Endeavour Silver Corp. (TSE:EDR)(NYSE:EXK) released Monday updated silver and gold reserve and resource estimates for its three producing mines in Mexico, as well as one exploration project, using lower precious metal prices as compared to a year earlier.
The company told investors earlier this morning that proven and probable reserves as of December 31, 2013 were down year-on-year due mainly to the lower metal prices used for the estimates — a practice that has been seen recently industry-wide.
In response to the lower gold and silver prices last year, Endeavour said its mine plan was revised to bolster cash flow by accelerating production and deferring some lower priority underground mine development, primarily at its Bolanitos and Guanacevi mines, which also reduced the conversion of resources into reserves.
Still, measured and indicated resources increased in 2013, thanks to the company’s brownfields exploration programs, which revealed new resources mainly at El Cubo while also upgrading some inferred resources. Endeavour, again in response to the lower metals prices, reduced its exploration budget last year, which it said likely lowered the pace of expanding its resources.
As of December 31, silver proven and probable reserves fell 50% to 11.6 million ounces as compared to a year earlier, while gold reserves shrunk 37% to 139,400 ounces. Silver measured and indicated resources, on the other hand, rose by 4% to 60.7 million ounces, while gold resources climbed 6% to 556,300 ounces. Inferred resources fell year-over-year, down by 13% for silver and 15% for gold.
Endeavour typically uses three-year trailing averages of silver and gold prices for these estimates, it said, which at the end of 2013, were approximately $1,550 an ounce for gold and $30 an ounce for silver. Management said, however, that these prices were too aggressive in the short term for reserve estimates, so chose to use instead US$1,320 per ounce of gold and US$22 per ounce of silver to “more accurately reflect its near term outlook.”
It used prices that were about 10% higher for its resource estimates, at US$1,452 per ounce of gold and $24.20 per ounce of silver, reflecting its view that the metal prices will “likely be higher in the medium and longer terms.”
These prices were sharply lower than those used in Endeavour’s reserve and resource estimates in 2012, which were US$31 per ounce of silver and US$1,550 per ounce of gold.
“Reserve and resource growth took a back seat to our operational and financial performance last year due to the sharply lower precious metal prices,” said CEO Bradford Cooke in a release Monday.
“We responded promptly to the lower metal prices by reducing all costs including our exploration and development budgets which clearly impacted our ability to replace reserves and expand resources.”
“However, with the El Cubo capital reconstruction program completed on time and under budget last year and all three mining operations now running smoothly, reserve and resource growth is back on the front burner for 2014.”
The chief executive said that this year, Endeavour will continue to hone its mining operations, boosting profit margins and returning its focus to discovering and delineating ore at all of its three mining operations as well as at the new high grade discovery at its San Sebastian property.
Indeed, Endeavour is planning to invest $43.9 million on capital projects this year, all of which should be covered by the company’s anticipated cash flow in 2014. This includes $34.6 million on mine development, infrastructure, equipment and exploration, plus $9.3 million on plant upgrades, infrastructure, equipment and plant and exploration buildings.
It has budgeted US$20.9 million at its El Cubo mine in Guanajuato, where a major mine and plant reconstruction program was undertaken last year, and $11.7 million at Guanacevi in Durango state — its mine in Mexico that posted its highest ever annual production in 2013. It is also forecasting to spend $9.9 million at its Bolanitos mine, which has become known as a turnaround wonder for the company, with Endeavour doubling production at the mine just two years after its purchase in 2007.
Endeavour’s main opportunity to expand production this year is at El Cubo, where the plant is currently operating at 1,200 tonnes per day (tpd), compared to its capacity of 1,550 tpd. A steady ramp up of the plant is planned for 2014 as mine development opens up the new Villalpando-Asuncion deposit, and as grades are expected to keep rising slowly.
In 2014, the company is planning to spend US$10.7 million on exploration, including 54,000 metres of drilling in about 120 holes for the testing of brownfields targets and for underground mine exploration drilling.
The company has said it is intending to continue the exploration of the Terronera vein at the San Sebastian property, following an extension of a thick, high grade silver-gold vein discovery there last year.
“Despite the sharp decline in precious metal prices year-on-year and the resulting reduction in reserves and resources at lower metal prices, we are confident that our talented exploration team led by Luis Castro, VP of Exploration, will continue to expand resources and our operations team led by Dave Howe, VP of Operations, will continue to convert those resources into reserves and enhance the mine lives of each of our mining operations,” Cooke said.
Endeavour’s other exploration projects in Mexico — Guadalupe y Calvo and Parral projects in Chihuahua and the Arroyo Seco project in Michoacan — were not drilled in 2013, so their resource estimates remained unchanged, the company said.
