Endeavour Silver back in black in Q1

Endeavour Silver (TSX: EDR; NYSE: EXK) has swung back into profit after a disappointing fourth quarter, due to lower costs at all three of its silver-gold underground mines in Mexico.

“Endeavour returned to positive earnings in the first quarter of this year that was largely due to our improved operating cash flow and earnings before interest, taxes, depreciation and amortization (EBITDA). And that was driven by our reduced cash-operating cost and all-in sustaining costs, compared to the last quarter of last year,” Brad Cooke, Endeavour’s CEO, said on a conference call.

Adjusted earnings were US$1.4 million, or US2¢ per share, coming in above the analyst average consensus of negative US1¢ per share and the fourth-quarter’s adjusted loss of US11¢ per share. But compared to the same period last year, which Cooke points out was a “strong first quarter,” adjusted profit was down 75%.

Revenue over the previous quarter grew 5% to US$51.1 million, as the producer sold 1.86 million oz. silver and 15,799 oz. gold at slightly improved average realized prices of US$17.11 per oz. silver and US$1,221 per oz. gold.

EBITDA came in at US$16.4 million and operating cash flow before working capital changes was US$13.7 million, both up from the last three months of 2014, after lower operating costs and a weaker Mexican peso.

Cash costs and all-in sustaining costs, net of gold credits, both improved over the quarter to US$7.17 and US$13.32 per oz., but were below the levels achieved in the earlier year.

But the miner — which operates the Guanacevi mine in Durango state, and the Bolanitos and El Cubo mines in Guanajuato state — has shown its ability to turn around operations and bring down costs.

It transformed the historic Guanacevi mine — previously struggling to process 100 tonnes per day of old tailings in 2004 — into a modern mine, now producing at a rate of 1,200 tonnes per day. This was accomplished through exploration and the development of four new mines, of which one is mined out.

The company repeated this success at the Bolanitos mine that it acquired in 2007. It uncovered six orebodies, developed one new mine, upgraded the 500-tonne-per-day plant to 1,600 daily tonnes in 2012 and is developing the L-Asuncion and La Joya deposits.

Due to the development, the firm is ramping down the mine to 1,200 tonnes per day, and 1,000 tonnes per day in the third quarter.  

At El Cubo, acquired in 2012, Endeavour launched a US$67-million, 18-month capital investment program aimed at increasing throughput, grade and output to improve operating cash costs. It discovered one orebody, and rebuilt and expanded the 1,100-tonne-per-day plant to 1,500 daily tonnes.

The plant is undergoing a second expansion to 2,200 tonnes a day, set for completion by the end of June. The additional ore for the plant will come from the V-Asuncion deposit, which is under development. The higher production should gradually bring down operating costs at El Cubo and lower consolidated costs, Cooke says.

Meanwhile, Endeavour has released a positive preliminary economic assessment on the Terronera silver-gold property in Jalisco state. The study envisions Terronera as a 1,000-tonne-per-day underground operation, generating sales of 20.4 million oz. silver and 138,500 oz. gold over a 10-year life. Estimated start-up costs are $65.4 million. The company plans to advance the project — which represents its next leg of growth — to prefeasibility level by year-end.

“If pushing the production up at El Cubo to drive our costs down creates short-term value for stockholders, I think the long-term value proposition is this prefeasibility study underway at Terronera, and hopefully going to the board for a production decision later this year,” Cooke says.

Endeavour is also seeking merger and acquisition opportunities, with a focus on Mexico, Peru, Chile and North America.

Despite this, Raymond James analyst Chris Thompson says he views Endeavour as a “high-cost producer, with a limited near-term growth profile, and relatively short reserve-supported mine lives.” He has a $3.30 target and a “market perform” rating on the stock.  

Endeavour recently closed up 5% at $2.49 per share.