Optimization of New Mines to Increase Production, Reduce CostsThu, 10/17/2019 - 16:25
Q: What investments did the company undertake on its Mexican projects in 2018 and how are they performing?
BC: In 2018, Endeavour invested new capital at each of our three operating mines and three development projects in Mexico. For our three mines, Guanacevi in Durango, and Bolanitos and El Cubo in Guanajuato, we continued to make capital investments primarily to extend mine life. This included expanding the underground mine workings to convert resources into reserves and to provide more access to the ore bodies and by expanding the tailings facilities. For our three projects, El Compas, in Zacatecas; Terronera, in Jalisco; and Parral, in Chihuahua, we invested to advance them toward evaluation and production. Guanacevi was our most profitable mine for many years but it fell on hard times in recent years so we invested to develop two new, shallower, thicker, higher-grade ore bodies to replace the two original ore bodies that are now deeper, narrower and lower grade.
Our goal is to produce more tons of higher grades at lower costs. Both new mine developments got underway in 2018 but will require much of 2019 to achieve commercial production. We do not provide guidance on a mine-to-mine basis but we expect to break even by 3Q19 and start making money in 4Q19. As for other mines, we saw grades decline at Bolañitos last year but we expect these to increase during 2019. At Cubo, we reduced the production rate by half to 750t/d to start the year in order to give our exploration team more time to replace reserves. Our pipeline of three development projects in Mexico represents the next phase of organic growth for Endeavour Silver. In 2018, we developed our fourth mine at El Compas and commenced mine commissioning. Unfortunately, we ran into some start-up problems that delayed the mine commissioning but we resolved those issues and we now anticipate declaring commercial production by the end of 1Q19. Our investment in mine No. 5 at Terronera in 2018 was focused on infill drilling to upgrade and expand the reserves by 20 percent and engineering to complete an updated pre-feasibility study, which we released in August 2018. Terronera is the next core asset for the company and has the potential to become both our largest and lowest-cost mine. We are currently putting together a financial package for approval by the board and then hope to commence an 18-month construction period in 2Q19. This mine will initially produce 2.6 million ounces of silver equivalent expanding to 5.1 million ounces per year with a 12-year mine life.
Q: What innovations would you like to implement for the Terronera project?
GW: We are considering a partnership with an English group to implement a semi-autonomous rubber-tired train system for ore and waste haulage between the mine and plant. The benefit of these trains is that they can go up and down a six-degree slope, whereas a regular train can only operate on a maximum two-degree slope. These trains allow us to haul to the deepest level in the mine without a shaft. Also, this system can be remote controlled. Another innovation would be scoop tramps. The big problem with scoops is that an operator sitting in a scoop can move material at a 10km/h rate. Autonomous scoops using sensors can get to 24-30km/h. Sensors also allow for far better maintenance. This is an example of equipment that can basically maintain itself and run at the desired KPMs (operating parameters). These can also run between shifts, so we can get an extra two to four hours a day of moving ore. Our suppliers are very excited by this commitment to innovation.
BC: We are still finding new ore bodies and working at historic districts but now we have the chance to start from scratch and build model mines with much longer mine lives. We want to embrace new technologies at Terronera because it is our first newly-built mine. As such, it can be our model mine going forward. We are especially focusing on the concept of autonomous equipment, which has a huge cost benefit. Other examples include underground ventilation fans. Sensor-operated fans consume less power because when a work area has no movement or light, the fans shut off, and when any movement or light is detected, they automatically turn on.
Q: Endeavour has launched phase 2 of its growth strategy. What are the plans for phase 3?
BC: Our phase 2 growth strategy is the construction of three new mines in Mexico over the next three to four years, depending on permitting, to expand our production and reduce our costs. During the recent bear market of low metal prices, we were one of the few silver mining companies that acquired several new exploration and development projects to establish an organic growth pipeline. Now our focus is building these development projects into operating mines. First up is mine No. 4 at El Compas, which should achieve commercial production in 2019. Next up is mine No. 5 at Terronera, where we hope to receive the final government permit, arrange debt financing and receive board approval to break ground this year for production in late 2020.
Last but not least is mine No. 6 at Parral, where we plan an ambitious exploration program in 2019 to expand resources, a preliminary economic assessment and initial mine permitting so we can build the mine in 2021 for production in 2022. Phase 3, which we announced in February 2019, answers the question of what happens after our current development pipeline is completed. We want to move up the ladder into larger, even world-class, ore bodies with decades of life. We went to Chile a few years ago and were able to acquire three district-scale, home-run projects. We are optimistic that Chile represents an opportunity for Endeavour to make a world-class discovery and diversify our political risk.
Q: How do you approach community relations to get the social approvals for your projects to operate?
BC: We always engage with the local communities as part of our sustainability philosophy at an early stage in each of our projects. At Terronera, for instance, we have had full community engagement since 2011 to make sure the community is fully informed of our plans, can provide us with their input of what is important to them, and ultimately support our project. Community engagement is a rigorous and systematic process. We use both our common sense and our sustainability policies to establish good relationships with the local communities. Both sides need to understand the social, environmental and economic impacts of the proposed mine. We are not trying to solve all their problems or provide hand-outs. We prefer to raise the quality of living in the area through our mining activities.
GW: We first go into the local communities and inform people about our plans to build a new mine. When we ask how many people in the community have experience with mines, it is usually not so many. At Terronera, we invited those local people interested in working in the mine to come to our Bolañitos mine for a mine-skills training program. In a ranching ejido of around 600 people, we had around 32 people go through the four-month program, learning the skills needed to become miners. Now they are just waiting for us to start building so they can become employees and participate in the economic benefits of the mine.