Endeavour gets El Cubo back on track

Endeavour Silver (EDR-T, EXK-N) is continuing its mission of Mexican rejuvenation. 

The latest beat-up mine to feel Endeavour’s Midas touch is El Cubo in Guanajuato, Mexico, with the refurbished mill now up and running.

The Tajo plant was recommissioned on May 31, which is an impressive feat, considering that the overhaul of the mill began just seven months earlier. What is even more impressive for investors given the current scarcity of capital available to miners is that the work was completed on time and on budget. 

When Endeavour acquired the project last year, Tajo was only equipped to process 400 tonnes of ore per day. But after the revamp, it can handle as much as 1,500 tonnes. 

The broader capacity will allow it to handle ore from another of Endeavour’s rejuvenation projects: the Bolanitos mine, which is also in Guanajuato near the town of La Luz. 

El Cubo represents the company’s third attempt at breathing new life into an old mine. It has already had success, first with the Guanacevi mine and later with Bolanitos — which both saw increased production and profit margins shortly after Endeavour took over. 

Since the turnaround at Bolanitos the mine has been producing more ore than the 1,600 tonnes per day the mill can handle. It has been stockpiling access ore that will soon be processed at El Cubo. 

The mill at Tajo is processing between 1,100 and 1,200 tonnes from El Cubo, and will take on another 350 tonnes of ore from Bolanitos in July.

Processing Bolanitos ore means more work ahead for Endeavour. On top of finishing up the plant and infrastructure to support El Cubo, which should be completed in July, it will upgrade the flotation leaching circuits that will be used to treat material from Bolanitos. This should be completed by year-end.

In the meantime, Tajo’s refurbished state allows Endeavour to stop processing ore at the Las Torres plant. It had been leasing Las Torres from Fresnillo to generate cash flow from El Cubo, with Tajo ongoing. 

Endeavour bought El Cubo from AuRico Gold (AUQ-T, AUQ-N) — along with the Guadalupe y Calvo exploration project — for $200 million last July. Once the ink was dry on the deal Endeavour set about transforming the mine from a money eater into a money-maker.

It devised a two-step strategy to bring about a turnaround that, all told, could take two years to see through to fruition.

Its early success has been marked by improving production grades, falling lost accident time and declining operating costs. Last year the company produced 304,000 oz. silver and 4,893 oz. gold from the mine at cash costs of US$35.27 per oz. silver.

It plans to produce between 900,000 oz. and 1 million oz. silver this year, along with 14,500 to 16,000 oz. gold at cash costs “significantly” lower than last year. Endeavour is also on track to meet its company-wide production guidance of 5.3 million oz. silver production for 2013. 

Endeavour will spend $67.1 million on the project when all is said and done — which includes $34 million to upgrade mining equipment and accelerate exploration — and $33.1 million to modernize the plant, buildings and surface infrastructure. The company has $42 million in working capital and has been financing its projects out of cash flow generated from its mining operations. 

Endeavour says most of the capital expenditure earmarked for El Cubo has already been spent, and that recent cost-cutting programs have helped keep it in strong financial shape. On top of its working capital, it has $39 million of credit available on its $75-million revolving credit line.