Bradford Cooke
Endeavour Silver Corp.
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Path Correction Boosts Endeavour’s Performance

By Alejandro Ehrenberg | Mon, 04/27/2020 - 15:45

Q: What is your outlook for doing business in Mexico?

A: Our outlook for Mexico is generally positive but we have some rising concerns. On the positive side, Mexico is fortunate to have a rich endowment of natural resources. The future is bright for potential discoveries, mine developments and growing production. Mexico also has a well-developed infrastructure to facilitate new capital investments. Our concerns have to do with rising costs and risks of doing business in Mexico. Businesses now need to spend more time, money and effort anticipating and responding to these changes. At Endeavour, we continue to focus on maintaining and building on our relationships with our employees and the local communities, as the support of the people is one of the best protections for any foreign company working in Mexico. To diversify our political risk, we also added several world-class exploration projects in Chile in recent years to our portfolio. So, we are still happy doing business in Mexico but the political and social risks are rising.

Q: What were the operating issues you faced in 2019?

A: We have been working in Mexico since 2004, and in 2019 we recorded our 15th year as an operating mining company. For many of those years, Endeavour was a sector leader for both growth and profitability. However, in recent years our production and profits have declined and 2019 was our worst in both our operating and financial performance. After surviving many years of low precious metal prices, we realized our mines were suffering from a lack of capital investment, new equipment and qualified personnel. In addition, after many years of mining shallower, thicker, higher grade and lower cost ores, we were now mining the deeper, narrower, lower grade, higher cost margins of our original orebodies. It was not simply one or two things we needed to fix: it was everything.

Q: What did you do to resolve the operating issues?

A: At the end of the 1Q19, we developed our two-part turn-around plan and initiated sweeping changes. The first part was to complete an operational turn-around. We changed the senior management at each mine site, reduced the workforce, changed mining contractors, adjusted the mine, and purchased or leased new and refurbished equipment. This approach generated immediate results, starting with 2Q19 and each quarter thereafter. As a result, our production started improving quarter-on-quarter in a gradual return to better operating and financial performance.

The second part was to develop new lower-cost orebodies so we could close the old, higher-cost orebodies. That would allow us to boost our mine outputs to fill the plants to their processing capacities. The Guanacevi mine, which was our biggest challenge in 2019, significantly outperformed plan in 1Q20 and we now expect to complete the operational turn-around and new mine development in 2Q20. The Bolañitos mine, which also suffered from major issues in 2019, continued to underperform plan in 1Q20 because we only made substantial changes there in 3Q19. However, we expect the mine will return to plan in 3Q20. El Compas, our newest mine, experienced the usual start-up problems for any new mining operation but we achieved commercial throughput in 2019 and we continue to optimize the grades and recoveries. All three mines are projected to generate free cash flow in 2020.

Q: How do you plan to create stakeholder value in 2020?

A: There are four ways we can create value for our stakeholders short and long term. First, returning our existing mines to profitability. Turning the mines around and developing new orebodies is critical to the sustainability of our business. Second, developing new, larger and higher quality mines. We are fortunate to have one of the best organic growth profiles in the silver mining sector, including two new discoveries in historic districts in Mexico that could potentially double our production and cut our costs to half. Third, exploring for a world-class discovery in Chile. We have an attractive portfolio of exploration properties with potential for large, open-pit mineral deposits, and success there would be a game-changer for us. Fourth, acquiring new mines or properties. Last year, we acquired two properties in Guanacevi adjacent to two of our highest-grade, historic orebodies, which gave us instant access to possible extensions of those high-grade orebodies to extend our mine life. This year, we hope to accomplish the same goal at Bolañitos.

Endeavour Silver is a multi-asset silver mining company operating three mines in Mexico and several exploration projects in Chile.

Alejandro Ehrenberg Alejandro Ehrenberg Journalist and Industry Analyst