Endeavour improves Terronera’s metrics

Endeavour Silver (TSX: EDR; NYSE: EXK) has tabled an updated prefeasibility study (PFS) for its Terronera silver project, 40 km northeast of Puerto Vallarta, that estimates higher revenues and a longer mine life, while lowering cash costs.

Endeavour published the initial study in early 2017. Using an US$18 per oz. silver price, it gave the project a US$78.1-million, after-tax net present value (NPV) at a 5% discount rate, and a 21% after-tax internal rate of return (IRR).

The economics of 2017 were based on updated reserve and resource estimates the company released along with the study. According to the 2017 report, the project contained 4.06 million probable tonnes grading 207 grams per tonne silver and 1.95 grams gold for 27 million oz. silver and 255,000 oz. gold.

The project also had 3.95 million indicated tonnes at 232 grams silver and 2.18 grams gold for 29.53 million oz. silver and 277,000 oz. gold, as well as 720,000 inferred tonnes grading 309 grams silver and 1.48 grams gold for 7.15 million oz. silver and 34,000 oz. gold.

According to the original study, the plant would process 4.1 million tonnes over seven years, producing 22.6 million oz. silver and 185,000 oz. gold.

Bradford Cooke inspects core at the Terronera core shack. Credit: Endeavour Silver.

“The differences from that one to this one are across the board,” Endeavour president and CEO Brad Cooke says in an interview with The Northern Miner. “A bigger project with a lot more mine life gives you a higher financial return.”

The new study features a US$117.8-million, after-tax NPV at a 5% discount rate — a 51% increase over the previous study — and a 23.5% after-tax IRR.

Those numbers come from expanded reserves and resources. In the latest report, Terronera now contains 4.7 million probable tonnes grading 224 grams silver and 2.28 grams gold for 33.8 million oz. silver and 342,000 oz. gold.

It also has 4.36 million indicated tonnes at 239 grams silver and 2.53 grams gold for 33.43 million oz. silver and 354,000 oz. gold, as well as 1.07 million inferred tonnes grading 252 grams silver and 2.38 grams gold for 8.66 million oz. silver and 82,000 oz. gold.

According to the report, Endeavour’s plant would process 4.7 million tonnes over 9.5 years, producing 27.9 million oz. silver and 268,000 oz. gold. Although silver recoveries drop 3% in the report to 84.6%, gold recoveries rise 8% to 80.4%, and silver-equivalent production rises 35% to 48 million oz. silver.

A core sample at Terronera’s core shack. Credit: Endeavour Silver.

The company lowered its anticipated cash costs 95% to US15¢ per oz. silver. It also dropped its all-in sustaining costs 71% to US$1.36 per oz. silver.

Cooke says the biggest changes to the economics happened when Endeavour added its second vein discovery, named La Luz. Although La Luz has slightly lower silver grades than the main Terronera orebody, its gold grades are much higher, meaning its silver-equivalent grades roughly triple Terronera’s.

The updated study includes results from 2016’s US$4.1 million, 18,800-metre drill campaign that were not in the original study. The company would go on to spend US$1.9 million in 2017 on mapping, sampling and drilling at Terronera project, including 5,800 metres drilled in 25 holes on La Luz.

The La Luz vein is 2.2 km northeast of the Terronera vein and is narrower, but shallower. The company has defined it 600 metres across and 250 metres deep, and it is open to depth.

“We’ve done a bunch of drilling this year,” Cooke says. “Our biggest intercepts are in what looks like a feeder zone down at 400 metres’ depth.”

The company will wrap up its 2018 drill program at the end of September. It started with a 10,000-metre infill and step-out campaign in the first half of the year, and followed up with a second 10,000-metre campaign, but stopped drilling just shy of 9,000 metres, after expanding Terronera’s inferred resources and upgrading substantial tonnes to reserves.

Endeavour staff presents during a site visit to Terronera in Jalisco, Mexico. Credit: Endeavour Silver.

It also wanted to defer part of the budget to next year, in light of a cost-cutting program launched in August that resulted in changes at all its projects and offices.

Cooke says the program is a response to a downturn in silver prices.

“This is a very short-term, cost-cutting exercise,” Cooke says. “We’ll see real progress in the decline of the U.S. dollar and the rise of commodities, starting in December.”

As part of the initiative, the company has delayed hiring for certain positions at Terronera and will not begin earthworks on the road or plant site until it has received the government permits for its mine dumps and plant tailings.

The Mexican government granted Endeavour permission to build its plant last year, but it needs approval for water.

“We want to put our mine dumps and plant tailings in valleys that have seasonal drainage,” Cooke says. “Those mines and dumps permits we believe are coming in weeks, not months, but we haven’t received them yet.”

The company is optimizing its crushing circuit and reviewing power alternatives. It’s doing detailed engineering studies on grid power versus liquefied natural gas, and could opt for a plan that uses both — first gas, and then grid power.

It also wants to raise US$50 million of debt for its US$75-million initial capital expense. The company has an offer for US$30 million that Cooke says it may accept once it has its permits. It is working on securing the remaining US$20 million.

Once it has permits and debt financing, it will bring the project to the board for a development decision. Cooke expects this by early December 2018. He adds that because the company has already rolled out several underground silver mines of a similar scope, Endeavour will skip a feasibility study.

“The studies I mentioned between now and December are actually feasibility-level studies, but they’ll be completed internally, and we don’t plan to publish a full feasibility report,” Cooke says. “The bankers are happy with the level of costing in the prefeasibility because most of it is actually feasibility-level costing.”

Shares of Endeavour are trading at $2.99 with a 52-week range of $2.50 to $4.40. The company has a $381-million market capitalization. It has four mines operating in Mexico, and expects Terronera will increase production by 50%.