will buoy the silver price.
Endeavour (NYSE: EXK, TSX: EDR), which has a market capitalisation of US$309m, expects to deliver quarter-on-quarter growth throughout 2018, at lower cost and increasing profit margin. Production in the first quarter 2018 was 1.35m ounces of silver and 13,208 ounces of gold.
During a presentation to investors in London, Mr Cooke cited an expected international shortfall of mined silver in the next four or five years. Demand on both the industrial side and precious metals side were among significant factors favouring a multi-year upward move in silver, possibly with a return to the firm levels of 2011 or higher.
Mr Cooke founded Endeavour in 2003 to acquire high-grade silver-gold projects in Mexico. Since then, the company has bought, rebuilt and expanded three such underground mines in the country. Now that Endeavour is building two new mines to fuel future growth, the company says it has “the best organic growth profile in the silver mining sector.”
In a recent post on the company website, Mr Cooke outlined the logistics of selling and transporting concentrates from the mines. Trucks leave several times a week for the Pacific port of Manzanillo, the busiest in the country, where metal traders have warehouse and dock facilities, for shipping to overseas smelters. The concentrates are ideal for blending as they are high grade and “clean,” making them attractive to industry at destinations including South Korea, Europe and Canada. Endeavour is paid most of the estimated value of each lot on delivery to Manzanillo, with a final payment two months later based on net actual smelter metal production and costs.
Mr Cooke and his team say they have been able to buy mines from local owners at below-market prices during the bear market for precious metals by targeting properties with no reserves, minimal production and threatened with closure. “We realised that there is fantastic exploration potential in these historic silver mining districts if you use modern technology to look below the surface,” he said.
Endeavour’s exploration and development pipeline features a high-grade discovery on its Terronera property in Jalisco state, the permitted El Compas mine and plant in Zacatecas state, and the prospective Parral properties in Chihuahua state.
El Compas in Mexico’s third largest silver mining district is the company’s latest mine, a small but high-grade underground mine that is now being quickly brought to production. A preliminary economic assessment showed robust economics with a 42% after tax rate of return. “We have a tremendous cash flow right off the bat,” said Mr Cooke. Commercial production is scheduled to begin in July 2018 and the production target is 100,000 ounces of silver and 7,000 to 8,000 ounces of gold in 2018.
Terronera, bought for $2.5m in 2015, is being developed as the fifth mine and should become one of the lowest cost mines in the sector. On 6,100 hectares in southwestern Jalisco state, it is set to become the largest mine in the group, with annual production estimated at 3.1m ounces of silver and 26,000 ounces of gold. In the district are 50 old mines, most closed during the 1910 Mexican revolution. Over the next two months, the company expects to receive final government permits, make a decision on production, raise debt financing and begin mine development.
The 3,450 hectares of land at Parral was acquired 18 months ago, and “we have high hopes this will become our mine number six,” said Mr Cooke. It contains “abundant high -grade targets,” which will be tested in this year’s $2m exploration budget. A maiden resource estimate at Parral of 32.3m ounces of silver equivalent was released in the first quarter of 2018, with upside expected from further exploration.
Endeavour’s largest silver producer is the Guanaceví mine in Durango, which is served by a modern mill with 1,200 tonnes per day capacity. After operational challenges at Guanacevi in 2017, there is renewed focus on reducing operating costs. Two new orebodies within the Guanacevi district are to be brought into production by year-end.
With shallow depths, thick widths and high gold grades, the company’s lowest-cost mine, Bolañitos in the state of Guanajuato, is part of a 2,500 hectares land package only 12 km from the state capital. The Bolañitos plant has a 1,600 tonnes per day capacity.
Also close to Guanajuato City, “a very good place to run a mine,” is Endeavour’s largest facility, El Cubo, on 8,100 hectares of land and with a 1,500 tonnes-per-day capacity plant.
The company, which boasts a strong balance sheet including $66.2m of working capital, is on the radar of several leading mining analysts. One of its top shareholders is New York investment group Van Eck, with an 8% holding, while Fresnillo, the world’s largest silver miner, has a 2% toehold.
In 2017, Endeavour’s net earnings increased 148%, to $9.7m, or $0.08 per share, despite lower revenue and cashflow for that year.
Mr Cooke said that the company’s philosophy of corporate social integrity was paying off both for local people and in terms of long term sustainable growth for the firm.
“We engaged with the local communities from day one,” he said. “The communities near each mine are both a source of social approval for our mines and our best line of defence [against any trouble-makers]. We sponsor health, educational and cultural initiatives every year, we have introduced medical services to some areas, and we are the largest tree planter in Mexico – we typically plant 40,000 new trees and cacti every year. We show children how to replant forests that disappeared 100 to 200 years ago. That is such a simple thing, but it means so much.”
On his recent round of visits to European financial centres (organised by Carrie Howes, managing director of investor relations specialist Rayleigh Capital), Mr Cooke was accompanied by Galina Meleger, the company’s investor relations director.
Endeavour’s website is www.edrsilver.com