After growing production for nine straight years, Endeavour Silver Corp. (TSE:EDR)(NYSE:EXK) says it is forecasting “relatively steady” silver output in 2014, focusing instead on positioning the company for a turnaround in metal prices later this year with a boost in free cash flow.
The precious metals miner, with three underground silver-gold mines in Mexico, told investors Wednesday that it is forecasting silver production in the range of 6.5 to 6.9 million ounces, compared to the 6.8 million ounces it produced in 2013, which was 52% higher than 2012.
It is predicting gold production of 65,000 to 69,000 ounces, and silver equivalent production between 10.4 to 11.0 million ounces, compared to the 11.3 million ounces produced in 2013.
“After delivering tremendous production growth in 2013, we plan to hold production relatively steady for 2014, hone the operations and position the company for a turnaround in metal prices later this year,” said CEO Bradford Cooke in a release Wednesday.
“Our capital budget is significantly reduced this year which will help boost free cash-flow.”
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 said Wednesday that its 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.
Cash costs have tumbled down to a manageable level, according to the company, with the mine paying for itself, but not yet contributing to corporate coffers. The goal this year will be for El Cubo to contribute some cash.
The company has also decided not to continue extra mine production at Bolanitos like it did last year for processing at the El Cubo plant.
“Our focus this year will be on further refining our operating and financial performance through initiatives to improve productivity, reduce operating costs and enhance cash-flow at all three mines, as well as completing the operational turn-around at El Cubo,” said Cooke.
“We have resumed exploration around the mines in order to replace depleted reserves and expand resources, but green-fields exploration will be minimized to drilling our emerging new, high grade discovery at the San Sebastian property.”
The Mexico-focused miner is forecasting 2014 all-in sustaining by-product costs of production at $19 per ounce of silver, with direct operating costs in the $95 per tonne range. The “all-in” costs include sustaining capex, exploration and general and administrative costs.
Endeavour made some big gains in productivity last year, cutting back 40% of its workforce at El Cubo and improving safety performance and relationships with unions.
Thanks to the company’s strong performance last year, in which silver equivalent production jumped 67% and revenue rose 33% despite lower metals prices, it was able to add to its cash position and reduce debt. At the end of 2013, it had cash of about $35 million and net debt of $33 million, compared to $22 million and $39 million at the end of June 2013, respectively.
Endeavour also has more upside on the horizon, with plans to spend $11.9 million on exploration in 2014, including a total of 54,000 metres of drilling in about 120 holes, focusing on brownfields exploration around its three operating mines as well as expanding the new high grade silver discovery on the San Sebastian property.
It said it is also considering M&A opportunities, with the idea to possibly acquire a fourth operating mine “while market valuations are low”.
In a recent interview with Proactiveinvestors, Cooke said that the company is in “acquisition mode”, with Endeavour planning to leverage its exploration experience by adding new projects this year. “We have decided to expand our horizons a bit and are willing to look not only at silver, but also gold, principally in Chile, Peru and Brazil.”
