Endeavour Silver Corp. (TSX: EDR, NYSE: EXK, Frankfurt: EJD) announced today its financial and operating results and unaudited financial statements for the Third Quarter, 2011. Endeavour owns and operates two high-grade, underground, silver-gold mines in Mexico, the Guanacevi Mines in Durango State and the Guanajuato Mines in Guanajuato State.
The Company reported record adjusted earnings (a non-IFRS measure) of $8.9 million ($0.10 per share) in the Third Quarter, 2011. Net Earnings (an IFRS measure) were $3.1 million and operating cash-flow was $14.3 million from revenues totaling $38.8 million. Silver sales averaged $40.72 per ounce (oz) and the Company’s cash cost of production was $5.03 per oz of silver net of gold credits in Q3, 2011.
Highlights of Third Quarter, 2011 (Compared to Q3, 2010)
- Adjusted Earnings (non-IFRS measure) rose to $8.9 million ($0.10 per share) compared to $4.8 million loss (see IFRS comment below)
- Net Earnings increased to $3.1 million ($0.04 per share) compared to $9.6 million loss
- EBITDA gained 494% to $13.8 million ($0.16 per share) compared to a Loss of $3.5 million.
- Operating Cash-Flow jumped 191% to $14.3 million
- Mine Operating Cash-Flow climbed 194% to $27.1 million
- Revenues escalated 93% to $38.8 million
- Silver production up 8% to 858,738 oz
- Gold production up 7% to 4,926 oz
- Silver equivalent production up 4% to 1.04 million oz (40:1 silver: gold ratio, no base metals)
- Realized silver price up 120% to $40.72 per oz sold, realized gold price up 35% to $1,679 per oz sold
- Precious metals held in inventory at quarter-end included 270,536 silver oz and 2,420 gold oz
- Cash costs fell 18% to $5.03 per oz silver produced (net of gold credits)
“The highlight for operations during the quarter was the completion of the Guanajuato plant expansion on time and budget by the end of Q3, 2011, which facilitated a 60% increase in the production rate in October. The new 1,000 tpd plant circuit is now operating at capacity and the old 600 tpd circuit will continue to be utilized from time to time to top up the Q4 production rate to 1100 tpd until the year-end.”
“Management elected to not to sell all the silver and gold produced during the 3rd quarter due to the falling precious metal prices. As a result, precious metals held in inventory at quarter-end increased 270,536 oz silver and 2,420 oz gold. Given that silver and gold prices are already rebounding in the 4th quarter, these inventories should substantially enhance our future financial results when sold.”
“The Company continues to generate excellent drill results along the Daniela vein and other prospective targets in Guanajuato and Guanacevi. In exploration, we currently have eight drill rigs working, three at Guanajuato, three at Guanacevi and one each at the San Sebastian project in Jalisco and the new Lomas Bayas project in Chile. Additional results from our exploration programs are expected this quarter.”
Financial Results (see Consolidated Statement of Operations)
Revenues increased 93% to $38.8 million in Q3, 2011 (Q3, 2010 – $20.1 million) as a result of rising silver-gold production and higher precious metal prices. The Company sold 757,548 silver oz and 4,725 gold oz at average realized prices of $40.72 per oz and $1,679 per oz respectively. Costs of Sales were up 12% to $16.6 million (Q3, 2010 – $14.9 million) primarily due to higher labour costs and increased power usage offset by lower ounces sold compared to Q3, 2010. The Company elected to hold a higher amount of bullion inventory at quarter end as silver and gold prices pulled back late in the quarter. As a result, finished goods at the end of the 3rd quarter totaled 189,131 oz silver and 1,275 oz gold in bullion and 81,405 oz silver and 1,145 oz gold in dore and concentrate (production cost $5.6 million). The September 30th quoted market value of the finished goods was $12.1 million which if sold would have substantially increased Endeavour’s revenues, cash-flow and earnings.
Mine Operating Cash-Flow increased 194% to $27.1 million (Q3, 2010 – $9.2 million) and Mine Operating Earnings rose to $22.1 million (Q3, 2010 — $5.2 million). The Company realized positive Operating Earnings of $16.1 million (Q3, 2010 –$1.7 million), Operating Cash-Flow was $14.3 million (Q3, 2010 — $4.9 million). The Company carries a significant portion of its current assets in Canadian and Mexican currencies, which depreciated 5% and 12% respectively during the third quarter. This short term flight to the US dollar resulted in a Foreign Exchange Loss of $4.8 million contributing to the Earnings Before Taxes were $8.9 million (Q1, 2010 –Loss of $7.4 million). Should the Canadian dollar return to par with the US dollar, the Company would have a comparable Foreign Exchange Gain.
Net Earnings were $3.1 million ($0.04 per share) for the period after deducting an Income Tax Expense of $5.9 million (Q3, 2010 — loss of $9.6 million). Net Earnings includes a mark to market derivative liability loss related to share purchase warrants issued in 2009 denominated in Canadian dollars, while the Company’s functional currency is the US dollar. Under IFRS, these warrants are classified and accounted for as financial liability at fair market value with adjustments recognized through net earnings. The appreciation of these warrants resulted in a derivative liability loss of $5.8 million (Q3, 2010 — loss of $4.8 million).
Adjusted Earnings are $8.9 million ($0.10 per share) compared to a loss of $4.8 million in 2010 (negative $0.10 per share), excluding the derivative liability adjustments related to the warrants.
Cash Costs declined 18% to $5.03 per oz silver produced in Q3, 2011 (Q3, 2010 – $6.11 per oz) thanks to higher plant throughputs and higher gold production and gold prices, partially offset by the appreciation of the Mexican peso, and higher operating costs. Endeavour reports its cash costs according to the Silver Institute cash cost reporting guidelines.
Capital investments totaled $10.9 million in property, plant and equipment during the Third Quarter, 2011. The main focus of the capital programs was the continued underground development of Guanacevi and Guanajuato mines, certain plant upgrade projects at Guanacevi and completing the plant expansion at Guanajuato, which was operating at 1000 tpd at the end of Q3, 2011.
At September 30, 2011, the Company held cash and short term investments of $107.8 million and working capital totaled $145.7 million, up 43% from the end of 2010.
Endeavour’s financial results are expressed in US dollars and are now prepared in accordance with International Financial Reporting Standards (“IFRS”). Our accounting policies have changed and the presentation, financial statement captions and terminology used in this news release and the accompanying unaudited financial statements differ from that used in all previously issued financial statements and quarterly and annual reports. The new policies have been consistently applied to all of the past periods presented in this news release and all prior period information has been restated or reclassified for comparative purposes unless otherwise noted. Shareholders are referred to the Company’s website for more information and further details on the conversion to IFRS are provided in Management’s Discussion and Analysis and in Note 17 to our Unaudited Condensed Consolidated Financial Statements for the quarter ended September 30, 2011. Click on the following links for the Third Quarter, 2011 Financial Statements – http://www.edrsilver.com/s/FinancialStatements.asp and Management’s Discussion and Analysis (“MD&A”) – http://www.edrsilver.com/s/MDA.asp.
Operating Results (see Consolidated Table of Operations)
Consolidated silver production climbed 8% to 858,138 oz and gold production jumped 7% to 4,725 oz in Q3, 2011 compared to Q3, 2010 thanks to higher plant throughput at Guanacevi, partially offset by lower recoveries at Guanajuato. As a result, consolidated silver and equivalent production rose 4% to 1.04 million oz (40:1 silver: gold ratio, no base metals) compared to Q3, 2010.
Consolidated plant throughputs in Q3, 2010 totaled 138,592 tonnes, up 9% compared to Q3, 2010 due to the benefits of the 2010 mine development program at both operations and the plant expansion at Guanacevi. The Guanacevi Mine averaged 952 tonnes per day (tpd) and the Guanajuato Mine averaged 554 tpd during the Third Quarter, 2011. Consolidated silver grades averaged 263 grams per tonne (gpt) silver (8.5 oz per ton) and gold grades averaged 1.47 gpt. Consolidated silver recoveries averaged 73% and gold recoveries averaged 75%.
Guanacevi silver production for Q3, 2011 was 647,397 oz, up 11% compared to 585,422 oz and gold production was 1,933 oz, an increase of 25% compared to 1,545 oz in Q3, 2010. Plant throughput was 87,662 tonnes at average grades of 305 gpt silver and 0.83 gpt gold compared to 75,039 tonnes grading 326 gpt silver and 0.77 gpt gold in Q3, 2010. The increased silver and gold production is attributable to the 17% increase in plant throughput while silver grades were lower and gold grades were higher.
Guanajuato silver and gold production for Q3, 2011 was 211,341 oz and 2,993 oz, respectively, both similar to Q3, 2010 production of 211,632 silver oz and 3,060 gold oz. Plant throughput was 50,930 tonnes at average grades of 190 gpt silver and 2.57 gpt gold compared to 51,560 tonnes grading 177 gpt silver and 2.45 gpt gold in Q3, 2010. An increase in ore grades was offset by a drop in metal recoveries caused by an oil leak from one of the cone crushers into the mill feed which depressed recoveries into concentrate. That problem was rectified during the quarter and should not recur.
Outlook for Fourth Quarter, 2011
In Q4, 2011, Endeavour anticipates its financial performance will continue to improve, reflecting the current high silver and gold prices and an increase in the Company’s precious metal production resulting from the newly expanded Guanajuato plant. Inflationary pressures on operating costs in the short term should be offset by the new economies of scale attained at the Guanajuato operations, as well as Endeavour’s rising gold by-product credit.
The Guanajuato plant expansion was completed on time and budget by the end of Q3, 2011 which facilitated a 60% increase in the production rate to 1,000 tpd in October. The new 1,000 tpd plant circuit is now operating at capacity and the old 600 tpd circuit will continue to be utilized from time to time to top up the Q4 production rate to 1100 tpd until the year-end. Once sufficient new reserves and resources have been delineated, Endeavour plans to ramp up production in future years to the combined 1,600 tpd mill capacity. The Lucero vein continues to provide the bulk of the ore mined at Guanajuato, augmented by continuing production from the Cebada mine and initial production from our 2010 discoveries of the Karina, Fernanda and Daniela veins which are rapidly being developed underground.
The Guanacevi plant is currently producing at close to its 1,000 tonne per day (tpd) capacity and that should continue in Q4, 2011. Guanacevi currently draws 80% of its ore production from the Porvenir Norte Mine with the balance coming from Porvenir Dos, Porvenir Cuatro and Santa Cruz. Santa Cruz production will continue to escalate as mine development advances and Porvenir Dos will continue to decline as it nears the end of its mine-life early in 2012.
In Q3, 2011, Endeavour increased its 2011 exploration program and budget by 45% to an aggressive $13.3 million and 71,000 meters of drilling in order to expand exploration within three mining districts and initiate drilling on multiple exploration targets on newly-acquired properties such as La Presidenta and Lomas Bayas in Chile.
Q3, 2011 Conference Call at 10:00 am PST, Thursday, November 3, 2011
A conference call to discuss the Q3, 2011 financial and operating results will be held at 1:00 PM Eastern Time (10:00 AM Pacific Time) on Thursday, November 3, 2011. To participate in the conference call, please dial the following:
- 800-319-4610 Canada and USA (Toll-free)
- 604-638-5340 Vancouver Dial In
- 1-604-638-5340 Outside of Canada & USA
- No passcode is necessary
ENDEAVOUR SILVER CORP.
Per:
/s/ “Bradford J. Cooke”
BRADFORD COOKE
Chairman and CEO
