Endeavour Silver Corp.: Exhibit 99.2 - Filed by newsfilecorp.com
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED JUNE 30, 2018 |
| |
This Management Discussion and Analysis (“MD&A”) should be
read in conjunction with the condensed consolidated interim financial statements
of Endeavour Silver Corp. (“Endeavour” or “the Company”) for the three and six
months ended June 30, 2018 and the related notes contained therein, which were
prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”). In addition,
the following should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2017 and the related
MD&A. The Company uses certain non-IFRS financial measures in this MD&A
as described under “Non-IFRS Measures”. Additional information relating to the
Company, including the most recent Annual Information Form (the “Annual
Information Form”), is available on SEDAR at www.sedar.com, and the Company’s
most recent annual report on Form 40-F has been filed with the U.S. Securities
and Exchange Commission (the “SEC”). This MD&A contains “forward-looking
statements” that are subject to risk factors set out in a cautionary note
contained herein. All dollar amounts are expressed in United States (“U.S.”)
dollars and tabular amounts are expressed in thousands of U.S. dollars unless
otherwise indicated. This MD&A is dated as of August 1, 2018 and all
information contained is current as of August 1, 2018 unless otherwise
stated.
Cautionary Note to U.S. Investors concerning Estimates of
Mineral Reserves and Measured, Indicated and Inferred Mineral Resources:
This MD&A has been prepared in accordance with the
requirements of the securities laws in effect in Canada, which differ from the
requirements of U.S. securities laws. The terms “mineral reserve”, “proven
mineral reserve” and “probable mineral reserve” are Canadian mining terms as
defined in accordance with Canadian National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of
Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on
Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended.
These definitions differ materially from the definitions in SEC Industry Guide 7
under the U.S. Securities Act of 1933, as amended.
Under SEC Industry Guide 7 standards, a “final” or
“bankable” feasibility study is required to report reserves, the three-year
historical average price is used in any reserve or cash flow analysis to
designate reserves and the primary environmental analysis or report must be
filed with the appropriate governmental authority.
In addition, the terms “mineral resource”, “measured mineral
resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101; however, these terms are
not defined terms under SEC Industry Guide 7 and are normally not permitted to
be used in reports and registration statements filed with the SEC. Investors are
cautioned not to assume that any part or all of mineral deposits in these
categories will ever be converted into SEC Industry Guide 7 reserves. “Inferred
mineral resources” have a great amount of uncertainty as to their existence, and
great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or
any part of an inferred mineral resource exists or is economically or legally
mineable. Disclosure of “contained ounces” in a resource is permitted disclosure
under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute “reserves” by SEC Industry Guide
7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this MD&A contains
descriptions of the Company’s mineral deposits that may not be comparable to
similar information made public by U.S. companies subject to the reporting and
disclosure requirements under the U.S. federal securities laws and the rules and
regulations thereunder, including SEC Industry Guide 7.
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| 609 Granville Street, Suite 1130, PO
Box #10328, Vancouver, B.C., Canada V7Y 1G5 |
| Phone: 604.685.9775 | Fax:
604.685.9744 | Toll Free: 1.877.685.9775 Email: info@edrsilver.com
|
| www.edrsilver.com |
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Forward-Looking Statements
This MD&A contains “forward-looking statements” within
the meaning of the U.S. Securities Litigation Reform Act of 1995, as amended and
“forward-looking information” within the meaning of applicable Canadian
securities legislation. Such forward-looking statements and information include,
but are not limited to, statements regarding Endeavour’s anticipated performance
in 2018, including silver and gold production, timing and expenditures to
develop new silver mines and mineralized zones, silver and gold grades and
recoveries, cash costs per ounce, capital expenditures and sustaining capital.
Forward-looking statements are frequently characterized by words such as “plan”,
“expect”, “forecast”, “project”, ”intend”, ”believe”, ”anticipate”, “outlook”
and other similar words, or statements that certain events or conditions “may”
or “will” occur. Forward- looking statements are based on the opinions and
estimates of management at the dates the statements are made, and are subject to
a variety of risks and uncertainties and other factors that could cause actual
events or results to differ materially from those projected in the
forward-looking statements.
The Company does not intend to, and does not assume any
obligation to, update such forward-looking statements or information, other than
as required by applicable law. Forward-looking statements or information involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, level of activity, performance or achievements of the Company
and its operations to be materially different from those expressed or implied by
such statements. Such factors include, among others: fluctuations in the prices
of silver and gold, fluctuations in the currency markets (particularly the
Mexican peso, Canadian dollar and U.S. dollar); changes in national and local
governments, legislation, taxation, controls, regulations and political or
economic developments in Canada and Mexico; operating or technical difficulties
in mineral exploration, development and mining activities; risks and hazards of
mineral exploration, development and mining (including, but not limited to
environmental hazards, industrial accidents, unusual or unexpected geological
conditions, pressures, cave-ins and flooding); inadequate insurance, or
inability to obtain insurance; availability of and costs associated with mining
inputs and labour; the speculative nature of mineral exploration and
development, diminishing quantities or grades of mineral reserves as properties
are mined; the ability to successfully integrate acquisitions; risks in
obtaining necessary licenses and permits, and challenges to the Company’s title
to properties; as well as those factors described under “Risk Factors” in the
Company’s Annual Information Form. Although the Company has attempted to
identify important factors that could cause actual results to differ materially
from those contained in forward-looking statements or information, there may be
other factors that cause results to be materially different from those
anticipated, described, estimated, assessed or intended. There can be no
assurance that any forward-looking statements or information will prove to be
accurate as actual results and future events could differ materially from those
anticipated in such statements or information. Accordingly, readers should not
place undue reliance on forward-looking statements or information.
Qualified Person
The scientific and technical information contained in this
MD&A relating to the Company’s mines and mineral projects has been reviewed
and approved by Godfrey Walton, M.Sc., P.Geo., President and Chief Operating
Officer of Endeavour, a Qualified Person within the meaning of NI 43-101.
TABLE OF CONTENTS
| |
Operating Highlights |
Page 3 |
Consolidated Financial Results |
Page 14 |
| |
Consolidated Operations |
Page 5 |
Non IFRS Measures |
Page 16 |
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Guanaceví Operations |
Page 7 |
Quarterly Results and Trends |
Page 21 |
| |
Bolañitos Operations |
Page 9 |
Annual Outlook |
Page 25 |
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El Cubo Operations |
Page 10 |
Liquidity and Capital Resources |
Page 28 |
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Development Activities |
Page 11 |
Changes in Accounting Policies |
Page 33 |
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Exploration Results |
Page 13 |
Controls and Procedures |
Page 36
|
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 2 |
| |
|
|
| Three Months Ended June 30 |
Q2 2018 Highlights |
Six Months Ended June 30
|
| 2018 |
2017 |
% Change |
|
2018 |
2017 |
% Change |
| Production |
| 1,355,895 |
1,143,788 |
19% |
Silver ounces produced |
2,70 6,735 |
2,220 ,762 |
22% |
| 13,674 |
13,0 58 |
5% |
Gold ounces produced |
26,882 |
24,782 |
8% |
| 1,328,844 |
1,116,799 |
19% |
Payable silver ounces produced |
2,653,70 0 |
2,170 ,909 |
22% |
| 13,396 |
12,756 |
5% |
Payable gold ounces produced |
26,340 |
24,215 |
9% |
| 2,381,445 |
2,123,138 |
12% |
Silver equivalent ounces
produced(1) |
4,722,885 |
4,079,412 |
16% |
| 7.61 |
8.36 |
(9%) |
Cash costs per silver
ounce(2)(3) |
7.0 5 |
8.0 9 |
(13%) |
| 14.10 |
12.0 2 |
17% |
Total production costs per
ounce(2)(4) |
14.12 |
11.83 |
19% |
| 17.28 |
20 .46 |
(16%) |
All-in sustaining costs per
ounce(2)(5) |
15.73 |
19.38 |
(19%) |
| 314,30 5 |
303,943 |
3% |
Processed tonnes |
639,974 |
607,165 |
5% |
| 86.43 |
84.0 1 |
3% |
Direct production costs per
tonne(2)(6) |
82.84 |
79.90 |
4% |
| 11.31 |
12.10 |
(7%) |
Silver co-product cash
costs(7) |
11.0 4 |
12.0 5 |
(8%) |
| 865 |
896 |
(3%) |
Gold co-product cash costs(7)
|
861 |
878 |
(2%) |
| Financial |
| 38.8 |
32.7 |
19% |
Revenue ($ millions) |
79.1 |
69.1 |
14% |
| 1,258,617 |
988,821 |
27% |
Silver ounces sold |
2,664,760 |
2,224,415 |
20% |
| 13,800 |
12,294 |
12% |
Gold ounces sold |
26,474 |
23,584 |
12% |
| 16.76 |
17.16 |
(2%) |
Realized silver price per ounce
|
16.72 |
17.51 |
(5%) |
| 1,281 |
1,270 |
1% |
Realized gold price per ounce |
1,30 4 |
1,275 |
2% |
| (5.7) |
(0 .0 ) |
(100 %) |
Net earnings (loss) ($ millions)
|
(3.3) |
6.0 |
(155%) |
| 4.6 |
5.5 |
(15%) |
Mine operating earnings ($
millions) |
7.9 |
13.3 |
(41%) |
| 14.9 |
8.8 |
69% |
Mine operating cash flow(8)
($ millions) |
28.7 |
20 .8 |
38% |
| 3.6 |
4.4 |
(17%) |
Operating cash flow before working
capital changes (9) |
15.2 |
13.3 |
15% |
| 2.7 |
3.7 |
(26%) |
Earnings before ITDA
(10)($ millions) |
14.1 |
12.6 |
12% |
| 58.9 |
75.2 |
(22%) |
Working capital ($ millions) |
58.9 |
75.2 |
(22%) |
| Shareholders |
| (0 .04) |
0 .0 0 |
(100 %) |
Earnings (loss) per share – basic
|
(0 .0 3) |
0.0 5 |
(160 %) |
| 0 .03 |
0 .0 3 |
0% |
Operating cash flow before working
capital changes per share
(9) |
0 .12 |
0.10 |
20% |
| 127,570,254 |
127,318,926 |
0% |
Weighted average shares outstanding |
127,529,558 |
127,20 7,961 |
0% |
| (1) |
Silver equivalents are calculated using a 75:1 ratio.
2017 Silver equivalents have been restated from 70:1 to 75:1 for
comparative purposes. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 16. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 17. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 17. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 19. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 17. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page 20. |
| (8) |
Mine operating cash flow is calculated by adding back
amortization, depletion, inventory write-downs and share-based
compensation to mine operating earnings. Mine operating earnings and mine
operating cash flow are before taxes. See Reconciliation to IFRS on page
16. |
| (9) |
See Reconciliation to IFRS on page 16 for the
reconciliation of operating cash flow before working capital changes and
for the operating cash flow before working capital changes per
share. |
| (10) |
See Reconciliation of Earnings before interest, taxes,
depreciation and amortization on page 17. |
The above highlights are key measures used by management,
however they should not be the sole measures used in determining the performance
of the Company’s operations.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 3 |
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HISTORY AND STRATEGY
The Company is engaged in silver mining in Mexico and related
activities including property acquisition, exploration, development, mineral
extraction, processing, refining and reclamation. The Company is also engaged in
exploration activities in Chile.
Since 2002, the Company’s business strategy has been to focus
on acquiring advanced-stage silver mining properties in Mexico. Mexico, despite
its long and prolific history of metal production, appears to be relatively
under-explored using modern exploration techniques and offers promising
geological potential for precious metals exploration and production.
The Company’s Guanaceví and Bolañitos mines acquired in 2004
and 2007, respectively, demonstrate its business model of acquiring fully built
and permitted silver mines that were about to close for lack of ore. By bringing
the money and expertise needed to find new silver ore-bodies, the Company
successfully re-opened and expanded these mines to develop their full potential.
The benefit of acquiring fully built and permitted mining and milling
infrastructure is that, if new exploration efforts are successful, the mine
development cycle from discovery to production only takes a matter of months
instead of the several years normally required in the traditional mining
business model.
In 2012, the Company acquired the El Cubo silver-gold mine
located in Guanajuato, Mexico. The El Cubo property came with substantial
reserves and resources and the mine was already operating at 1,100 tonnes per
day (tpd). After acquisition, the Company initiated a two-year operational
turn-around and capital investment program aimed at increasing throughput, grade
and productivity in order to reduce operating costs and return the operation to
profitability.
In addition to operating the Guanaceví, Bolañitos and El Cubo
mines, the Company is currently commissioning the El Compas mine for commercial
production in Q3, 2018.The Company advancing and the Terronera development
project and several exploration projects in order to achieve its goal to become
a premier senior producer in the silver mining sector.
The Company has historically funded its acquisition,
exploration and development activities through equity financings, debt
facilities and convertible debentures. In recent years, the Company has financed
most of its acquisition, exploration, development and operating activities from
production cash flows and treasury. The Company may choose to undertake equity, debt,
convertible debt or other financings, on an as-needed basis, in order to
facilitate its growth.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 4 |
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|
REVIEW OF OPERATING RESULTS
The Company operates the Guanaceví, Bolañitos and El Cubo mines
in Mexico. In addition, the Company is currently commissioning the fully built
and permitted El Compas project anticipating commercial production in Q3,
2018.
Consolidated Production Results for the Three Months and Six
Months Ended June 30, 2018 and 2017
| Three Months Ended June 30 |
CONSOLIDATED |
Six Months Ended June 30
|
| 2018 |
2017 |
% Change |
|
2018 |
2017 |
% Change |
| 314,305 |
303,943 |
3% |
Ore tonnes processed |
639,974 |
607,165 |
5% |
| 156 |
135 |
15% |
Average silver
grade (gpt) |
153 |
131 |
17% |
| 86.2 |
86.6 |
(0%) |
Silver recovery (%) |
85.9 |
86.7 |
(1%) |
| 1,355,895 |
1,143,788 |
19% |
Total silver
ounces produced |
2,70 6,735 |
2,220,762 |
22% |
| 1,328,844 |
1,116,799 |
19% |
Payable silver ounces produced |
2,653,70 0 |
2,170,909 |
22% |
| 1.60 |
1.58 |
1% |
Average gold grade
(gpt) |
1.54 |
1.50 |
3% |
| 84.5 |
84.6 |
(0%) |
Gold recovery (%) |
84.7 |
84.8 |
(0%) |
| 13,674 |
13,058 |
5% |
Total gold ounces
produced |
26,882 |
24,782 |
8% |
| 13,396 |
12,756 |
5% |
Payable gold ounces produced |
26,340 |
24,215 |
9% |
| 2,381,445 |
2,123,138 |
12% |
Silver equivalent
ounces produced(1) |
4,722,885 |
4,0 79,412 |
16% |
| 7.61 |
8.36 |
(9%) |
Cash costs per silver
ounce(2)(3) |
7.05 |
8.09 |
(13%) |
| 14.10 |
12.02 |
17% |
Total production
costs per ounce(2)(4) |
14.12 |
11.83 |
19% |
| 17.28 |
20.46 |
(16%) |
All in sustaining cost per ounce
(2)(5) |
15.73 |
19.38 |
(19%) |
| 86.43 |
84.01 |
3% |
Direct production
costs per tonne(2)(6) |
82.84 |
79.90 |
4% |
| 11.31 |
12.10 |
(7%) |
Silver co-product cash
costs(7) |
11.0 4 |
12.05 |
(8%) |
| 865 |
896 |
(3%) |
Gold co-product cash costs(7) |
861 |
878 |
(2%) |
| (1) |
Silver equivalents are calculated using a 75:1 ratio.
2017 Silver equivalents have been restated from 70:1 to 75:1 for
comparative purposes. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 16. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 17. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 17. |
| (5) |
All-in sustaining costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 19. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 17. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
20. |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 5 |
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Consolidated Production
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Consolidated silver production during Q2,
2018 was 1,355,895 ounces (oz), an increase of 19% compared to 1,143,788 oz in
Q2, 2017, and gold production was 13,674 oz, an increase of 5% compared to
13,058 oz in Q2, 2017. Plant throughput was 314,305 tonnes at average grades of
156 grams per tonne (gpt) silver and 1.60 gpt gold, compared to 303,943 tonnes
grading 135 gpt silver and 1.58 gpt gold in Q2, 2017. Silver production was
higher in Q2, 2018 compared to Q2, 2017 due to higher mine output and ore grades
at El Cubo. Gold production in Q2, 2018 compared to Q2, 2017 was higher at El
Cubo and Guanacevi and lower at Bolanitos due to variations in gold grades.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Consolidated silver production during 2018 was
2,706,735 ounces, an increase of 22% compared to 2,220,762 oz in 2017, and gold
production was 26,882 oz, an increase of 8% compared to 24,782 oz over the same
period in 2017. Plant throughput was 639,974 tonnes at average grades of 153
grams per tonne (gpt) silver and 1.54 gpt gold, compared to 607,165 tonnes
grading 131 gpt silver and 1.50 gpt gold in 2017. Silver production was higher
in Q2, 2018 compared to Q2, 2017 due to higher mine output at El Cubo and ore
grades at El Cubo and Bolanitos. Gold production in Q2, 2018 compared to Q2,
2017 was higher at El Cubo and Guanacevi offset by lower gold production at
Bolanitos. El Cubo higher gold production was a result of higher mine output and
higher gold grades due to variations, while Guanacevi and Bolanitos fluctuations
in gold production are a result of variations in the ore bodies.
On a consolidated basis silver equivalent production is within
management’s guidance range for the six months ended June 30, 2018.
Consolidated Operating Costs
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Direct production costs per tonne in Q2,
2018 increased 3% compared with Q2, 2017. The higher production costs per tonne
were driven mainly by lower Guanaceví mine output due to mine development
falling behind schedule in 2017 and the costs related to implement a
productivity optimization program. This seven month program is intended to
return Guanacevi to normal operations in Q3, 2018.
The higher costs at Guanaceví were offset by increased
production at El Cubo. El Cubo production substantially increased due to higher
throughput and grades.
The performance of El Cubo resulted in 9% lower consolidated
cash costs per oz, net of by-product credits (a non-IFRS measure and a standard
of the Silver Institute). Similarly, all-in sustaining costs (also a non-IFRS
measure) which, compared to Q2, 2017, decreased 16% to $17.28 per oz in Q2,
2018. This decrease in all-in sustaining costs was a result of the lower
operating costs per oz and the lower capital expenditures in Q2, 2018 compared
to Q1, 2018, offset by higher general and administration charges at the
corporate level.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Direct production costs per tonne in 2018 increased
4% compared with 2017 despite a 5% increase in throughput. The higher production
costs per tonne were driven mainly by lower Guanaceví mine output due to mine
development falling behind schedule in 2017 and the costs related to implement a
productivity optimization program. This seven month program is intended to
return Guanacevi to normal operations in Q3, 2018.
The higher direct costs at Guanaceví were offset by increased
production due to higher throughput and grades at El Cubo. The performance of
the El Cubo operation resulted in 13% lower consolidated cash costs per oz, net
of by-product credits (a non-IFRS measure and a standard of the Silver
Institute). Similarly, all-in sustaining costs (also a non-IFRS measure) which,
compared to 2017, decreased 19% to $15.73 per oz in 2018. This decrease in
all-in sustaining costs is attributable to the lower operating costs and the
lower capital expenditures in 2018 compared to 2017, partially offset by higher
general and administration charges at the corporate level.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 6 |
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Guanaceví Operations
The Guanaceví operation is currently producing from two
underground silver-gold mines along a five kilometre (km) length of the prolific
Santa Cruz vein. Guanaceví provides steady employment for over 475 people and
engages 400 contractors. Guanaceví mine production continues to lag below plant
capacity due to the operational issues mentioned under “Guanaceví Production
Results”. Management has initiated a seven month mine site training program
aimed at significantly improving work force productivity and cutting costs, and
will continue to closely monitor the operating performance at Guanaceví.
Returning Guanaceví to long-term profitability also lies in developing two new
orebodies, Milache and SCS. Underground ramp access is already underway at
Milache and initial production there is expected by year-end. Mine development
at SCS is scheduled to commence in Q3, 2018 with initial production scheduled at
the end of 2018.
Production Results for the Three Months and Six Months Ended
June 30, 2018 and 2017
| Three Months Ended June 30 |
GUANACEVÍ |
Six Months Ended June 30
|
| 2018 |
2017 |
% Change |
|
2018 |
2017 |
% Change |
| 71,275 |
74,984 |
(5%) |
Ore tonnes processed |
150 ,246 |
162,583 |
(8%) |
| 225 |
219 |
3% |
Average silver
grade (g/ t) |
224 |
216 |
4% |
| 90 .2 |
88.8 |
2% |
Silver recovery (%) |
88.8 |
88.5 |
0 % |
| 464,929 |
468,741 |
(1%) |
Total silver
ounces produced |
961,258 |
999,424 |
(4%) |
| 464,464 |
468,753 |
(1%) |
Payable silver ounces produced |
960 ,275 |
998,424 |
(4%) |
| 0.67 |
0.50 |
34% |
Average gold grade
(g/ t) |
0.65 |
0 .50 |
30 % |
| 92.7 |
89.5 |
4% |
Gold recovery (%) |
91.4 |
86.9 |
5% |
| 1,423 |
1,079 |
32% |
Total gold ounces
produced |
2,870 |
2,271 |
26% |
| 1,422 |
1,077 |
32% |
Payable gold ounces produced |
2,867 |
2,267 |
26% |
| 571,654 |
544,271 |
5% |
Silver equivalent
ounces produced(1) |
1,176,50 8 |
1,158,394 |
2% |
| 17.46 |
14.94 |
17% |
Cash costs per silver
ounce(2)(3) |
16.35 |
13.83 |
18% |
| 29.03 |
21.63 |
34% |
Total production
costs per ounce(2)(4) |
29.14 |
20 .20 |
44% |
| 29.24 |
27.40 |
7% |
All in sustaining cost per ounce
(2)(5) |
25.83 |
25.47 |
1% |
| 139.24 |
111.42 |
25% |
Direct production
costs per tonne(2)(6) |
129.45 |
10 2.57 |
26% |
| 17.30 |
15.23 |
14% |
Silver co-product cash
costs(7) |
16.41 |
14.32 |
15% |
| 1,322 |
1,127 |
17% |
Gold co-product cash costs(7) |
1,280 |
1,042 |
23% |
| (1) |
Silver equivalents are calculated using a 75:1 ratio.
2017 Silver equivalents have been restated from 70:1 to 75:1 for
comparative purposes. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-product on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 16. |
| (3) |
Cash costs net of by-product per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 17. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 17. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 19. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 17. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
20. |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 7 |
| |
|
|
Guanaceví Production Results
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Silver production at the Guanaceví mine
during Q2, 2018 was 464,929 oz, a decrease of 1% compared to 468,741 oz in Q2,
2017, and gold production was 1,423 oz, an increase of 32% compared to 1,079 oz
in Q2, 2017. Plant throughput was 71,275 tonnes at average grades of 225 gpt
silver and 0.67 gpt gold, compared to 74,984 tonnes grading 219 gpt silver and
0.50 gpt gold in Q2, 2017. Guanacevi mine output was lower due to mine
development falling behind schedule in 2017 and the reallocation of mine
personnel to implement a productivity optimization program. The 2018 focus
re-enforced operating controls, monitoring systems and work flows, with mine
output expected to increase as a result. Silver and gold grades were both higher
due to better dilution control and variations in the ore deposit, resulting in
silver equivalent production being 5% higher than Q2, 2017.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Silver production at the Guanaceví mine during 2018
was 961,258 oz, a decrease of 4% compared to 999,424 oz in 2017, and gold
production was 2,870 oz, an increase of 26% compared to 2,271 oz in 2017. Plant
throughput was 150,246 tonnes at average grades of 224 gpt silver and 0.65 gpt
gold, compared to 162,583 tonnes grading 216 gpt silver and 0.50 gpt gold in
2017. Guanacevi mine output was lower due to mine development falling behind
schedule in 2017 and the reallocation of mine personnel to implement a
productivity optimization program. The 2018 focus re-enforced operating
controls, monitoring systems and work flows, with mine output expected to
increase as a result. Gold grades are due to variations in the ore deposit
resulting slightly higher silver equivalent production in 2018 compared to
previous year.
Guanaceví Operating Costs
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
As a result of a 5% decrease in throughput,
and initiation of the optimization program, direct production costs per tonne in
Q2, 2018 rose 25% compared with Q2, 2017. The higher costs per tonne was
partially offset with higher silver and gold grade ore resulting in 17% higher
cash costs per oz, net of by-product credits (a non-IFRS measure and a standard
of the Silver Institute). All-in sustaining costs (also a non-IFRS measure)
which, compared to Q2, 2017, rose 7% to $29.24 per oz in Q2, 2018. Similarly,
the rise in cash costs increased all in sustaining costs, while slightly lower
capital expenditures tempered the rise in costs compared to Q2, 2017.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
As a result of a 8% decrease in throughput, and
initiation of the optimization program, direct production costs per tonne in
2018 rose 26% compared with same period in 2017. The higher costs per tonne was
partially offset with higher silver and gold grade ore resulting in 18% higher
cash costs per oz, net of by-product credits (a non-IFRS measure and a standard
of the Silver Institute). All-in sustaining costs (also a non-IFRS measure)
which, compared to 2017 were flat. Investment is expected to increase in the
second half of the year to open sufficient stope to increase productivity to
planned levels.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 8 |
| |
|
|
Bolañitos Operations
The Bolañitos operation encompasses three undergound
silver-gold mines and a flotation plant. Bolañitos provides steady employment
for over 350 people and engages 200 contractors.
Production Results for the Three Months and Six Months Ended
June 30, 2018 and 2017
| Three Months Ended June 30
|
BOLAÑITOS |
Six Months Ended June 30
|
| 2018 |
2017 |
% Change |
|
2018 |
2017 |
% Change |
| 10 8,495 |
113,875 |
(5%) |
Ore tonnes processed |
223,509 |
208,226 |
7% |
| 91 |
78 |
17% |
Average silver
grade (g/ t) |
88 |
73 |
21% |
| 78.3 |
80.9 |
(3%) |
Silver recovery (%) |
79.7 |
81.8 |
(3%) |
| 248,591 |
231,016 |
8% |
Total silver
ounces produced |
504,032 |
399,739 |
26% |
| 241,215 |
221,776 |
9% |
Payable silver ounces produced |
489,081 |
383,750 |
27% |
| 1.82 |
2.27 |
(20%) |
Average gold grade
(g/ t) |
1.86 |
2.33 |
(20%) |
| 82.3 |
83.8 |
(2%) |
Gold recovery (%) |
83.3 |
84.5 |
(1%) |
| 5,222 |
6,965 |
(25%) |
Total gold ounces
produced |
11,129 |
13,183 |
(16%) |
| 5,103 |
6,790 |
(25%) |
Payable gold ounces produced |
10,879 |
12,853 |
(15%) |
| 640,241 |
718,566 |
(11%) |
Silver equivalent
ounces produced(1) |
1,338,707 |
1,322,549 |
1% |
| 2.87 |
(4.78) |
160% |
Cash costs per silver
ounce(2)(3) |
0.01 |
(7.10) |
100% |
| 4.09 |
(2.07) |
298% |
Total production
costs per ounce(2)(4) |
1.30 |
(4.33) |
130 % |
| 12.84 |
3.61 |
256% |
All in sustaining cost per ounce
(2)(5) |
8.46 |
0.51 |
(1,570%) |
| 65.74 |
66.60 |
(1%) |
Direct production
costs per tonne(2)(6) |
63.23 |
65.96 |
(4%) |
| 11.0 1 |
10 .16 |
8% |
Silver co-product cash
costs(7) |
10.30 |
10.10 |
2% |
| 842 |
752 |
12% |
Gold co-product cash costs(7) |
80 3 |
736 |
9% |
| (1) |
Silver equivalents are calculated using a 75:1 ratio.
2017. Silver equivalents have been restated from 70:1 to 75:1 for
comparative purposes. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 16. |
| (3) |
Cash costs net of by-product per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 17. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 17. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 19. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 17. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
20. |
Bolañitos Production Results
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Silver production at the Bolañitos mine was
248,591 oz in Q2, 2018, an increase of 8% compared to 231,016 oz in Q2, 2017,
and gold production was 5,222 oz in Q2, 2018, a decrease of 25% compared to
6,965 oz in Q2, 2017. Plant throughput in Q2, 2018 was 108,495 tonnes at average
grades of 91 gpt silver and 1.82 gpt gold, compared to 113,875 tonnes grading 78
gpt silver and 2.27 gpt gold in Q2, 2017. Silver production increased due to
higher silver grades, offset by lower throughput and recoveries, while gold
production decreased 25% due to the lower gold grades and lower throughput. Gold
grades were planned to be lower in 2018 compared to 2017, however management
expects gold grades to improve over the second half of 2018.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Silver production at the Bolañitos mine was 504,032
oz in 2018, an increase of 26% compared to 399,739 oz in 2017, and gold
production was 11,129 oz in 2018, a decrease of 16% compared to 13,183 oz in
2017. Plant throughput for the first half of 2018 was 223,509 tonnes at average
grades of 88 gpt silver and 1.86 gpt gold, compared to 208,226 tonnes grading 73
gpt silver and 2.33 gpt gold in 2017. Silver production increased due to higher
silver grades and higher throughput, offset by lower recoveries, while gold
production decreased 16% due to the lower gold grades offset by higher
throughput. Gold grades were planned to be lower in 2018 compared to 2017,
however management expects gold grades to improve over the second half of 2018.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 9 |
| |
|
|
Bolañitos Operating Costs
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Direct production costs per tonne in Q2,
2018 decreased 1% to $65.74 per tonne due to normal variations. The lower cost
per tonne was offset by lower gold grades resulting in higher cash costs per
ounce, net of by-product credits (which is a non-IFRS measure and a standard of
the Silver Institute), to $2.87 per oz of payable silver in Q2, 2018 compared to
negative $4.78 per oz in Q2, 2017. Similarly, all-in sustaining costs (also a
non-IFRS measure) increased in Q2, 2018 to $12.84 per oz is comparable to $3.61
per oz in Q2, 2017 primarily attributed to the lower gold credit and higher
capital expenditures. The Company is investing into the LL-Asuncsion and
Plateros ore bodies to extend the life of the operations.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Direct production costs per tonne in 2018 decreased
4% to $63.23 per tonne due to increased production. The lower cost per tonne was
offset by lower gold grades resulting in higher cash costs per ounce, net of
by-product credits (which is a non-IFRS measure and a standard of the Silver
Institute), to $0.01 oz of payable silver in 2018 compared to negative $7.10 per
oz in 2017. Similarly, all-in sustaining costs (also a non-IFRS measure)
increased in 2018 to $8.46 per oz compared to $0.51 per oz in the same period of
2017 primarily attributed to the lower gold credit and higher capital
expenditures. The Company is investing into the LL-Asuncsion and Plateros ore
bodies to extend the life of the operations.
El Cubo Operations
The El Cubo operation includes two operating underground
silver-gold mines and a flotation plant. El Cubo currently employs over 500
people and engages 375 contractors.
Production Results for the Three Months and Six Months Ended
June 30, 2018 and 2017
| Three Months Ended June 30 |
EL CUBO |
Six Months Ended June 30
|
| 2018 |
2017 |
% Change |
|
2018 |
2017 |
% Change |
| 134,535 |
115,084 |
17% |
Ore tonnes processed |
266,219 |
236,356 |
13% |
| 171 |
137 |
25% |
Average silver
grade (g/ t) |
168 |
124 |
35% |
| 86.8 |
87.6 |
(1%) |
Silver recovery (%) |
86.3 |
87.2 |
(1%) |
| 642,375 |
444,0 31 |
45% |
Total silver
ounces produced |
1,241,445 |
821,599 |
51% |
| 623,165 |
426,270 |
46% |
Payable silver ounces produced |
1,20 4,344 |
788,735 |
53% |
| 1.92 |
1.60 |
20 % |
Average gold grade
(g/ t) |
1.78 |
1.45 |
23% |
| 84.6 |
84.7 |
(0 %) |
Gold recovery (%) |
84.6 |
84.7 |
(0 %) |
| 7,0 29 |
5,0 14 |
40 % |
Total gold ounces
produced |
12,883 |
9,328 |
38% |
| 6,871 |
4,889 |
41% |
Payable gold ounces produced |
12,594 |
9,0 95 |
38% |
| 1,169,550 |
795,0 11 |
47% |
Silver equivalent
ounces produced(1) |
2,20 7,670 |
1,474,559 |
50 % |
| 2.0 9 |
7.95 |
(74%) |
Cash costs per silver
ounce(2)(3) |
2.50 |
8.21 |
(70%) |
| 6.85 |
8.78 |
(22%) |
Total production
costs per ounce(2)(4) |
7.35 |
9.0 9 |
(19%) |
| 10 .0 8 |
21.60 |
(53%) |
All in sustaining cost per ounce
(2)(5) |
10 .63 |
20.87 |
(49%) |
| 75.13 |
83.38 |
(10%) |
Direct production
costs per tonne(2)(6) |
73.00 |
76.58 |
(5%) |
| 8.57 |
11.77 |
(27%) |
Silver co-product cash
costs(7) |
8.65 |
12.06 |
(28%) |
| 655 |
871 |
(25%) |
Gold co-product cash costs(7) |
675 |
878 |
(23%) |
| (1) |
Silver equivalents are calculated using a 75:1 ratio.
Silver equivalents have been restated from 70:1 to 75:1 for comparative
purposes. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 16. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 17. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 17. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 19. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 17. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
20. |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 10 |
| |
|
|
El Cubo Production Results
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
Silver production at the El Cubo mine was
642,375 oz in Q2, 2018, an increase of 45% compared to 444,031 oz in Q2, 2017,
and gold production was 7,029 oz in Q2, 2018, an increase of 40% compared to
5,014 oz in Q2, 2017. Plant throughput in Q2, 2018 was 134,535 tonnes at average
grades of 171 gpt silver and 1.92 gpt gold, compared to 115,084 tonnes grading
137 gpt silver and 1.60 gpt gold in Q2, 2017. The higher metal production is a
result of higher throughput and grades.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Silver production at the El Cubo mine was 1,241,445
oz in 2018, an increase of 51% compared to 821,599 oz in 2017, and gold
production was 12,883 oz in 2018, an increase of 38% compared to 9,328 oz in Q2,
2017. Plant throughput in 2018 was 266,219 tonnes at average grades of 168 gpt
silver and 1.78 gpt gold, compared to 236,356 tonnes grading 124 gpt silver and
1.45 gpt gold in 2017. The higher metal production is a result of higher
throughput and grades.
El Cubo Operating Costs
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
A 17% increase in throughput was partially
offset by higher contractor costs resulting in a 10% decrease in direct
production costs to $75.13 per tonne. An increase in metal grades resulted in
74% reduced cash costs per ounce, net of by-product credits (a non-IFRS measure
and a standard of the Silver Institute), decreasing in Q2, 2018 to $2.09 per oz
of payable silver compared to $7.95 per oz in Q2, 2017. Similarly, all-in
sustaining costs decreased 53% at $10.08 per oz in Q2, 2018 compared to $21.60
per oz in Q2, 2017. The decrease in all-in sustaining costs was a result of the
lower operating costs per unit and reduced capital expenditures on the
development of the Villalpando ore body.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
Higher throughput was partially offset by higher
contractor costs resulting in a 5% decrease in direct production costs to $73.00
per tonne. An increase in metal grades resulted in 70% reduced cash costs per
ounce, net of by-product credits (a non-IFRS measure and a standard of the
Silver Institute), decreasing in 2018 to $2.50 per oz of payable silver compared
to $8.21 per oz over the same period in 2017. Similarly, all-in sustaining costs
decreased 49% at $10.63 per oz in 2018 compared to $20.87 per oz over the same
period in 2017. The decrease in all-in sustaining costs was a result of the
lower operating costs per unit and reduced capital expenditures on the
development of the Villalpando ore body.
Development Activities
Terronera Project
The Terronera project features a newly discovered high grade
silver-gold mineralized zone in the Terronera vein, which is now over 1,400
metres long, 400 metres deep, 3 to 16 metres thick, and still open along strike
to the southeast and down dip. In April 2017, the Company updated its NI 43-101
Mineral Resource and Reserve Estimates and completed a pre-feasibility study
(“PFS”) for the Terronera mine project located 40 kilometres northeast of Puerto
Vallarta in the state of Jalisco, Mexico.
The Company retained a number of engineering consulting firms
to work with Endeavour’s technical services group in optimizing and updating the
PFS. Since filing the PFS in 2017 the following optimal operating parameters
have been determined:
| |
• |
Optimal throughput based on current Mineral Reserves and
Resources is 1,500 tonnes per day |
| |
• |
Optimal development plan based on time needed to develop
the mine is two stages of 750 tpd each |
| |
• |
Annual production at 1,500 tpd is estimated at 5.0
million oz silver equivalents per year (at a 75:1 silver:gold ratio) based
on 300 gpt net payable silver equivalents per tonne (still being
optimized) |
| |
• |
Mineral Resource model updated to include the small but
very high grade La Luz vein (still being optimized) |
| |
• |
Mine plan is initially 100% cut and fill in the Terronera
vein due to perceived weak rock strength in the vein and 100% resuing in
the narrow La Luz vein (still being optimized) |
| |
• |
Plant design is crush, grind, flash flotation, regrind
and conventional flotation to produce a single bulk sulfide silver-gold
concentrate |
| |
• |
Tailings facility is dry stack so that the process water
is recycled for minimum water consumption and maximum tailings stability
|
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 11 |
| |
|
|
| |
• |
Power generation alternatives are electric power grid or
compressed natural gas with diesel backup (still being optimized)
|
| |
• |
Geotechnical studies were completed for the mine, plant
and tailings sites |
| |
• |
Hydrological studies were completed around the mine,
plant and tailings sites |
| |
• |
Metallurgical studies were refined to provide a simpler
process flowsheet and plant design |
| |
• |
Indigenous studies were completed for the region
|
| |
• |
Public road upgrade study was completed in consultation
with the local communities |
| |
• |
Project offices and housing site and plan including solar
power approved by local community |
| |
• |
Land acquisition agreements completed for the mine, plant
and tailings areas |
| |
• |
Final mine and plant permits received August 2017, mine
and plant bond posted February 2018 |
Management is currently awaiting a number of catalysts to
advance the Terronera to mine development. Engineering trade-off studies and
economic modeling are now complete and an optimized pre-feasibility study is
forthcoming. All required documents have been filed with Mexican government
agencies for the final two environmental permits (mine dumps and tailings
facilities), receipt of which is anticipated shortly. The mine and plant
construction permits were issued in August, 2017. An initial debt facility to
fund the new Terronera silver-gold mine is currently being prepared. Upon
receipt of these catalysts, Management will meet with the Board to discuss a
development decision.
An infill drill program of up to 20,000 meters in up to 50
holes was recently approved to upgrade the inferred resources to indicated
resources, mainly at depth in the Terronera vein and to a lesser extent in the
La Luz vein, which should benefit the net present value and internal rate
of return. The drill program will be completed in September 2018, and a revised
resource estimate will be prepared, but the new resource will not be ready in
time for the updated pre-feasibility study. The goal of the infill program is to
upgrade up approximately a million tonnes of inferred resources to measured and
indicated resources and to expand the inferred resources at depth. The deepest
mineralized hole drilled to date intersected 618 grams per tonne (gpt) silver
and 3.2 gpt gold over 21.2 metres true width in hole TR11-4 at 430 metres
vertical depth, and remains open at depth.
An additional 5,400 metre exploration drill program to target
southeast extension of the Terronera vein, and test the Quiteria vein at depth
below the Quiteria mine was also completed in the first half of 2018 with assays
pending and interpretations on going.
The Company has approved a $3.4 million budget for site
preparation and procurement of long lead items in anticipation the final permits
being issued in Q3, 2018.
El Compas Project
The El Compas project is a high quality, permitted gold-silver
mine and a leased plant in the historic silver mining district of Zacatecas,
with good exploration potential to expand resources and scale up production.
There is also potential for the Company to acquire other properties in the area
in order to consolidate resources and exploration targets in the district.
Due to the positive economics, low initial capital
requirements, and management’s experience in having successfully developed
similar mines in Mexico, a decision was made to proceed with development in Q3,
2017. The Company initiated the installation of project infrastructure,
collaring the mine access ramp and refurbishing the plant. As previously
announced, the development of the main access ramp proceeded using a form of low
impact gunpowder and in March 2018 El Compas received its explosives permit,
which allowed the mine to accelerate the development of the main access ramp. As
of June 30, 2018, a total of 1.0 kilometres has been developed. The last plant
component, a mobile crushing circuit was installed in April and plant
commissioning has been underway since.
Since publishing the PEA, the Company continued to optimize
mining methods, the crushing circuit and grinding alternatives and has been
successful on a number of fronts in improving the operating metrics. The work
index of the ore and the size on the motor allows the capacity of the milling
circuit to increase to 325 tpd, which allows for the mining method to be changed
to mechanized cut and fill from captive cut and fill. Mechanized cut and fill
increases the mining rate but has the same cost profile as captive cut and fill
previously disclosed in the PEA.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 12 |
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Additionally, the modified plant flow sheet will allow the
Company to increase the ore grind size and produce a single concentrate, while
still achieving recoveries similar to those outlined in the PEA, lowering
overall power costs and improving the long-term stability of the tailings
facility.
As a result of the modified mine plan and plant design and the
delay in receiving the explosives permit, the total start up CAPEX has been
revised upwards to $11.3 million compared to the previous $10.0 million cost
estimated in the PEA. However, the operational benefits of the modified plant
design and increased mining rate should improve the overall economics of the
project. The Company anticipates achieving commercial production at El Compas in
August 2018.
Highlights of improved operating metrics
| |
• |
Plant design modified to increase capacity from 250
tonnes per day (tpd) to 325 tpd as a result of the lower work index of the
ore and utilizing the existing motor capacity on the mill; |
| |
• |
Mine plan expanded from 200 tpd to 250 tpd using
mechanized cut and fill mining method; |
| |
• |
Potential to expand to 500 tpd with further plant
refurbishment and more reserves and resources; |
| |
• |
Ore grind size increased while maintaining metal
recoveries to improve the tailings stability long term and decrease
overall life of mine power costs; |
| |
• |
Higher mine output, plant throughput and grind size
should each have a beneficial impact on the El Compas PEA (defined below)
project economics; |
| |
• |
Comparing the improved operating metrics with the El
Compas PEA, production is expected to rise 25 per cent to 1,175,000 ounces
silver equivalent per year (using 75:1 silver:gold ratio); |
| |
• |
Capex (capital expenditures) will rise 13 per cent to
$11.3-million; |
| |
• |
Cash costs in the El Compas PEA (preliminary economic
assessment) of $9.09 per silver equivalent (AgEq) ounce and all-in-
sustaining costs of $9.64 per AgEq oz should improve with expanded
production. |
Mining and stockpiling of ore and commissioning of the El
Compas plant was initiated in Q2, 2018 using low grade ore. A total of 4,900
tonnes of run-of-mine ore were stockpiled in Q2, 2018 but only 1,023 tonnes were
processed to test all the plant circuits as of June 30,, 2018. As
expected, plant circuits are being modified, configured and fine-tuned to
resolve normal start up issues. Both mine and plant are now ramping up
throughput to achieve commercial production at the PEA target capacity of 250
tonnes per day in Q3, 2018.
Exploration Results
In 2018, the Company initially planned to drill 44,000 metres
and spend $11.1 million on brownfields and greenfields exploration, development
engineering, and land payments across its portfolio of properties. At the three
existing mines, 17,000 metres of core drilling are planned at a cost of $2.8
million. At the exploration and development projects, expenditures of $8.3
million are planned to drill 27,300 metres, to advance engineering studies and
meet property holding obligations. Drilling is now underway at Bolanitos, El
Cubo, El Compas, Terronera and Parral. During the second quarter management
approved an additional 20,000 metres of infill drilling at the Terronera project
amounting to an additional $3.0 million.
At Terronera, $1.7 million was initially budgeted to complete
an updated PFS and a 5,400 metre drill program. The 2018 drilling focused on
extending mineralization in the Terronera vein to the southeast of the current
resource, plus testing other known mineralized veins. In Q2 2018, management
approved an additional $3.0 million budget to infill 20,000 metres to upgrade
the inferred resources to indicated resources, mainly at depth in the Terronera
vein and to a lesser extent in the La Luz vein, which should benefit the
net present value and internal rate of return. The drill program will be
completed in September, and a revised resource estimate will be prepared, but
the new resource will not be ready in time for the updated pre-feasibility
study. The goal of the infill program is to upgrade up approximately a million
tonnes of inferred resources to measured and indicated resources and to expand
the inferred resources at depth. The deepest mineralized hole drilled to date
intersected 618 grams per tonne (gpt) silver and 3.2 gpt gold over 21.2 metres
(m) true width in hole TR11-4 at 430 metres vertical depth, and remains open at
depth.
At El Compas, 6,600 metres will be drilled for $1.0 million
primarily on the Calicanto concessions. The 2018 drilling is to further test the
new zones of high grade mineralization within the Misie-Karla-Karla HW and
Calicanto veins discovered in 2017. As of June 30, 2018, 3,600 metres have been
drilled testing extensions of the Compas ore body and targeting the Calicanto
veins.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 13 |
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At Parral, $2.2 million is budgeted for drilling 12,000 metres
to extend historic and new resource areas and complete a PEA. During 2018 the
Company drilled 6,195 metres at the San Patricio area resulting in continued
intersection of mineralized veins. Since acquisition three mineralized areas
have been intersected, of which the largest and central zone now measures 600
metres long by 250 metres vertical (starting 150 m deep) by 1-3 metres true
thickness, still open to the south and at depth. Additionally, metallurgical
testing of drill core samples from the Veta Colorada (Sierra Plata, El Verde and
Remedios-Argentina zones), Palmilla and Cometa veins on the Parral property
indicates excellent metal recoveries by flotation and leaching. Cometa is the
only vein with significant lead and zinc best suited for floatation, the other
veins contain primarily silver and minor gold best suited to leaching.
In Chile, the Company has budgeted for a 3,000 metre drill
program on one property to explore for bulk tonnage silver-lead-zinc manto
mineralization. The Company continues to assess prospective properties within
Chile to build a sufficient exploration portfolio to achieve exploration
efficiencies within the region.
In 2018 at the operating mines, 2,593 metres were drilled at
the El Cubo operation testing the north part of the Cubo district and an
extension of the Villalpando vein, 4,506 metres were drilled at the Bolanitos
operations testing the depth of the La Luz and Plateros veins to extend the
known mineralization and 2,964 metres were drilled at the Guanacevi operation to
test extensions of the Santa Cruz ore body.
Consolidated Financial Results
Three months ended June 30, 2018 (compared to the three
months ended June 30, 2017)
In Q2, 2018, the Company’s mine operating earnings were $4.6
million (Q2, 2017: $5.5 million) on sales of $38.8 million (Q2, 2017: $32.7
million) with cost of sales of $34.2 million (Q2, 2017: $27.2 million).
In Q2, 2018, the Company had an operating loss of $3.0 million
(Q2, 2017: $0.7 million) after exploration costs of $4.4 million (Q2, 2017: $3.8
million) and general and administrative costs of $3.2 million (Q2, 2017: $2.4
million).
The loss before taxes in Q2, 2018 was $6.1 million (Q2, 2017:
earnings before taxes $0.1 million) after finance costs of $0.1 million (Q2,
2017: $0.2 million), a foreign exchange loss of $3.1 million (Q2, 2017: foreign
exchange gain $0.8 million), and investment and other expense of $0.1 million
(Q2, 2017: other income of $0.2 million). The Company realized a net loss for
the period of $5.7 million (Q2, 2017: $16 thousand) after an income tax recovery
of $0.4 million (Q2, 2017: income tax expense $0.1 million).
Sales of $38.8 million in Q2, 2018 represented an 19% increase
over the $32.7 million for the same period in 2017. There was a 27% increase in
silver ounces sold, offset by a 2% decrease in the realized silver price
resulting in a 24% increase in silver sales. Similarly, there was a 12% increase
in gold ounces sold with a 1% increase in realized gold prices resulting in a
13% increase in gold sales. During the period, the Company sold 1,258,617 oz
silver and 13,800 oz gold, for realized prices of $16.76 and $1,281 per oz
respectively, compared to sales of 988,821 oz silver and 12,294 oz gold, for
realized prices of $17.16 and $1,270 per oz, respectively, in the same period of
2017. The realized price of silver and gold were within 2% of average silver and
gold spot prices during the period of $16.53 and $1,306, with the differences
due to the timing of sales and the mark-to-market adjustments for the
concentrate sales that are pending finalization.
The Company increased its finished goods silver and decreased
its finished goods gold inventory to 230,262 oz and 1,092 oz, respectively at
June 30, 2018 compared to 160,034 oz silver and 1,497 oz gold at March 31, 2018.
The cost allocated to these finished goods was $4.2 million at June 30, 2018
compared to $3.3 million at March 31, 2018. At June 30, 2018, the finished goods
inventory fair market value was $5.1 million compared to the fair value of $4.6
million at March 31, 2018.
Cost of sales for Q2, 2018 was $34.2 million, an increase of
26% over the cost of sales of $27.2 million for the same period of 2017. The 26%
increase in cost of sales was primarily due to the sale of 27% more silver
ounces during the period and increased depletion at the Guanacevi and El Cubo
mines.
Exploration expenses increased in Q2, 2018 to $4.4 million from
$3.8 million in the same period of 2017 primarily due to planned timing of
drilling activities for 2018. General and administrative expenses increased by
33% to $3.2 million in Q2, 2018 compared to $2.4 million in the same period of
2017 due to a stronger Canadian dollar during Q2, 2018 compared to Q2, 2017 and
due to increased costs for director’s deferred share units, which are marked to
market at each period end. In Q2, 2018 there was a related expense of $0.4
million due to an increase in the company’s share price during Q2 2018 compared
to a recovery of $0.1 million due to a decrease in the Company’s share price
during Q2 2017.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 14 |
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|
The Company experienced a foreign exchange loss of $3.1 million
in Q2, 2018 compared to a gain of $0.8 million in Q2, 2017. The $3.1 million
loss was primarily due to the weakening of the Mexican peso against the U.S.
Dollar from March 31, 2018 to June 30, 2018, which resulted in lower valuations
on the peso denominated cash and receivable amounts.
There was an income tax recovery of $0.4 million in Q2, 2018
compared to an expense of $0.1 million in Q2, 2017. The $0.4 million tax
recovery is comprised of $2.0 million in current income tax expense (Q2, 2017:
$0.5 million) and $2.4 million in deferred income tax recovery (Q2, 2017: $0.4
million). The deferred income tax recovery of $2.4 million is a result of the
amortization of temporary tax differences related to Guanacevi’s mine
development and the depreciation of the Mexican peso and its monetary impact on
loss carryforwards related to the Guanacevi mine.
Six months ended June 30, 2018 (compared to the six months
ended June 30, 2017)
For the six-month period ended June 30, 2018, the Company’s
mine operating earnings were $7.9 million (Q2, 2017: $13.3 million) on sales of
$79.1 million (Q2, 2017: $69.1 million) with cost of sales of $71.2 million (Q2,
2017: $55.8 million).
The Company had an operating loss of $4.1 million (Q2, 2017:
operating earnings of $1.8 million) after exploration costs of $6.5 million (Q2,
2017: $7.1 million) and general and administrative costs of $5.5 million (Q2,
2017: $4.4 million).
The loss before taxes was $4.9 million (Q2, 2017: earnings
before tax $4.7 million) after finance costs of $0.1 million (Q2, 2017: $0.4
million), a foreign exchange loss of $0.9 million (Q2, 2017: foreign exchange
gain of $3.0 million), and investment and other income of $0.2 million (Q2,
2017: $0.3 million). The Company realized a net loss for the period of $3.3
million (Q2, 2017: net earnings $6.0 million) after an income tax recovery of
$1.6 million (Q2, 2017: $1.3 million).
Sales of $79.1 million for the six months ended June 30, 2018
represented an 14% increase over the $69.1 million for the same period in 2017.
There was a 20% increase in silver ounces sold, offset by a 5% decrease in the
realized silver price resulting in a 14% increase in silver sales. Similarly,
there was a 12% increase in gold ounces sold with a 2% increase in realized gold
prices resulting in a 15% increase in gold sales. During the period, the Company
sold 2,664,760 oz silver and 26,474 oz gold, for realized prices of $16.72 and
$1,304 per oz respectively, compared to sales of 2,224,415 oz silver and 23,584
oz gold, for realized prices of $17.51 and $1,275 per oz, respectively, in the
same period of 2017. The realized price of silver and gold were within 2% of
average silver and gold spot prices during the period of $16.66 and $1,318, with
the differences due to the timing of sales and the mark-to-market adjustments
for the concentrate sales that are pending finalization.
The Company decreased its finished goods silver and gold
inventory to 230,262 oz and 1,092 oz, respectively at June 30, 2018 compared to
241,321 oz silver and 1,226 oz gold at December 31, 2017. The cost allocated to
these finished goods was $4.2 million at June 30, 2018 compared to $4.8 million
at December 31, 2017. At June 30, 2018, the finished goods inventory fair market
value was $5.1 million compared to the fair value of $5.7 million at December
31, 2017.
Cost of sales for the first half of 2018 was $71.2 million, an
increase of 28% over the cost of sales of $55.8 million for the same period of
2017. The 28% increase in cost of sales was primarily due to the sale of 14%
more silver ounces during the period and increased depletion at the Guanacevi
and El Cubo mines.
Exploration expenses decreased to $6.5 million from $7.1
million in the same period of 2017 primarily due to planned timing of drilling
activities for 2018. General and administrative expenses increased by 25% to
$5.5 million compared to $4.4 million in the same period of 2017 due to a
stronger Canadian dollar during the first half of 2018 compared to the same
period in 2017 and also due to increased costs for director’s deferred share
units, which are marked to market at each period end. During the period there
was a related expense of $0.4 million due to an increase in the company’s share
price during the quarter compared to a recovery of $0.1 million due to a
decrease in the Company’s share price during the same period of 2017.
The Company experienced a foreign exchange loss of $0.9 million
compared to a gain of $3.0 million in the first half of 2017. The $0.9 million
loss was primarily due to the weakening of the Mexican peso against the U.S.
Dollar from December 31, 2017 to June 30, 2018, which resulted in lower
valuations on the peso denominated cash and receivable amounts.
There was an income tax recovery of $1.6 million compared to a
recovery of $1.3 million in the same period of 2017. The $1.6 million tax
recovery is comprised of $2.6 million in current income tax expense (2017: $0.9
million) and $4.2 million in deferred income tax recovery ( 2017: $2.2 million).
The deferred income tax recovery of $4.2 million is a result of the amortization
of temporary tax differences related to Guanacevi’s mine development and the
depreciation of the Mexican peso and its monetary impact on loss carryforwards
related to the Guanacevi mine.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 15 |
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|
Non-IFRS Measures
Mine operating cash flow is a non-IFRS measure that does not
have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. Mine operating cash
flow is calculated as revenue minus direct production costs and royalties. Mine
operating cash flow is used by management to assess the performance of the mine
operations, excluding corporate and exploration activities and is provided to
investors as a measure of the Company’s operating performance.
| Expressed in thousands US dollars
|
Three Months Ended June
30 |
Six Months Ended June 30
|
| |
2018 |
2017 |
2018 |
2017 |
| Mine operating earnings |
$4,616 |
$5,450 |
$7,891 |
$13,290 |
| Share-based compensation |
(130) |
92 |
(93) |
92 |
| Amortization and depletion |
7,855 |
3,271 |
17,614 |
7,384 |
| Write down of inventory to net realizable value |
2,527 |
- |
3,282 |
- |
| Mine
operating cash flow before taxes |
$14,868 |
$8,813 |
$28,694 |
$20,766 |
Operating cash flow before working capital adjustment is a
non-IFRS measure that does not have a standardized meaning prescribed by IFRS
and therefore may not be comparable to similar measures presented by other
issuers. Operating cash flow before working capital adjustments is calculated as
operating cash flow minus working capital adjustments. Operating cash flow
before working capital adjustments is used by management to assess operating
performance irrespective of working capital changes and is provided to investors
as a measure of the Company’s operating performance.
| Expressed in thousands US dollars
|
Three Months Ended June
30 |
Six Months Ended June 30
|
| |
2018 |
2017 |
2018 |
2017 |
| Cash from operating activities |
$4,299 |
($4,276) |
$12,318 |
$5,391 |
| Net changes in non-cash working capital |
661 |
(8,636) |
(2,875) |
(7,865) |
| Operating cash flow before working capital adjustments |
$3,638 |
$4,360 |
$15,193 |
$13,256 |
Operating cash flow per share is a non-IFRS measure that does
not have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. Operating cash flow
per share is calculated by dividing cash from operating activities by the
weighted average shares outstanding. Operating cash flow per share is used by
management to assess operating performance irrespective of working capital
changes and is provided to investors as a measure of the Company’s operating
performance.
| Expressed in thousands US dollars
|
Three Months Ended June
30 |
Six Months Ended June 30
|
| except for share numbers and per share
amounts |
2018 |
2017 |
2018 |
2017 |
| Operating cash flow before working capital
adjustments |
$3,638 |
$4,360 |
$15,193 |
$13,256 |
| Basic weighted average shares outstanding |
127,570,254 |
127,318,926 |
127,529,558 |
127,207,961 |
| Operating cash flow before working capital changes per share
|
$0.0 3 |
$0.0 3 |
$0.12 |
$0.10 |
EBITDA is a non-IFRS financial measure, which excludes the
following from net earnings:
| |
• |
Income tax expense; |
| |
• |
Finance costs; |
| |
• |
Amortization and depletion |
Adjusted EBITDA excludes the following additional items from
EBITDA
| |
• |
Share based compensation; |
| |
• |
Non-recurring write offs |
Management believes EBITDA is a valuable indicator of the
Company’s ability to generate liquidity by producing operating cash flow to fund
working capital needs, service debt obligations, and fund capital expenditures.
Management uses EBITDA for this purpose. EBITDA is also frequently used by
investors and analysts for valuation purposes whereby EBITDA is multiplied by a
factor or “EBITDA multiple” based on an observed or inferred relationship
between EBITDA and market values to determine the approximate total enterprise
value of a Company.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 16 |
| |
|
|
EBITDA is intended to provide additional information to
investors and analysts. It does not have any standardized definition under IFRS
and should not be considered in isolation or as a substitute for measures of
operating performance prepared in accordance with IFRS. EBITDA excludes the
impact of cash costs of financing activities and taxes, and the effects of
changes in operating working capital balances, and therefore is not necessarily
indicative of operating profit or cash flow from operations as determined by
IFRS. Other companies may calculate EBITDA and Adjusted EBITDA differently.
| Expressed in thousands US dollars
|
Three Months Ended June
30 |
Six Months Ended June 30
|
| |
2018 |
2017 |
2018 |
2017 |
| Net earnings (loss) for the period |
($5,651) |
($16) |
($3,326) |
$6,019 |
| Depreciation and depletion –
cost of sales |
7,855 |
3,271 |
17,614 |
7,384 |
| Depreciation and depletion – exploration |
24 |
40 |
47 |
68 |
| Depreciation and depletion –
general & administration |
60 |
22 |
115 |
63 |
| Depreciation and depletion – write down of
inventory to net realizable value |
835 |
- |
1,127 |
- |
| Finance costs |
49 |
208 |
98 |
444 |
| Current income tax expense |
1,965 |
545 |
2,653 |
844 |
| Deferred income tax expense (recovery) |
(2,415) |
(403) |
(4,201) |
(2,200) |
| Earnings before interest, taxes, depletion and amortization |
$2,722 |
$3,667 |
$14,127 |
$12,622 |
| Share based compensation |
777 |
1,231 |
1,193 |
1,568 |
| Adjusted earnings before interest, taxes depletion and
amortization |
$3,499 |
$4,898 |
$15,320 |
$14,190 |
Cash costs per ounce, total production costs per ounce and
direct production costs per tonne are measures developed by precious metals
companies in an effort to provide a comparable standard; however, there can be
no assurance that the Company’s reporting of these non-IFRS measures are similar
to those reported by other mining companies. Cash costs per ounce, production
costs per ounce and direct production costs per tonne are measures used by the
Company to manage and evaluate operating performance at each of the Company’s
operating mining units. They are widely reported in the silver mining industry
as a benchmark for performance, but do not have a standardized meaning and are
disclosed in addition to IFRS measures. The following tables provide a detailed
reconciliation of these measures to the Company’s cost of sales, as reported in
its consolidated financial statements.
| |
Three Months Ended June 30,
2018 |
Three Months Ended June 30,
2017 |
| Expressed in
thousands US dollars |
|
|
|
|
|
|
|
|
| |
Guanaceví |
Bolañitos |
El
Cubo |
Total |
Guanaceví |
Bolañitos |
El
Cubo |
Total |
| Direct production costs per financial statements
|
$6,914 |
$7,149 |
$9,657 |
$23,720 |
$6,790 |
$7,492 |
$9,200 |
$23,482 |
| Royalties |
290 |
(210) |
97 |
177 |
219 |
59 |
62 |
340 |
| Special mining duty (1) |
- |
466 |
482 |
948 |
- |
191 |
(9) |
182 |
| Opening finished goods |
(1,100) |
(612) |
(658) |
(2,370) |
(1,809) |
(714) |
(289) |
(2,812) |
| Finished goods NRV adjustment |
1,692 |
- |
- |
1,692 |
- |
- |
- |
- |
| Closing finished goods |
2,128 |
339 |
530 |
2,997 |
3,155 |
556 |
632 |
4,343 |
| Direct production costs |
9,924 |
7,132 |
10,108 |
27,164 |
8,355 |
7,584 |
9,596 |
25,535 |
| By-product gold sales |
(1,882) |
(7,052) |
(8,741) |
(17,675) |
(932) |
(8,738) |
(5,957) |
(15,627) |
| Opening gold inventory fair market value |
400 |
921 |
661 |
1,982 |
363 |
774 |
177 |
1,314 |
| Closing gold inventory fair market value |
(331) |
(309) |
(725) |
(1,365) |
(784) |
(679) |
(427) |
(1,890) |
| Cash
costs net of by-product |
8,111 |
692 |
1,303 |
10,106 |
7,002 |
(1,059) |
3,389 |
9,332 |
| Amortization and depletion |
4,449 |
348 |
3,058 |
7,855 |
2,379 |
579 |
313 |
3,271 |
| Share-based compensation |
(44) |
(43) |
(43) |
(130) |
30 |
31 |
31 |
92 |
| Opening finished goods depletion
|
(898) |
(23) |
(231) |
(1,152) |
(422) |
(48) |
(8) |
(478) |
| NRV cost adjustment |
835 |
- |
- |
835 |
- |
- |
- |
- |
| Closing finished goods depletion |
1,032 |
12 |
179 |
1,223 |
1,150 |
39 |
19 |
1,208 |
| Total
production costs |
$13,485 |
$986 |
$4,266 |
$18,737 |
$10,139 |
($458) |
$3,744 |
$13,425 |
| |
Three Months Ended June 30,
2018 |
Three Months Ended June 30,
2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Throughput tonnes |
71,275 |
108,495 |
134,535 |
314,305 |
74,984 |
113,875 |
115,084 |
303,943 |
| Payable silver ounces |
464,464 |
241,215 |
623,165 |
1,328,844 |
468,753 |
221,776 |
426,270 |
1,116,799 |
| |
|
|
|
|
|
|
|
|
| Cash costs per ounce |
$17.46 |
$2.87 |
$2.09 |
$7.61 |
$14.94 |
($4.78) |
$7.95 |
$8.36 |
| Total production costs per oz |
$29.03 |
$4.09 |
$6.85 |
$14.10 |
$21.63 |
($2.07) |
$8.78 |
$12.02 |
| Direct production costs per tonne |
$139.24 |
$65.74 |
$75.13 |
$86.43 |
$111.42 |
$66.60 |
$83.38 |
$84.01 |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 17 |
| |
|
|
| |
Six Months Ended June 30, 2018 |
Six Months Ended June 30, 2017 |
| Expressed in
thousands US dollars |
|
|
|
|
|
|
|
|
| |
Guanaceví |
Bolañitos |
El
Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Direct production costs per financial statements
|
$17,516 |
$13,549 |
$18,461 |
$49,526 |
$16,907 |
$12,791 |
$17,833 |
$47,531 |
| Royalties |
593 |
110 |
172 |
875 |
562 |
102 |
116 |
780 |
| Special mining duty (1) |
- |
520 |
657 |
1,177 |
- |
285 |
(96) |
189 |
| Opening finished goods |
(2,942) |
(385) |
(387) |
(3,714) |
(3,948) |
- |
(385) |
(4,333) |
| Finished goods NRV adjustment |
2,155 |
- |
- |
2,155 |
- |
- |
- |
- |
| Closing finished goods |
2,128 |
339 |
530 |
2,997 |
3,155 |
556 |
632 |
4,343 |
| Direct production costs |
19,450 |
14,133 |
19,433 |
53,016 |
16,676 |
13,734 |
18,100 |
48,510 |
| By-product gold sales |
(4,048) |
(14,500) |
(15,979) |
(34,527) |
(2,856) |
(15,779) |
(11,448) |
(30,083) |
| Opening gold inventory fair market value |
631 |
681 |
278 |
1,590 |
771 |
- |
253 |
1,024 |
| Closing gold inventory fair market value |
(331) |
(309) |
(725) |
(1,365) |
(784) |
(679) |
(427) |
(1,890) |
| Cash
costs net of by-product |
15,702 |
5 |
3,007 |
18,714 |
13,807 |
(2,724) |
6,478 |
17,561 |
| Amortization and depletion |
11,248 |
657 |
5,709 |
17,614 |
5,752 |
993 |
639 |
7,384 |
| Share-based compensation |
(31) |
(31) |
(31) |
(93) |
30 |
31 |
31 |
92 |
| Opening finished goods depletion
|
(1,096) |
(8) |
(8) |
(1,112) |
(567) |
- |
(1) |
(568) |
| NRV cost adjustment |
1,127 |
- |
- |
1,127 |
- |
- |
- |
- |
| Closing finished goods depletion |
1,032 |
12 |
179 |
1,223 |
1,150 |
39 |
19 |
1,208 |
| Total
production costs |
$27,982 |
$635 |
$8,856 |
$37,473 |
$20,172 |
($1,661) |
$7,166 |
$25,677 |
| |
Six Months Ended June 30, 2018 |
Six Months Ended June 30, 2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Throughput tonnes |
150,246 |
223,509 |
266,219 |
639,974 |
162,583 |
208,226 |
236,356 |
607,165 |
| Payable silver ounces |
960,275 |
489,081 |
1,204,344 |
2,653,700 |
998,424 |
383,750 |
788,735 |
2,170,909 |
| |
|
|
|
|
|
|
|
|
| Cash costs per ounce |
$16.35 |
$0.01 |
$2.50 |
$7.05 |
$13.83 |
($7.10) |
$8.21 |
$8.09 |
| Total production costs per oz |
$29.14 |
$1.30 |
$7.35 |
$14.12 |
$20.20 |
($4.33) |
$9.10 |
$11.83 |
| Direct production costs per tonne |
$129.45 |
$63.23 |
$73.00 |
$82.84 |
$102.57 |
$65.96 |
$76.58 |
$79.90 |
| (1) |
Special mining duty is an EBITDA royalty tax presented as
a current income tax in accordance with IFRS. |
All-in sustaining costs per ounce and all-in costs per ounce
are measures developed by the World Gold Council (and used as a standard of the
Silver Institute) in an effort to provide a comparable standard within the
precious metal industry; however, there can be no assurance that the Company’s
reporting of these non-IFRS measures are similar to those reported by other
mining companies. These measures are used by the Company to manage and evaluate
operating performance at each of the Company’s operating mining units and
consolidated group, and are widely reported in the silver mining industry as a
benchmark for performance, but do not have a standardized meaning and are
disclosed in addition to IFRS measures. The following tables provide a detailed
reconciliation of these measures to the Company’s cost of sales, as reported in
the Company’s consolidated financial statements.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 18 |
| |
|
|
| Expressed in thousands US dollars
|
Three Months Ended June 30,
2018 |
Three Months Ended June 30,
2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Cash costs net of by-product |
$8,111 |
$692 |
$1,303 |
$10,106 |
$7,002 |
($1,059) |
$3,389 |
$9,332 |
| Operations stock based
compensation |
(44) |
(43) |
(43) |
(130) |
30 |
31 |
31 |
92 |
| Corporate general and administrative |
562 |
631 |
1,134 |
2,326 |
362 |
473 |
534 |
1,369 |
| Corporate stock based
compensation |
202 |
229 |
394 |
825 |
298 |
350 |
392 |
1,040 |
| Reclamation - amortization/ accretion |
11 |
8 |
18 |
37 |
7 |
5 |
10 |
22 |
| Mine site expensed exploration
|
307 |
273 |
231 |
811 |
98 |
636 |
133 |
867 |
| Capital
expenditures sustaining |
4,433 |
1,308 |
3,247 |
8,988 |
5,048 |
364 |
4,720 |
10,132 |
| All In Sustaining Costs |
$13,582 |
$3,098 |
$6,284 |
$22,963 |
$12,845 |
$800 |
$9,209 |
$22,854 |
| Growth exploration |
|
|
|
3,513 |
|
|
|
3,323 |
| Growth capital expenditures |
|
|
|
2,784 |
|
|
|
1,647 |
| All In
Costs |
|
|
|
$29,260 |
|
|
|
$27,824 |
| |
Three Months Ended June 30,
2018 |
Three Months Ended June 30,
2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guan aceví |
Bolañ itos |
El Cubo |
Total |
| Throughput tonnes |
71,275 |
108,495 |
134,535 |
314,305 |
74,984 |
113,875 |
115,084 |
303,943 |
| Payable silver ounces |
464,464 |
241,215 |
623,165 |
1,328,844 |
468,753 |
221,776 |
426,270 |
1,116,799 |
| Silver equivalent production (ounces) |
1,176,508 |
1,338,707 |
2,207,670 |
4,722,885 |
1,158,394 |
1,322,549 |
1,474,559 |
3,955,502 |
| |
|
|
|
|
|
|
|
|
| Sustaining cost per ounce |
$29.24 |
$12.84 |
$10.08 |
$17.28 |
$27.40 |
$3.61 |
$21.60 |
$20.46 |
| All In costs per ounce |
|
|
|
$22.02 |
|
|
|
$24.91 |
| Expressed in thousands US dollars
|
Six Months Ended June 30,
2018 |
Six Months Ended June 30, 2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Cash costs net of by-product |
$15,702 |
$5 |
$3,007 |
$18,714 |
$13,807 |
($2,724) |
$6,478 |
$17,561 |
| Operations stock based
compensation |
(31) |
(31) |
(31) |
(93) |
30 |
31 |
31 |
92 |
| Corporate general and administrative |
1,058 |
1,204 |
1,985 |
4,246 |
874 |
998 |
1,113 |
2,985 |
| Corporate stock based
compensation |
291 |
331 |
546 |
1,168 |
392 |
447 |
499 |
1,338 |
| Reclamation - amortization/ accretion |
22 |
16 |
37 |
75 |
14 |
9 |
20 |
43 |
| Mine site expensed exploration
|
334 |
378 |
441 |
1,153 |
229 |
739 |
487 |
1,455 |
| Capital
expenditures sustaining |
7,424 |
2,236 |
6,820 |
16,480 |
10,081 |
694 |
7,831 |
18,606 |
| All In Sustaining Costs |
$24,800 |
$4,139 |
$12,805 |
$41,743 |
$25,427 |
$194 |
$16,459 |
$42,080 |
| Growth exploration |
|
|
|
5,135 |
|
|
|
5,440 |
| Growth capital expenditures |
|
|
|
6,257 |
|
|
|
2,133 |
| All In
Costs |
|
|
|
$53,135 |
|
|
|
$49,653 |
| |
Six Months Ended June 30, 2018 |
Six Months Ended June 30, 2017 |
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Throughput tonnes |
150,246 |
223,509 |
266,219 |
639,974 |
162,583 |
208,226 |
236,356 |
607,165 |
| Payable silver ounces |
960,275 |
489,081 |
1,204,344 |
2,653,700 |
998,424 |
383,750 |
788,735 |
2,170,909 |
| Silver equivalent production (ounces) |
1,176,508 |
1,338,707 |
2,207,670 |
4,722,885 |
1,158,394 |
1,322,549 |
1,474,559 |
3,955,502 |
| |
|
|
|
|
|
|
|
|
| Sustaining cost per ounce |
$25.83 |
$8.46 |
$10.63 |
$15.73 |
$25.47 |
$0.51 |
$20.87 |
$19.38 |
| All In costs per ounce |
|
|
|
$20.02 |
|
|
|
$22.87 |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 19 |
| |
|
|
Silver co-product cash costs and gold co-product cash costs are
measures used by the Company to manage and evaluate operating performance at
each of the Company’s operating mining units and consolidated group, but do not
have a standardized meaning and are disclosed in addition to IFRS measures. The
following tables provide a detailed reconciliation of these measures to the
Company’s cost of sales, as reported in its consolidated financial statements.
| Expressed in thousands US dollars |
Three Months Ended June 30, 2018
|
Three Months Ended June 30, 2017
|
| |
Guanaceví |
Bolañitos
|
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Direct production costs per financial statements |
$6,914 |
$7,149 |
$9,657 |
$23,720 |
$6,790 |
$7,492 |
$9,200 |
$23,482 |
| Royalties |
290 |
(210) |
97 |
177 |
219 |
59 |
62 |
340 |
| Special mining duty (1) |
- |
466 |
482 |
948 |
- |
191 |
(9) |
182 |
| Opening finished goods |
(1,100) |
(612) |
(658) |
(2,370) |
(1,809) |
(714) |
(289) |
(2,812) |
| Closing finished
goods |
2,128
|
339
|
530
|
2,997
|
3,155
|
556
|
632
|
4,343
|
| Direct production costs |
9,924 |
7,132 |
10,108 |
27,164 |
8,355 |
7,584 |
9,596 |
25,535 |
| |
Three Months Ended June 30, 2018
|
Three Months Ended June 30, 2017
|
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Silver production (ounces) |
464,929 |
248,591 |
642,375 |
1,355,895 |
468,741 |
231,016 |
444,031 |
1,143,788 |
| Average realized
silver price ($) |
16.76
|
16.76
|
16.76
|
16.76
|
17.16
|
17.16
|
17.16
|
17.16
|
| Silver value ($) |
7,792,210 |
4,166,385 |
10,766,205 |
22,724,800 |
8,043,596 |
3,964,235 |
7,619,572 |
19,627,402 |
| |
|
|
|
|
|
|
|
|
| Gold production (ounces) |
1,423 |
5,222 |
7,029 |
13,674 |
1,079 |
6,965 |
5,014 |
13,058 |
| Average realized
gold price ($) |
1,281
|
1,281
|
1,281 |
1,281
|
1,270
|
1,270
|
1,270
|
1,270
|
| Gold value ($) |
1,822,863 |
6,689,382 |
9,004,149 |
17,516,394 |
1,370,330 |
8,845,550 |
6,367,780 |
16,583,660 |
| |
|
|
|
|
|
|
|
|
| Total metal value ($) |
9,615,073 |
10,855,767 |
19,770,354 |
40,241,194 |
9,413,926 |
12,809,785 |
13,987,352 |
36,211,062 |
| Pro-rated silver costs |
81% |
38% |
54% |
56% |
85% |
31% |
54% |
54% |
| Pro-rated gold costs |
19% |
62% |
46% |
44% |
15% |
69% |
46% |
46% |
| |
|
|
|
|
|
|
|
|
| Silver co-product cash costs |
$17.30 |
$11.01 |
$8.57 |
$11.31 |
$15.23 |
$10.16 |
$11.77 |
$12.10 |
| Gold co-product
cash costs |
$1,322 |
$842
|
$655
|
$865
|
$1,127 |
$752
|
$871
|
$896
|
| Expressed in thousands US dollars |
Six Months Ended June 30, 2018
|
Six Months Ended June 30, 2017
|
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Direct production costs per financial statements |
$17,516 |
$13,549 |
$18,461 |
$49,526 |
$16,907 |
$12,791 |
$17,833 |
$47,531 |
| Royalties |
593 |
110 |
172 |
875 |
562 |
102 |
116 |
780 |
| Special mining duty (1) |
- |
520 |
657 |
1,177 |
- |
285 |
(96) |
189 |
| Opening finished goods |
(2,942) |
(385) |
(387) |
(3,714) |
(3,948) |
- |
(385) |
(4,333) |
| Finished goods NRV
adjustment |
2,155
|
- |
- |
2,155
|
- |
- |
- |
-
|
| Closing finished goods |
2,128 |
339 |
530 |
2,997 |
3,155 |
556 |
632 |
4,343 |
| Direct production
costs |
19,450 |
14,133 |
19,433 |
53,016 |
16,676 |
13,734 |
18,100 |
48,510 |
| |
Six Months Ended June 30, 2018
|
Six Months Ended June 30, 2017
|
| |
Guanaceví |
Bolañitos |
El Cubo |
Total |
Guanaceví |
Bolañitos |
El Cubo |
Total |
| Silver production (ounces) |
961,258 |
504,032 |
1,241,445 |
2,706,735 |
999,424 |
399,739 |
821,599 |
2,220,762 |
| Average realized silver price ($) |
16.72 |
16.72 |
16.72 |
16.72 |
17.51 |
17.51 |
17.51 |
17.51 |
| Silver value ($)
|
16,072,234 |
8,427,415 |
20,756,960 |
45,256,609 |
17,499,914 |
6,999,430 |
14,386,198 |
38,885,543 |
| |
|
|
|
|
|
|
|
|
| Gold production (ounces) |
2,870 |
11,129 |
12,883 |
26,882 |
2,271 |
13,183 |
9,328 |
24,782 |
| Average realized gold price ($) |
1,304 |
1,304 |
1,304 |
1,304 |
1,275 |
1,275 |
1,275 |
1,275 |
| Gold value ($) |
3,742,480 |
14,512,216 |
16,799,432 |
35,054,128 |
2,895,525 |
16,808,325 |
11,893,200 |
31,597,050 |
| |
|
|
|
|
|
|
|
|
| Total metal value ($) |
19,814,714 |
22,939,631 |
37,556,392 |
80,310,737 |
20,395,439 |
23,807,755 |
26,279,398 |
70,482,593 |
| Pro-rated silver costs |
81% |
37% |
55% |
56% |
86% |
29% |
55% |
55% |
| Pro-rated gold costs |
19% |
63% |
45% |
44% |
14% |
71% |
45% |
45% |
| |
|
|
|
|
|
|
|
|
| Silver co-product cash costs |
$16.41 |
$10.30 |
$8.65 |
$11.04 |
$14.32 |
$10.10 |
$12.06 |
$12.05 |
| Gold co-product cash costs |
$1,280 |
$803 |
$675 |
$861 |
$1,042 |
$736 |
$878 |
$878 |
(1) Special mining duty is an EBITDA royalty tax presented as a
current income tax in accordance with IFRS.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 20 |
| |
|
|
Quarterly Results and Trends
The following table presents selected financial information for
each of the most recent eight quarters:
| Table in thousands of U.S.
dollars except for |
2018
|
2017
|
2016
|
| share numbers and per share a
mounts |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
| Revenue |
$38,765 |
$40,330 |
$41,640 |
$39,782 |
$32,636 |
$36,441 |
$28,650 |
$42,066 |
| Direct cost |
23,720 |
25,806 |
28,399 |
27,400 |
23,483 |
24,048 |
21,044 |
24,033 |
| Royalties |
177
|
698 |
503
|
457
|
340
|
440 |
1,216
|
247 |
| Mine
operating cash flow |
14,868 |
13,826 |
12,738 |
11,925 |
8,813 |
11,953 |
6,390 |
17,786 |
| Share-based
compensation |
(130) |
37 |
47 |
63 |
92 |
- |
- |
(208)
|
| Amortization and depletion |
7,855 |
9,759 |
4,804 |
4,394 |
3,271 |
4,113 |
1,893 |
2,761 |
| Write down on inventory |
2,527
|
755 |
- |
166
|
- |
- |
- |
- |
| Mine operating earnings (loss) |
$4,616 |
$3,275 |
$7,887 |
$7,302 |
$5,450 |
$7,840 |
$4,497 |
$15,233 |
| |
|
|
|
|
|
|
|
|
| Basic earnings (loss) per share |
($0.04) |
$0.02 |
$0.02 |
$0.01 |
$0.00 |
$0.05 |
($0.04) |
$0.04 |
| Diluted earnings
(loss) per share |
($0.04) |
$0.02
|
$0.02 |
$0.01 |
$0.00 |
$0.05
|
($0.04) |
$0.04
|
| Weighted shares outstanding |
127,570,254 |
127,488,410 |
127,486,671 |
127,456,410 |
127,318,926 |
127,095,764 |
126,676,562 |
125,277,591 |
| |
|
|
|
|
|
|
|
|
| Net
earnings (loss) |
($5,651) |
$2,325 |
$2,669 |
$996 |
($16) |
$6,035 |
($5,204) |
$5,586 |
| Amortization and
depletion |
7,939 |
9,837
|
4,935 |
4,540 |
3,333 |
4,182
|
1,994 |
2,834
|
| Finance costs |
49 |
49 |
105 |
166 |
208 |
236 |
246 |
345 |
| Current income tax
|
1,965 |
688
|
2,924 |
882 |
545 |
299
|
132 |
2,732
|
| Deferred income tax |
(2,415) |
(1,786) |
(3,737) |
(510) |
(403) |
(1,797) |
991 |
(693) |
| NRV cost adjustment |
835
|
292 |
- |
- |
- |
- |
- |
- |
| EBITDA |
$2,722 |
$11,405 |
$6,896 |
$6,074 |
$3,667 |
$8,955 |
($1,841) |
$10,804 |
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 21 |
| |
|
|
The following table presents selected production information
for each of the most recent eight quarters:
| Highlights |
2018
|
2017
|
2016
|
| |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
| Processed tonnes |
314,30 5 |
325,669 |
349,924 |
322,784 |
30 3,943 |
303,222 |
317,555 |
355,611 |
| Guanaceví |
71,275 |
78,971 |
83,881 |
74,649 |
74,984 |
87,599 |
87,850 |
82,0
59 |
| Bolañitos |
10 8,495 |
115,0
14 |
124,172 |
114,526 |
113,875 |
94,351 |
101,568 |
132,686 |
| El Cubo |
134,535 |
131,684 |
141,871 |
133,60 9 |
115,084 |
121,272 |
128,137 |
140,866 |
| Silver ounces |
1,355,895 |
1,350
,840 |
1,436,962 |
1,262,064 |
1,143,788 |
1,0
76,974 |
1,0 88,845 |
1,284,646 |
| Guanaceví |
464,929 |
496,329 |
544,117 |
522,907 |
468,741 |
530,683 |
540,70 8 |
542,385 |
| Bolañitos |
248,591 |
255,441 |
280,712 |
253,787 |
231,016 |
168,723 |
185,813 |
255,350 |
| El Cubo |
642,375 |
599,070 |
612,133 |
485,370 |
444,031 |
377,568 |
362,324 |
486,911 |
| Silver grade |
156 |
151
|
152 |
144 |
135 |
126
|
123 |
133
|
| Guanaceví |
225 |
224
|
241 |
250 |
219 |
213
|
211 |
235
|
| Bolañitos |
91 |
86
|
86 |
85 |
78 |
66
|
71 |
76
|
| El Cubo |
171 |
164
|
157 |
135 |
137 |
111
|
103 |
128
|
| Silver recovery |
86.2 |
85.4
|
84.1 |
84.5 |
86.6 |
87.4
|
87.0 |
84.3
|
| Guanaceví |
90 .2 |
87.3
|
83.7 |
87.2 |
88.8 |
88.5
|
90.7 |
87.5
|
| Bolañitos |
78.3 |
80 .3
|
81.8 |
81.1 |
80 .9 |
84.3
|
80 .1 |
78.8
|
| El Cubo |
86.8 |
86.3
|
85.5 |
83.7 |
87.6 |
87.2
|
85.4 |
84.0
|
| Gold ounces |
13,674 |
13,208 |
14,577 |
13,648 |
13,0 58 |
11,724 |
11,40 2 |
14,364 |
| Guanaceví |
1,423 |
1,447
|
1,245 |
1,224 |
1,079 |
1,192
|
1,232 |
1,163
|
| Bolañitos |
5,222 |
5,907
|
7,20 4 |
6,523 |
6,965 |
6,218
|
5,926 |
7,875
|
| El Cubo |
7,0 29 |
5,854
|
6,128 |
5,901 |
5,014 |
4,314
|
4,244 |
5,326
|
| Gold grade |
1.60 |
1.49
|
1.56 |
1.58 |
1.58 |
1.41
|
1.35 |
1.55
|
| Guanaceví |
0 .67 |
0.64
|
0.54 |
0.57 |
0.50 |
0.49
|
0.49 |
0.51
|
| Bolañitos |
1.82 |
1.91
|
2.18 |
2.15 |
2.27 |
2.40
|
2.22 |
2.30
|
| El Cubo |
1.92 |
1.64
|
1.61 |
1.65 |
1.60 |
1.31
|
1.24 |
1.46
|
| Gold recovery |
84.5 |
84.5
|
83.3 |
83.4 |
84.6 |
85.2
|
83.0 |
80.8
|
| Guanaceví |
92.7 |
89.0
|
85.5 |
89.5 |
89.5 |
86.4
|
89.0 |
86.4
|
| Bolañitos |
82.3 |
83.6
|
82.8 |
82.4 |
83.8 |
85.4
|
81.7 |
80.3
|
| El Cubo |
84.6 |
84.3
|
83.4 |
83.3 |
84.7 |
84.5
|
83.1 |
80.5
|
| Cash costs per oz |
$7.61 |
$6.50
|
$7.97 |
$8.11 |
$8.36 |
$7.81
|
$9.39 |
$5.27
|
| Guanaceví |
$17.46 |
$15.31 |
$12.39 |
$13.68 |
$14.94 |
$12.85 |
$12.66 |
$11.12 |
| Bolañitos |
$2.87 |
($2.77) |
($2.73) |
($0.52) |
($4.78) |
($10.28) |
($4.87) |
($15.17) |
| El Cubo |
$2.09 |
$2.93
|
$8.78 |
$6.37 |
$7.95 |
$8.52
|
$11.65 |
$9.16
|
| Total cost per oz(1) |
$14.10 |
$13.70 |
$11.38 |
$11.74 |
$12.02 |
$11.62 |
$11.31 |
$7.28
|
| Guanaceví |
$29.0 3 |
$28.0
6 |
$19.92 |
$20.48 |
$21.63 |
$18.94 |
$15.84 |
$14.15 |
| Bolañitos |
$4.09 |
($1.42) |
($1.47) |
$1.81 |
($2.0 7) |
($7.43) |
($3.59) |
($13.20) |
| El Cubo |
$6.85 |
$7.90
|
$9.38 |
$7.13 |
$8.78 |
$9.44
|
$11.92 |
$9.99
|
| AISC per oz |
$17.28 |
$14.18 |
$12.70 |
$11.74 |
$20.46 |
$18.24 |
$20.11 |
$11.47 |
| Guanaceví |
$29.24 |
$22.62 |
$17.57 |
$23.47 |
$27.40 |
$23.78 |
$26.74 |
$21.53 |
| Bolañitos |
$12.84 |
$4.20
|
$1.01 |
$3.96 |
$3.61 |
($3.82) |
$1.02 |
($11.16) |
| El Cubo |
$10.08 |
$11.22 |
$13.56 |
$17.95 |
$21.60 |
$20.00 |
$19.62 |
$11.60 |
| Costs per tonne |
$86.43 |
$79.38 |
$84.38 |
$84.81 |
$84.0 1 |
$75.77 |
$70.72 |
$71.18 |
| Guanaceví |
$139.24 |
$120.63 |
$99.39 |
$117.15 |
$111.42 |
$94.99 |
$93.60 |
$93.24 |
| Bolañitos |
$65.74 |
$60
.87 |
$67.04 |
$71.52 |
$66.60 |
$65.18 |
$54.35 |
$49.03 |
| El Cubo |
$75.13 |
$70 .81 |
$90.69 |
$78.13 |
$83.38 |
$70.12 |
$68.0 1 |
$79.20 |
(1) Total Production Cost per ounce
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 22 |
| |
|
|
Key Economic Trends
Precious Metal Price Trends
The prices of silver and gold are the largest single factor in
determining profitability and cash flow from operations, therefore, the
financial performance of the Company has been, and is expected to continue to
be, closely linked to the prices of silver and gold. During 2018, the average
price of silver was $16.66 per ounce, with silver trading between $16.03 and
$17.52 per ounce based on the London Fix silver price. This compares to an
average of $17.31 per ounce during the first half of 2017, with a low of $15.95
and a high of $18.56 per ounce. During 2018, the Company realized an average
price of $16.72 per silver ounce compared with $17.51 for the corresponding six
month period in 2017.
During 2018, the average price of gold was $1,318 per ounce,
with gold trading between $1,250 and $1,355 per ounce based on the London Fix PM
gold price. This compares to an average of $1,238 per ounce during the first
half of 2017, with a low of $1,151 and a high of $1,284 per ounce. During 2018,
the Company realized an average price of $1,304 per ounce compared with $1,275
for the corresponding six month period in 2017.
During 2017, the average price of silver was $17.05 per ounce,
with silver trading between a range of $15.22 and $18.56 per ounce based on the
London Fix silver price. This compares to an average of $17.14 per ounce during
2016, with a low of $13.58 and a high of $20.71 per ounce. During 2017, the
Company realized an average price of $17.24 per ounce compared with $16.84 for
2016.
During 2017, the average price of gold was $1,257 per ounce,
with gold trading between a range of $1,146 and $1,346 per ounce based on the
London Fix PM gold price. This compares to an average of $1,251 per ounce during
2016, with a low of $1,077 and a high of $1,366 per ounce. During 2017, the
Company realized an average price of $1,285 per ounce compared with $1,253 for
2016.
The major influences on precious metals prices from the start
of 2016 included weaker investment demand, selling from precious metal exchange
traded funds, as well as strong U.S. equity and bond markets that pulled
investments from other asset classes, including precious metals. In addition,
precious metal prices were also affected by an expectation of improving economic
conditions, which led to the reduction of the U.S. Federal Reserve’s
quantitative easing program in 2014 and the anticipation of rising borrowing
rates over the past two years. The U.S. election results revived sentiment in
favour of the U.S. economy and U.S. dollar, resulting in both silver and gold
prices depreciating against the U.S. currency. In 2017, management believes that
investor uncertainty surrounding the effect of the U.S. administration’s
policies, particularly escalating signals of implementing tariffs, led to
renewed interest in precious metals stabilizing prices until the end of this
period.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 23 |
| |
|
|
Currency Fluctuations
The Company’s
operations are located in Mexico and therefore a significant portion of
operating costs and capital expenditures are denominated in Mexican pesos. The
Company’s corporate activities are based in Vancouver, Canada with the
significant portion of these expenditures being denominated in Canadian dollars.
Generally, as the U.S. dollar strengthens, these currencies weaken, and as the
U.S. dollar weakens, these currencies strengthen.
During 2018, the Mexican peso initially appreciated against the
U.S. dollar, however discussions of U.S. imposed tariffs and the expectation of
Andres Manuel Lopez Obrador election as the next Mexico president drove the
Mexican peso to fall against the U.S. dollar at the end of the second quarter.
During 2018, the average foreign exchange rate was $19.05 Mexican pesos per U.S.
dollar, with the peso trading within a range of $18.00 to $20.77. This compares
to an average of $19.42 during the corresponding six month period of 2017, with
a range of $17.88 to $21.92 Mexican pesos per U.S. dollar.
During the year ended December 31, 2017, the Mexican peso
reversed a long negative trend and significantly appreciated against the U.S.
dollar until the fourth quarter. During 2017, the average foreign exchange rate
was $18.91 Mexican pesos per U.S. dollar, with the peso trading within a range
of $17.50 to $21.92. This compares to an average of $18.68 during the year ended
December 31, 2016, with a range of $17.17 to $20.82 Mexican pesos per U.S.
dollar. The reversal of the trend in the earlier periods of 2017 is attributed
to the correction from the sharp fall during the U.S. election and from rising
oil prices.
During 2018, the Canadian dollar gradually depreciated against
the U.S. dollar. During 2018, the average foreign exchange rate was $1.278
Canadian dollar per U.S. dollar, with the Canadian dollar trading within a range
of $1.23 and $1.330. This compares to an average of $1.334 during the same six
month period of 2017, within a range of $1.296 and $1.374 Canadian dollar per
U.S. dollar.
During 2017, the Canadian dollar appreciated relative to the
U.S. dollar, with significant appreciation in the third quarter. During 2017,
the average foreign exchange rate was $1.298 Canadian dollar per U.S. dollar,
with the Canadian dollar trading within a range of $1.211 and $1.374. This
compares to an average of $1.3251 during 2016, with a range of $1.2533 and
$1.4602 U.S. dollar per Canadian dollar.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 24 |
| |
|
|
Cost Trends
The Company’s profitability is subject to industry wide cost
pressures on development and operating costs with respect to labour, energy,
consumables and capital expenditures. Underground mining is labour intensive and
approximately 33% of the Company’s production costs are directly tied to labour.
In order to mitigate the impact of higher labour and consumable costs, the
Company focuses on continuous improvement by promoting more efficient use of
materials and supplies and by pursuing more advantageous pricing while
increasing performance and without compromising operational integrity.
2018 Outlook
Production
In 2018, silver equivalent production is
planned to increase by 20% compared to 2017. The Company plans higher silver and
gold production at all three existing mines and initial production from the new
fourth mine at El Compas with commercial production is expected in Q3, 2018.
With planned higher production, cash costs and all-in
sustaining costs are expected to decline in 2018 compared to 2017. The total
capital budget in 2018 increased from 2017 due to the development of the new El
Compas mine, and two new high grade orebodies at Guanaceví, whereas the
exploration budget decreased as the Company’s focus shifts towards development.
Silver production was guided to be in the range of 5.8 -6.4
million ounces and gold production was guided to be in the 58,000-64,000 oz
range for 2018. Silver equivalent production is anticipated to be 10.2 -11.2
million ounces using a 75:1 silver:gold ratio , as shown in the table below. As
of August 1, 2018, management expects to meet its production guidance.
After resolving several operational issues in 2017, management
launched a seven-month mine-site training program aimed at significantly
improving workforce productivity and cutting costs. Plant throughput was
expected to rise from the 900 tpd in Q4, 2017 to 1,050 tpd by Q4, 2018 averaging
1,000 tpd in 2018. Two new orebodies at Milache and SCS are being developed to
commence production before year-end in order to reduce the onus on Porvenir
Norte and Santa Cruz and increase operational flexibility. To date the Guanacevi
mine output has been below plan, as development was behind plan. Sufficient
development has been completed in the first half of 2018 to open more stopes to
increase mine output in Q3, 2018. The ramp into the Milache ore body has
progressed over 1.0 kilometre and production is expected by year end. Guanacevi
production is expected to increase in the second half of 2018.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 25 |
| |
|
|
At Bolañitos, steady mine production and plant throughput are
expected at 1,200 tpd (similar to 2017), primarily from the LL-Asunción and
Plateros vein orebodies plus some historic mine fill. Silver grades are expected
to be higher than 2017 but gold grades will be lower. Improvement in metal
recoveries is expected due to modifications in the flotation circuit implemented
late in 2017. The Bolañitos operation is expected to meet guidance in 2018.
At El Cubo, mine production and plant throughput are also
expected to remain steady at 1,400 tpd from the V-Asunción, Dolores, and San
Nicolas veins. Ore grades have increased considerably, as expected, as a higher
grade area of the V-Asuncion orebody is scheduled for mining this year. The El
Cubo operation is expected to meet guidance in 2018.
| Mine |
Ag (M oz)
|
Au (K oz)
|
Ag Eq (M oz)
|
Tonnes/Day (tpd)
|
| Guanaceví |
2.2-2.5 |
5.0-5.5 |
2.6-2.9 |
900-1,050 |
| Bolañitos |
1.0-1.1 |
23.5-25.5 |
2.8-3.0 |
1,100-1,250 |
| El Cubo |
2.5-2.7 |
22.5-24.5 |
4.2-4.5 |
1,300-1,450 |
| El Compas |
0.1-0.1 |
7.0-8.5 |
0.6-0.8 |
0-250 |
| Total |
5.8-6.4 |
58.0-64.0 |
10.2-11.2 |
3,300-4,000 |
Operating Costs
Cash costs, net of gold by-product
credits, are expected to be $6.00 -$7.00 per oz of silver produced in 2018.
Consolidated cash costs expressed on a co-product basis are anticipated to be
$10.00 -$11.00 per oz silver and $750-$800 per oz gold.
All-in sustaining costs (AISC), net of gold by-product credits,
in accordance with the World Gold Council standard, are estimated to be $15.00
-$16.00 per oz of silver produced in 2018 reflecting new investments in
exploration and development programs. When non-cash items such as stock-based
compensation are excluded, AISC is budgeted to be in the $14.50 -$15.50 range.
If the investment to develop the SCS and Milache ore bodies into production at
Guanaceví was excluded, AISC would decrease by $2.00 per oz to $13.00 -$14.00
per oz.
On a co-product basis, AISC are anticipated to be $15.50
-$16.00 per oz silver and $1,150-$1,200 per oz gold. Direct operating costs are
estimated to be in the range of $80-$85 per tonne.
Management has assumed a $17 per oz silver price, $1,275 per oz
gold price, and 19:1 Mexican peso per US dollar exchange rate for its 2018 cost
estimates.
The Company anticipates operating costs to meet guidance in
2018.
Capital Investments
In 2018, Endeavour plans to
invest $48.4 million on capital projects including $41.1 million in sustaining
capital at three currently operating mines and $7.3 million in growth capital at
two development projects (including the El Compas project). At management’s
assumed metal prices, the sustaining capital investments will be covered by
operating cash flow.
Growth capital of $7.2 million is budgeted to complete the
construction and commissioning of the El Compas project to commercial
production.
At Guanaceví, a capital budget of $25.9 million is planned for
2018, including sustaining capital of $10.3 million to develop 9.2 kilometres of
mine access at the North Porvenir and Santa Cruz mines. Additionally, $7.7
million and $5.6 million are budgeted for the development of the Milache and SCS
ore bodies, respectively. An additional $2.3 million is planned to support site
infrastructure, including plant equipment, office equipment and building
improvements.
At Bolañitos, a capital budget of $2.6 million is planned for
2018, including $0.5 million on mine development to access resources in
LL-Asunción and Plateros veins, plus mineralized fill from historic stopes not
included in resources. An additional $2.1 million is planned to support site
infrastructure, including mobile equipment, plant equipment, office equipment
and building improvements.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 26 |
| |
|
|
At El Cubo, a capital budget of $12.6 million is planned for
2018, including 5.9 kilometres of mine development for $7.6 million, $2.0
million for refurbishment of underground mobile equipment, $1.8 million to
increase the capacity of the tailings facility and an additional $1.2 million
for site infrastructure, including vehicles, plant equipment, office equipment
and building improvements.
In 2017, the Company received government environmental permits
to build the Terronera mine and plant however, the Company still awaits receipt
of the dumps and tailings permits. Upon receipt of the final permits currently
anticipated in Q3, 2018, and assuming a positive production decision and
appropriate financing, the 2018 growth capital budget will be amended
accordingly. See Development Activities for more discussion on project updates.
| Mine |
Mine
Development |
Other
Capital |
Sustaining Capital |
Growth
Capital |
Total
Capital |
| Guanaceví |
$23.6 million |
$2.3 million |
$25.9 million |
- |
$25.9 million |
| Bolañitos |
$0.5 million |
$2.1 million |
$ 2.6 million |
- |
$2.6 million |
| El Cubo |
$7.6 million |
$5.0 million |
$12.6 million |
- |
$12.6 million |
| El Compas |
- |
- |
- |
$7.2 million |
$7.2 million |
| Corporate |
-
|
-
|
-
|
$0.1
million |
$0.1
million |
| Total |
$31.7 million |
$9.4 million |
$41.1 million |
$7.3 million |
$48.4 million
|
Exploration Expenditures
In 2018, the Company plans
to drill 44,000 metres and spend $11.1 million on brownfields and greenfields
exploration, development engineering, and land payments across its portfolio of
properties. At the three existing mines, 17,000 metres of core drilling are
planned at a cost of $2.8 million. At the exploration and development projects,
expenditures of $8.3 million are planned to drill 27,300 metres, to advance
engineering studies and meet property holding obligations. Drilling is now
underway at Bolanitos, El Cubo, El Compas, Terronera and Parral. During the
second quarter management approved an additional 20,000 metres of infill
drilling at the Terronera project amounting to an additional $3.0 million.
At Terronera, $1.7 million was initially budgeted to complete
an updated PFS and a 5,400 metre drill program. The 2018 drilling focused on
extending mineralization in the Terronera vein to the southeast of the current
resource, plus testing other known mineralized veins. In Q2 2018, management
approved an additional $3.0 million budget to infill 20,000 metres to upgrade
the inferred resources to indicated resources, mainly at depth in the Terronera
vein and to a lesser extent in the La Luz vein, which should benefit the
net present value and internal rate of return. The drill program will be
complete in September, while a revised resource estimate will be prepared, the
new resource will not be included in the updated pre-feasibility study. The goal
of the infill program is to upgrade up approximately a million tonnes of
inferred resources to measured and indicated resources and to expand the
inferred resources at depth. The deepest mineralized hole, drilled to date,
intersected the mineralized zone at 430 metres vertical depth, and remains open
at depth.
At El Compas, 6,600 metres are planned to be drilled for $1.0
million primarily on the Calicanto concessions. The 2018 drilling is to further
test the new zones of high grade mineralization within the Misie-Karla-Karla HW
and Calicanto veins discovered in 2017.
At Parral, $2.2 million is budgeted for drilling 12,000 metres
to extend historic and new resource areas and complete a PEA.
In Chile, the Company has budgeted for a 3,000 metre drill
program on one property to explore for bulk tonnage silver-lead-zinc manto
mineralization.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 27 |
| |
|
|
| Project |
2018 Activity
|
Drill Metres
|
Expenditures
|
| Guanaceví |
Drilling |
6,600 |
$0.8 million |
| Bolañitos |
Drilling |
5,400 |
$1.0 million |
| El Cubo |
Drilling |
5,000 |
$1.0 million |
| El Compas |
Drilling |
6,600 |
$1.0 million |
| Terronera |
Drilling/Update PFS |
25,400 |
$4.2 million |
| Parral |
Drilling/PEA |
12,000 |
$2.2 million |
| Guadalupe y Calvo |
Mapping |
- |
$0.2 million |
| Chile |
Drilling |
3,000 |
$1.3 million |
| Mexico |
Holding Costs/Land Payment |
-
|
$2.4
million |
| Total |
|
64,000 |
$14.1 million
|
See Exploration Results for an update on 2018 exploration
activities.
Liquidity and Capital Resources
Cash and cash equivalents (including restricted cash) decreased
from $39.3 million at December 31, 2017 to $31.1 million at June 30, 2018. The
Company had working capital of $58.9 million at June 30, 2018 (December 31, 2017
- $66.2 million). The $7.3 million decrease in working capital is due to
investing $22.7 million into property, plant and equipment offset by cash
generated from operating activities and $2.3 million raised through equity
sales.
Operating activities generated cash of $12.3 million during the
first half of 2018 compared to $5.4 million of cash during the same period in
2017. The significant non-cash adjustments to the net loss of $3.3 million were
amortization and depletion of $17.8 million, share-based compensation of $1.2
million, a deferred income tax recovery of $4.2 million, a write down of
inventory to net realizable value of $3.3 million and a change in non-cash
working capital of $2.9 million. The change in non-cash working capital was
primarily due to an increase in receivables and inventories, with normal
fluctuations in other working capital items.
The Company’s Mexican subsidiaries pay value added tax,
Impuesto al Valor Agregado (“IVA”), on the purchase and sale of goods and
services. The net amount paid is recoverable but is subject to review and
assessment by the tax authorities. The Company regularly files the required IVA
returns and all supporting documentation with the tax authorities, however, the
Company has been advised that certain IVA amounts receivable from the tax
authorities are being withheld pending completion of the authorities’ audit of
certain of the Company’s third-party suppliers. Under Mexican law the Company
has legal rights to those IVA refunds and the results of the third party audits
should have no impact on refunds. A smaller portion of IVA refund requests are
from time to time improperly denied based on the alleged lack of compliance of
certain formal requirements and information returns by the Company’s third-party
suppliers. The Company takes necessary legal action on the delayed refunds as
well as any improperly denied refunds.
Mangement believes that delays and denials with respect to IVA
refunds for Compania Minera del Cubo (“El Cubo”) and Refinadora Plata Adelante
S.A. de C.V. (“Guanaceví,”) are improper. At June 30, 2018, El Cubo holds $11.0
million and Guanaceví holds $10.7 million in IVA receivables which the Company
and its advisors deem to be recoverable from tax authorities (December 31, 2017
– $10.4 million and $8.8 million respectively). The Company is in regular
contact with the tax authorities in respect of its IVA filings and believes that
the full amount of its IVA receivables will ultimately be received; however, the
timing of recovery of these amounts and the nature and extent of any adjustments
to the Company’s IVA receivables remains uncertain. See “Financial Instrument
Risk Exposure and Risk Management-Liquidity Risk”. Subsequent to June 30, 2018,
the Company received $4.2 million of the IVA receivable of which $3.4 million
relates to the Guanacevi IVA receivable.
Investing activities during the period used $22.7 million
compared to $20.7 million in the same period of 2017. The investments in 2018
primarily relate sustaining capital at the existing operations and the
construction of the El Compas operation.
Capital spending totaled $22.7 million in property, plant and
equipment during 2018. At Guanaceví, the Company invested $7.4 million, with
$6.3 million spent on 5.9 kilometres of mine development, $0.3 million on
underground infrastructure, $0.3 million on mine equipment and $0.5 million
various support items.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 28 |
| |
|
|
At El Cubo, the Company invested $6.8 million, including $5.5
million on 4.0 kilometres of mine development, $0.9 million on refurbishment of
underground mobile equipment, $0.1 million on the tailings dam, and $0.3 million
on other site equipment. At Bolañitos, the Company invested $2.2 million,
including $1.6 million on 1.9 kilometres of mine development and $0.6 million on
various site equipment and support vehicles.
At El Compas, the Company has spent a total of $5.9 million in
developing the El Compas ore body and refurbishment of the plant. $2.2 million
was incurred in 2018 on the plant, $3.3 million was incurred on development of
the main ore ramp and $0.4 million on various other equipment. See further
discussion under Development Activities.
Exploration incurred $0.3 million in holding costs and
Corporate expenditures totaled $0.1 million year to date.
Financing activities during the first half of 2018 increased
cash by $3.2 million, compared to decreasing cash by $5.2 million during the
same period in 2017. During the first half of 2018, the Company received gross
proceeds through an at-the-market financing of $2.1 million, proceeds of $0.3
million received from exercised stock options and paid $0.1 million in share
issue costs. By comparison, during the first half of 2017, the Company paid $5.0
million to reduce its credit facility and $0.3 million in interest, offset by
proceeds of $0.1 million received from exercised stock options.
In April 2018, the Company filed a short form base shelf
prospectus (the “Base Shelf”) that qualifies the distribution of up to CDN$ 150
million of common shares, warrants or units of the Company comprising any
combination of common shares and warrants (“Securities”). The distribution of
Securities may be effected from time to time in one or more transactions at a
fixed price or prices, which may vary with market prices prevailing at the time
of sale, or at prices related to such prevailing market prices to be negotiated
with purchasers and as set forth in an accompanying prospectus supplement,
including transactions that are deemed to be at the market distributions. The
Base Shelf also provides the Company with the ability to conduct an
“At-The-Market” offering through an “At-The-Market” facility (“ATM”) equity
distribution agreement.
On June 13, 2018, the Company entered into an ATM equity
facility with BMO Capital Markets (the lead agent), CIBC Capital Markets, H.C.
Wainwright & Co., HSBC and TD Securities (together, the “Agents”). Under the
terms of this ATM facility, the Company may, from time to time, sell common
stock having an aggregate offering value of up to US$35.7 million on the New
York Stock Exchange. The Company determines, at its sole discretion, the timing
and number of shares to be sold under the ATM facility. During the six months
ended June 30, 2018, the Company issued 645,617 common shares under the ATM
facility at an average price of $3.21 per share for proceeds of $2,025, net of
commission.
The principal business objective that the Company expects to
accomplish using the net proceeds from the ATM facility are to advance the
exploration and development of the Terronera Project and to add to the Company’s
working capital.
| Use of proceeds as at June 30,
2018 |
|
|
|
| Net proceeds received |
$ |
2,025 |
|
| Advancement of Terronera Project |
|
- |
|
| Remaining proceeds
|
$ |
2,025 |
|
Subsequent to June 30, 2018, the Company issued an additional
356,330 shares under the ATM facility at an average price of $3.23 per share for
net proceeds of $1.1 million.
Management of the Company believes that operating cash flow and
existing working capital will be sufficient to cover 2018 capital requirements
and commitments. The Company is assessing financing alternatives, including
equity or debt or a combination of both to fund future growth, including the
development of the Terronera project.
As at June 30, 2018, the Company’s issued share capital was
$453.1 million, representing 128,261,027 common shares, and the Company had
options outstanding to purchase 5,895,200 common shares with a weighted average
exercise price of CAD$3.96.
Contingencies
Minera Santa Cruz y Garibaldi SA de CV (“MSCG”), a subsidiary
of the Company, received a MXN 238 million assessment on October 12, 2010 by
Mexican fiscal authorities for failure to provide the appropriate support for
certain expense deductions taken in MSCG’s 2006 tax return, failure to provide
appropriate support for loans made to MSCG from affiliated companies, and deemed
an unrecorded distribution of dividends to shareholders, among other
individually immaterial items. MSCG immediately initiated a Nullity action and
filed an administrative attachment to dispute the assessment.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 29 |
| |
|
|
In June 2015, the Superior Court ruled in favour of MSCG on a
number of the matters under appeal; however, the Superior Court ruled against
MSCG for failure to provide appropriate support for certain deductions taken in
MSCG’s 2006 tax return. In June 2016, the Company received a MXN 122.9 million
($6.2 million) tax assessment based on the June 2015 ruling. The 2016 tax
assessment comprised of MXN 41.8 million in taxes owed ($2.1 million), MXN 17.7
million ($0.9 million) in inflationary charges, MXN 40.4 million ($2.0 million)
in interest and MXN 23.0 million ($1.2 million) in penalties. The 2016 tax
assessment was issued for failure to provide the appropriate support for certain
expense deductions taken in MSCG’s 2006 tax return, failure to provide
appropriate support for loans made to MSCG from affiliated companies. If MSCG
agrees to pay the tax assessment, or a lesser settled amount, it is eligible to
apply for forgiveness of 100% of the penalties and 50% of the interest.
The Company filed an appeal against the June 2016 tax
assessment on the basis that certain items rejected by the courts were included
in the new tax assessment and a number of deficiencies exist within the
assessment. Since issuance of the assessment interest charges of MXN 5.6 million
($0.3 million) and inflationary charges of MXN 8.5 million ($0.4 million) has
accumulated.
Included in the Company’s consolidated financial statements,
are net assets of $595,000, including $42,000 in cash, held by MSCG. Following
the Tax Court’s rulings, MSCG has been in discussions with the tax authorities
with regards to the shortfall of assets within MSCG to settle its estimated tax
liability. An alternative settlement option would be to transfer the shares and
assets of MSCG to the tax authorities. As of December 31, 2017, the Company
recognized an allowance for transferring the shares and assets of MSCG amounting
to $595,000. The Company is currently assessing MSCG’s settlement options based
on ongoing court proceedings and discussion with the tax authorities.
On acquisition of the El Cubo operation, under the terms of the
acquired Las Torres lease, the Company was required to provide financial
guarantees to the owner of the Las Torres Facility as security against any
environmental damages. As at December 31, 2017, there was a $1.0 million letter
of credit provided by the Company as security to the owner of the Las Torres
facility that expires on August 14, 2018. In March 2018 a payment was made to
the owner of the Las Torres Facility for $0.5 million and the letter of credit
has been removed.
Capital Requirements
See 2018 Outlook on page 25 for discussion on planned capital
and exploration expenditures.
Contractual Obligations
The Company had the following contractual obligations at June
30, 2018:
| Payments due by period (in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contractual Obligations
|
|
Total |
|
|
Less than 1
|
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
More than
|
|
| |
|
|
|
|
year |
|
|
|
|
|
|
|
|
5 years |
|
| Capital Assets purchases |
$ |
41 $ |
|
|
41 $ |
|
|
- |
|
$ |
- |
|
$ |
- |
|
| Operating lease |
|
3,625 |
|
|
415 |
|
|
865 |
|
|
774 |
|
|
1,571 |
|
| Other Long-Term
Liabilities |
|
8,057
|
|
|
- |
|
|
8,057
|
|
|
- |
|
|
- |
|
| Total |
$ |
11,723 $ |
|
|
456 $ |
|
|
8,922 |
|
$ |
774 |
|
$ |
1,571 |
|
Transactions with Related Parties
The Company shares common administrative services and office
space with Aztec Metals Corp., which is considered a related party company by
virtue of Bradford Cooke being a common director. During 2017 , the Company also
shared common administrative services and office space with Canarc Resource
Corp., which is considered a related party company by virtue of Bradford Cooke
being a common director. From time to time, Endeavour incurs third-party costs
on behalf of the related parties, which are charged on a full cost recovery
basis. The charges for these costs totaled $7,000 and $5,000 for the three
months and six months ended June 30, 2018 (June 30, 2017 - $6,000 and $16,000
respectively). The Company had a $5,000 net receivable related to administration
costs outstanding as at June 30, 2018 (December 31, 2017 – $2,000).
The Company was charged $82,000 and $119,000 for legal services
for the three months and six months ended June 30, 2018 respectively, by a firm
in which the Company’s corporate secretary is a partner (June 30, 2017 - $31,000
and $42,000 respectively), . The Company has $31,000 payable to the legal firm
as at June 30, 2018 (December 31, 2017 - $Nil).
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 30 |
| |
|
|
Financial Instruments and fair value measurements
As at June 30, 2018, the carrying and fair values of
Endeavour’s financial instruments by category were as follows:
| |
|
As at June 30, 2018 |
|
|
As at December 31, 2017 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Expressed in thousands US
dollars |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
| |
|
value |
|
|
Fair value |
|
|
value |
|
|
Fair value |
|
| Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
$ |
31,057 |
|
$ |
31,0 57 |
|
$ |
39,277 |
|
$ |
39,277 |
|
| Other investments |
|
122 |
|
|
122 |
|
|
168 |
|
|
168 |
|
| Trade receivables |
|
5,567 |
|
|
5,567 |
|
|
8,114 |
|
|
8,114 |
|
| Other receivables
|
|
158
|
|
|
158
|
|
|
360
|
|
|
360
|
|
| Total financial assets |
$ |
36,90 4 |
|
$ |
36,90 4 |
|
$ |
47,919 |
|
$ |
47,919 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable
and accrued liabiities |
$ |
19,60 2 |
|
$ |
19,60 2 |
|
$ |
19,0 68 |
|
$ |
19,0 68 |
|
| Total financial liabilities |
$ |
19,60 2 |
|
$ |
19,60 2 |
|
$ |
19,0 68 |
|
$ |
19,0 68 |
|
Fair value measurements
Fair value hierarchy:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy establishes three
levels to classify the inputs to valuation techniques used to measure fair
value. Level 1 inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities. Level 2 inputs are quoted prices in markets
that are not active, quoted prices for similar assets or liabilities in active
markets, inputs other than quoted prices that are observable for the asset or
liability (for example, interest rate and yield curves observable at commonly
quoted intervals, forward pricing curves used to value currency and commodity
contracts and volatility measurements used to value option contracts), or inputs
that are derived principally from or corroborated by observable market data or
other means. Level 3 inputs are unobservable (supported by no or little market
activity). The fair value hierarchy gives the highest priority to Level 1 inputs
and the lowest priority to Level 3 inputs.
Assets and liabilities measured at fair value on a recurring
basis include:
| As at June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expressed in thousands US dollars |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Other investments |
$ |
122 |
|
$ |
122 |
|
$ |
- |
|
$ |
- |
|
| Trade receivables
|
|
5,567
|
|
|
- |
|
|
5,567
|
|
|
- |
|
| Total financial assets |
$ |
5,689 |
|
$ |
122 |
|
$ |
5,567 |
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred share units |
$ |
1,999 |
|
$ |
1,999 |
|
$ |
- |
|
$ |
- |
|
| Share appreciation rights |
|
424 |
|
|
- |
|
|
424 |
|
|
- |
|
| Total financial
liabilities |
$ |
2,423 |
|
$ |
1,999 |
|
$ |
424 |
|
$ |
- |
|
Other investments
The Company holds marketable securities classified as Level 1
in the fair value hierarchy. The fair values of these other investments are
determined based on a market approach reflecting the closing price of each
particular security at the reporting date. The closing price is a quoted market
price obtained from the stock exchange that is the principal active market for
the particular security, being the market with the greatest volume and level of
activity for the assets. Changes in fair value on available for sale marketable
securities are recognized in income or loss.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 31 |
| |
|
|
Trade receivables
The trade receivables
consist of receivables from provisional silver and gold sales from the Bolañitos
and El Cubo mine. The fair value of receivables arising from concentrate sales
contracts that contain provisional pricing mechanisms is determined using the
appropriate quoted closing price on the measurement date from the exchange that
is the principal active market for the particular metal. As such, these
receivables, which meet the definition of an embedded derivative, are classified
within Level 2 of the fair value hierarchy.
Deferred share units
The Company has a
Deferred Share Unit (“DSU”) plan whereby deferred share units may be granted to
independent directors of the Company in lieu of compensation in cash or stock
options. The DSUs vest immediately and are redeemable for cash based on the
market value of the units at the time of a director’s retirement. The DSUs are
classified as Level 1 in the fair value hierarchy. The liability is determined
based on a market approach reflecting the closing price of the Company’s common
shares at the reporting date. Changes in fair value are recognized in general
and administrative salaries, wages and benefits.
Share appreciation rights
As part of the
Company’s bonus program, the Company grants share appreciation rights (“SARs”)
to its employees in Mexico and Chile. The SARs are subject to vesting conditions
and, when exercised, constitute a cash bonus based on the value of the
appreciation of the Company’s common shares between the SARS grant date and the
exercise date.
The SARs are classified as Level 2 in the fair value hierarchy.
The liability is valued using a Black-scholes option pricing model. Changes in
fair value are recognized in salaries, wages and benefits.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of financial
instrument related risks. The Board approves and monitors the risk management
process. The types of risk exposure and the way in which such exposure is
managed is provided as follows:
Credit Risk
The Company is exposed to credit risk on
its bank accounts, investments and accounts receivable. Credit risk exposure on
bank accounts and short-term investments is limited through maintaining the
Company’s balances with high-credit quality financial institutions, maintaining
investment policies, assessing institutional exposure and continual discussion
with external advisors. Value added tax receivables are generated on the
purchase of supplies and services to produce silver, which are refundable from
the Mexican government. Trade receivables are generated on the sale of
concentrate inventory to reputable metal traders.
Liquidity Risk
The Company ensures that there is
sufficient capital in order to meet short-term business requirements. The
Company’s policy is to invest cash at floating rates of interest, while cash
reserves are to be maintained in cash equivalents in order to maintain liquidity
after taking into account the Company’s holdings of cash equivalents, money
market investments, marketable securities and receivables. The Company believes
that these sources, operating cash flow and its policies will be sufficient to
cover expected short-term cash requirements and commitments.
The Company’s Mexican subsidiaries pay value added tax, IVA, on
the purchase and sale of goods and services. The net amount paid is recoverable
but is subject to review and assessment by the tax authorities. The Company
regularly files the required IVA returns and all supporting documentation with
the tax authorities, however, the Company has been advised that certain IVA
amounts receivable from the tax authorities are being withheld pending
completion of the authorities’ audit of certain of the Company’s third-party
suppliers. Under Mexican law the Company has legal rights to those IVA refunds
and the results of the third party audits should have no impact on refunds. A
smaller portion of IVA refund requests are from time to time improperly denied
based on the alleged lack of compliance of certain formal requirements and
information returns by the Company’s third-party suppliers. The Company takes
necessary legal action on the delayed refunds as well as any improperly denied
refunds.
Management believes that delays and denials with respect to IVA
refunds for El Cubo and Guanaceví are improper. At June 30, 2018, El Cubo holds
$11.0 million and Guanaceví holds $10.7 million in IVA receivables which the
Company and its advisors deem to be recoverable from tax authorities. The
Company is in regular contact with the tax authorities in respect of its IVA
filings and believes that the full amount of its IVA receivables will ultimately
be received; however the timing of recovery of these amounts and the nature and
extent of any adjustments to the Company’s IVA receivables remains uncertain.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 32 |
| |
|
|
Market Risk
The significant market risk exposures to
which the Company is exposed are foreign currency risk, interest rate risk, and
commodity price risk.
Foreign Currency Risk – The Company’s operations in
Mexico and Canada make it subject to foreign currency fluctuations. Certain of
the Company’s operating expenses are incurred in Mexican pesos and Canadian
dollars; therefore, the fluctuation of the U.S. dollar in relation to these
currencies will consequently have an impact upon the profitability of the
Company and may also affect the value of the Company’s assets and the amount of
shareholders’ equity. The Company has not entered into any agreements or
purchased any instruments to hedge possible currency risks.
Interest Rate Risk – In respect of financial assets, the
Company’s policy is to invest cash at floating rates of interest and cash
reserves are to be maintained in cash equivalents in order to maintain
liquidity. Fluctuations in interest rates impact the value of cash
equivalents.
Commodity Price Risk – Gold and silver prices have
historically fluctuated significantly and are affected by numerous factors
outside of the Company’s control, including, but not limited to, industrial and
retail demand, central bank lending, forward sales by producers and speculators,
levels of worldwide production, short-term changes in supply and demand because
of speculative hedging activities and certain other factors. The Company has not
engaged in any hedging activities, other than short-term metal derivative
transactions less than 90 days, to reduce its exposure to commodity price risk.
At June 30, 2018, there are 166,695 oz of silver and 5,624 oz of gold, which do
not have a final settlement price and the estimated revenues have been
recognized at current market prices. As at June 30, 2018, with other variables
unchanged, a 10% decrease in the market value of silver and gold would result in
a reduction of revenue of $1.0 million.
Outstanding Share Data
As of August 1, 2018, the Company had the following securities
issued and outstanding:
| |
• |
128,617,357 common shares |
|
• |
5,878,800 common shares issuable under stock
options with a weighted average exercise price of CAD$3.96 per share
expiring between May 13, 2019 and May 3, 2023. |
The Company considers the items included in the consolidated
statement of shareholders’ equity as capital. The Company’s objective when
managing capital is to safeguard its ability to continue as a going concern so
that it can continue to provide returns for shareholders and benefits for other
stakeholders. The Company manages the capital structure and makes adjustments to
it in light of changes in economic conditions and the risk characteristics of
the underlying assets. In order to maintain or adjust the capital structure, the
Company may issue new shares through private placements, prospectus offerings,
convertible debentures, asset acquisitions or return capital to shareholders.
The Company is not subject to externally imposed capital requirements.
Changes in Accounting Policies and Critical Accounting
Estimates
Accounting standards adopted during the
period:
Amendments to IFRS 2, Share-based Payment (“IFRS 2”)
On June 20, 2016, the IASB issued amendments to IFRS 2 clarifying how to
account for certain types of share-based payment transactions. The amendments
provide requirements on the accounting for: the effects of vesting and
non-vesting conditions on the measurement of cash-settled share-based payments;
share-based transactions with a net settlement feature for withholding tax
obligations; and a modification to the terms and conditions of a share-based
payment that changes the classification of a transaction from cash-settled to
equity settled.
The amendments apply for annual periods beginning on or after
January 1, 2018. As a practical simplification, the amendments can be applied
prospectively. Retrospective, or early, application is permitted if information
is available without the use of hindsight. The Company has adopted the
amendments to IFRS 2 in its financial statements for the annual period beginning
on January 1, 2018 on a prospective basis with no material impact on the
consolidated financial statements.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 33 |
| |
|
|
The Company has Performance Share Units (“PSU”) with a net
settlement feature, which permits cash settlement for withholding tax
obligations. The expense for the PSUs has previously been bifurcated with the
cash settlement portion of the expense recognized as a liability until
settlement, and the remaining expense allocated to Contributed Surplus. Upon
adoption of the amendments to IFRS 2, the PSU liability at January 1, 2018 for
the liability classified portion of $38,000 was reallocated to Contributed
Surplus.
IFRS 9 Financial Instruments (“IFRS 9”)
In November
2009, the IASB issued IFRS 9 as the first step in its project to replace IAS 39,
Financial Instruments: Recognition and Measurement. On July 24, 2014 the
IASB issued the complete IFRS 9. IFRS 9 retains but simplifies the mixed
measurement model and establishes two primary measurement categories for
financial assets: amortized cost and fair value. The basis of classification
depends on an entity’s business model and the contractual cash flows of the
financial asset.
Classification is made at the time the financial asset is
initially recognized, namely when the entity becomes a party to the contractual
provisions of the instrument.
IFRS 9 amends some of the requirements of IFRS 7, Financial
Instruments: Disclosures, including added disclosures about investments in
equity instruments measured at fair value in other comprehensive income, and
guidance on the measurement of financial liabilities and de-recognition of
financial instruments. The mandatory effective date of IFRS 9 is for annual
periods beginning on or after January 1, 2018 with early adoption permitted, and
must be applied retrospectively with some exemptions permitted.
As a result of the adoption of IFRS 9, the Company has changed
its accounting policy for financial instruments retrospectively. The change did
not result in a change in carrying value of any of the Company’s financial
instruments on transition date. IFRS 9 introduced a single expected credit loss
impairment model, which is based on changes in credit quality since initial
recognition. The adoption of the expected credit loss impairment model did not
have a significant impact on the Company’s financial statements.
The Company’s financial instruments are accounted for as
follows under IFRS 9 as compared to the Company’s previous policy in accordance
with IAS 39.
| |
January 1, 2018 |
| |
IAS 39 |
IFRS 9 |
| |
|
|
| Assets |
|
|
| Cash and cash equivalents |
Amortized cost |
Amortized cost |
| Restricted cash |
Amortized cost |
Amortized cost |
| Trade and other receivables (other than
derivatives) |
Amortized cost |
Amortized cost |
| Trade receivables (derivative component) |
Fair value through profit or loss |
Fair value through profit or loss |
| Marketable securities |
Fair value through other comprehensive income
|
Fair value through profit or loss |
| Liabilities |
|
|
| Accounts payable and accrued liabilities |
Amortized cost |
Amortized cost |
Under IFRS 9, the Company’s equity marketable securities are
designated as financial assets at fair value through profit or loss. For equity
instruments not held for trading, the Company may make an irrevocable election
at initial recognition to recognize changes in fair value through other
comprehensive income rather than profit or loss. The Company did not make any
such election.
IFRS 9 does not require restatement of comparative periods.
Accordingly, the Company has reflected the retrospective impact of the adoption
of IFRS 9 due to the change in accounting policy for marketable securities as an
adjustment to opening components of equity as at January 1, 2018.
The fair value of marketable securities is $168,000 under both
IAS 39 and IFRS 9 as at January 1, 2018, the date of initial application of IFRS
9, and is presented in Other Investments in the consolidated balance sheet. On
adoption, the unrealized gain in fair value of $127,000, previously recognized
in accumulated other comprehensive income has been reallocated to retained
earnings.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
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As a result of the adoption of IFRS 9, the Company’s accounting
policy for financial instruments has been updated as follows:
Financial Instruments
The Company recognizes financial assets and financial
liabilities on the date the Company becomes party to the contractual provisions
of the instruments. A financial asset is derecognized either when the Company
has transferred substantially all the risks and rewards of ownership of the
financial assets or when cash flows expire. A financial liability is
derecognized when the obligation specified in the contract is discharged,
cancelled or expired.
The Company classify and measure financial assets (excluding
derivatives) on initial recognition as described below:
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Cash and equivalents and restricted cash include cash and
term deposits with original maturities of less than 90 days are classified
as financial assets at fair value through profit and loss and are measured
at fair value. Unrealized gains and losses related to changes in fair
value are reported in income; |
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Trade and other receivables are classified as
and measured at amortized cost using the effective interest method, less
impairment allowance, in any; |
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Investments in equity instruments are designated at
financial assets through profit or loss and are recorded at fair value on
settlement date, net of transaction costs. Subsequent to initial
recognition, changes in fair value are recognized in income.
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Derivative financial instruments, including embedded
derivatives in trade receivables measured at amortized cost, are recorded in the
consolidated balance sheets at fair value. Subsequent to initial recognition,
changes in estimated fair value at each reporting date are recognized through
profit or loss.
A financial liability is derecognized when the obligation
specified in the contract is discharged, cancelled or expired. For financial
liabilities, IFRS 9 retains most of the IAS 39 requirements and since the
Company did not have any financial liabilities designated at fair value through
profit or loss, the adoption of IFRS 9 did not impact our accounting policies
for financial liabilities.
IFRS 15, Revenue from Contracts with Customers
(“IFRS 15”)
On May 28, 2014, the IASB issued IFRS 15. The new standard is
effective for annual periods beginning on or after January 1, 2018 with early
adoption permitted. IFRS 15 will replace IAS 11 Construction Contracts,
IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15
Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
Assets from Customers and SIC 31 Revenue – Barter Transactions Involving
Advertising Services.
The standard contains a single model that applies to contracts
with customers and two approaches to recognizing revenue: at a point in time or
over time. The model features a contract-based five-step analysis of
transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have also been introduced, which may affect
the amount and/or timing of revenue recognized.
On April 12, 2016 the IASB issued Clarifications to IFRS 15,
Revenue from Contracts with Customers, which is effective at the same time
as IFRS 15. The clarifications to IFRS 15 provide additional guidance with
respect to the five-step analysis, transition, and the application of the
standard to licenses of intellectual property.
The Company adopted IFRS 15 and the clarifications effective
January 1, 2018 with no material impact on the consolidated financial
statements.
Dore sales
IFRS 15 requires that revenue from
contracts with customers be recognized upon the transfer of control over goods
or services to the customer. The recognition of revenue upon transfer of control
to the customer is consistent with the Company’s revenue recognition policy as
set out in Note 3(l) of the 2017 Annual Financial Statements, as the condition
is generally satisfied when title transfers to the customer. As such, upon
adoption, this requirement under IFRS 15 resulted in no impact to the Company’s
financial statements as the timing of revenue recognition on dore sales is
unchanged.
Concentrate sales
The Company assessed all of its
existing concentrate sales agreements and determined that there is no change in
the timing of revenue recognition, as control transfers to the smelting
companies at the time of delivery, consistent with the Company’s current
accounting policy as set out in Note 3(l) of the 2017 Annual Financial
Statements.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 35 |
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Changes in IFRS not yet adopted:
New
standards and amendments have been proposed; however, they do not impact the
condensed consolidated interim financial statements and are not anticipated to
impact the Company’s annual consolidated financial statements. The nature and
impact of each new standard and amendment applicable to the Company are
described below:
IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the
IASB published a new standard, IFRS 16, Leases, eliminating the current dual
accounting model for lessees, which distinguishes between on-balance sheet
finance leases and off-balance sheet operating leases. Under the new standard, a
lease becomes an on-balance sheet liability that attracts interest, together
with a new right-of-use asset. In addition, lessees will recognize a
front-loaded pattern of expense for most leases, even when cash rentals are
constant. IFRS 16 is effective for annual periods beginning on or after January
1, 2019, with earlier adoption permitted. The Company has begun a preliminary
assessment however, the Company is not able at this time to estimate reasonably
the impact that the amendments will have on the financial statements.
Critical Accounting Estimates
The preparation of
financial statements requires the Company to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant areas
requiring the use of management judgment relate to the determination of
mineralized reserves, plant and equipment lives, estimating the fair values of
financial instruments and derivatives, impairment of non-current assets,
reclamation and rehabilitation provisions, recognition of deferred tax assets,
and assumptions used in determining the fair value of share-based compensation.
See “Critical Accounting Estimates” in the Company’s annual
MD&A for the year ended December 31, 2017 for a detailed discussion of the
areas in which critical accounting estimates are made.
Controls and Procedures
Changes in Internal Control over Financial Reporting
Management, including the CEO and CFO, have evaluated the Company’s
internal controls over financial reporting to determine whether any changes
occurred during the period that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial
reporting.
During the six months ended June 30, 2018 there have been no
changes in internal control over financial reporting that that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
| ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS |
PAGE 36 |
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