Meghan Brown - Director of Investor Relations Bradford James Cooke - Chief Executive Officer and Director Daniel W. Dickson - Chief Financial Officer and Principal Accounting Officer

Benjamin Asuncion - Haywood Securities Inc., Research Division Bhakti Pavani - Euro Pacific Capital, Inc., Research Division Howard Flinker Christos Doulis - PI Financial Corp., Research Division Andrew Kaip - BMO Capital Markets Canada

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Endeavour Silver Second Quarter 2014 Financial Results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Meghan Brown, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavour Silver Corp.'s Second Quarter Conference Call. On the call today, we have the company's CEO, Brad Cooke; as well as our CFO, Dan Dickson. Before we get started, I'm required to remind you that certain statements on this call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in 2014 and future years, including revenue and cost forecasts, silver and gold productions, grades and recoveries and the timing and expenditures required to develop new silver mines and mineralized zones. 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. With that, I'll turn the call over to Endeavour's CEO, Brad Cooke.

Great. Thanks, Meghan. And welcome, everybody, to this conference call on Endeavour's financial and operating results for the second quarter of 2014. As usual, I will run through the highlights of our second quarter and make a couple of comments on our outlook for the third quarter and then open it up for questions and answers. Also on the line is our CFO, Dan Dickson, for anybody wanting to know more about numbers. So right off the top, let's talk about operations. Silver production in the second quarter was up year-on-year to 1.67 million ounces of silver. Gold production was down 24% year-on-year to 15,000 ounces compared to the second quarter of last year. And our silver equivalent production dipped a little bit, 6%, to 2.6 million ounces in the second quarter compared to the Q2 of last year. Our bullion inventories at quarter end were about 120,000 ounces of silver and 270 ounces of gold. In bullion, concentrate inventories were about 87,000 ounces of silver and 1,200 ounces of gold. Those numbers are down a bit from our Q1 inventories but up sharply from our year-end inventories. Those operating numbers drove our financial results for the second quarter, with revenues down 23% to $55 million, primarily due to the metal prices. Mine operating cash flow dipped 25% to $20 million. Cash flow from operations, however, only dipped 4% to $12 million. EBITDA was down 20% to $13 million. Our adjusted loss of $0.3 million is down -- or an improvement, significant improvement from the $2.7 million loss in Q2 last year but down from our gain in Q1. And similarly, the net loss of $0.3 million in Q2 this year was comparable to the $0.4 million loss in Q2 last year and down from our gain in Q1 of this year. All in all, our consolidated quarterly and year-to-date silver production was up relative to 2013, thanks to higher silver grades and recoveries, offset by lower tonnage. I should point out that lower tonnage processed in Q2 this year compared to last year was primarily the result of returning the leased Las Torres plant near our El Cubo line. Last year, if you recall, we were able to significantly boost the Bolañitos mine production and run those extra ore tonnes over to the Las Torres plant for processing. This year, we're simply running the Bolañitos mine and plant at its 1,600 tonne per day capacity, hence the reduction in tonnage throughput year-on-year. Our quarterly and year-to-date gold production is down compared to last year, and again that's directly related to the overproduction from the Bolañitos mine last year, the result of lower grades and tonnage throughput offset partly by higher recoveries. And so the silver equivalent production is down a bit on a quarterly basis, up a bit on a yearly basis. And we've commented on what's going on there, the reduction in Bolañitos this year, largely because of giving back the Las Torres plant and offset by increases in production from both Guanaceví and El Cubo. We did, unfortunately, have 2 fatalities in late March and early April at El Cubo. And they did, unfortunately, impact our operating numbers and, therefore, our financial numbers. Because safety is #1 at Endeavour, we immediately put each of the 3 mines into temporary closures to completely review and retrain our safety procedures and policies throughout the workforce. And we've also, since that time, conducted 2 independent reviews of our safety programs and hired a full-time safety specialist, who's currently working with our mine safety teams on a full 1-year contract to really drive home the point that safety is #1. And we've also been implementing other safety training procedures, as recommended by Synergy [ph], an independent safety consultant. So we do expect that our first half performance, both the operating performance and the financial performance, is probably a good guideline for our second half performance. We had outperformance in Q1. That was an -- my intent. We wanted to put the pedal to the metal in Q1 and really get a head start on the year. Q2 obviously was a little bit of a step back from our Q1 performance, both operationally and financially, but on average, the first half, I think, is what we expect to do in the second half. And so we're still well within our guidance in terms of production and costs for the year. Since completing the rebuild of the El Cubo mine plant and infrastructure in Q2 last year, we have focused on trimming our operating costs and expanding our profit margin. And I would like to point out that we've been very successful at growing our free cash flow and our balance sheet. Since June 30 of last year, we've actually added $33 million of net cash to the balance sheet. And even in Q2, while our cash balance didn't change, remained around $44 million, we did actually pay off more of the debt on our line of credit. So our outlook to year end remains very positive on both the metal prices as well as our silver and gold production. We're very aggressively exploring brownfield targets around all 3 mines to boost our reserves and resources. And at San Sebastian, which was our greenfields discovery of the last 2 years, we are focused on continuing to expand that resource by aggressively drilling there this year in advance of completing our mine permitting and an economic study later this year. So operator, I think that is the sum total of my comments. Let's open the call up for questions and answers.

[Operator Instructions] Your first question today comes from Benjamin Asuncion of Haywood Securities. Benjamin Asuncion - Haywood Securities Inc., Research Division: I just have a few questions, just some housekeeping issues here. Looking at Bolañitos and Guanaceví on the quarter, when we look quarter-on-quarter on the operating costs on a per tonne basis, we saw an increase. Could you give us some color on what drove those increases and whether or not some of those drivers are sustainable or sort of more onetime impacts in the quarter? Daniel W. Dickson: Ben, it's Dan Dickson, the CFO. Thanks for your question. We did have a couple not necessarily onetime issues, but PTU bonuses get settled in the second quarter. And from what we accrued for 2013, we actually settled for a little higher at both Guanaceví and Bolañitos, even higher so at Bolañitos and Guanaceví, which drove really our cost per tonne from $85 up into about the $80, $89 range for Bolañitos and then the remaining difference, about $4, which is variance, regular variance with regard to day-to-day operations. I think, going forward, for Bolañitos, still in the 80 -- $85 to $88 range is fair. And for Guanaceví, I'd expect it to still stay around the $105 -- $103 to $105 range for the back half of the year, is our expectation and something that we're focused to deliver on.

Thanks, Dan. This is Brad. And just for the others on the call, I'd like to clarify that PTU is the annual profit-sharing tax with the Mexican workforce. And it occurs once a year, usually in the second quarter and, therefore, is a once-a-year charge. Benjamin Asuncion - Haywood Securities Inc., Research Division: Perfect. And just one other question here, just on the recovery side. So far in the first half of this year, we've seen some stronger recoveries both at Guanaceví and Bolañitos. Can you give us some color on what's driving those...

Well, at Guanaceví, we are -- have seen over the last year, and a bit, slowly improving recoveries as we tweaked the process plant. We're also gaining the benefit of our dry stack tailings not only in that we're recycling all of that water back into the plant but by stacking the dry tailings on top of the old wet tailings. We're actually compressing the wet tailings and squeezing a little bit of gold- and silver-bearing recycled water out of them, and that's helping the overall recoveries. At Bolañitos, it's nothing more than improved recoveries in the plant. We've tweaked the process. And obviously, it's a continuous thing. We'd always look to see if we can continue to improve recoveries. Benjamin Asuncion - Haywood Securities Inc., Research Division: Okay, perfect. And then just the last thing, just at El Cubo. Could you just give us some color on the progress of development and kind of how you are in relation to your budget to, let's say, obtaining reserve grades? And looking back at guidance at the beginning of the year, you were talking about the upper end of guidance for throughput was around the 1,550. Kind of where development sits now when you think you'll be able to obtain that kind of run rate.

Yes, thanks, Ben. We had made great strides on both tonnes and grades at El Cubo in Q4 last year and Q1 this year. On Q2 was a step backwards, unfortunately, in both tonnes and grade, largely due to the shutdown of the Santa Cecilia mine after the fatality at El Cubo. And we're trying to make up for lost time. We haven't changed our guidance there at all. We are still hoping, expecting to get to 1,500-plus tonnes per day by year end, but we do have a little bit of catch-up to do there.

The next question comes from Bhakti Pavani of Euro Pacific Capital. Bhakti Pavani - Euro Pacific Capital, Inc., Research Division: Just a couple of questions. Now the metal prices still seem to be depressed, so -- and you have been implementing a lot of cash -- sorry, cost-cutting strategies. So what would be your strategy going forward? How do you intend to manage the cash costs and all sustaining costs? Or is there any further room for decreasing those costs?

There's always room to cut costs, but it's always in the context of the metal prices. And so when the gold and silver prices went over a waterfall last April, a year ago April, and stayed low for much of last year, we responded quickly and accordingly to slash all of our discretionary costs across-the-board. And many of those cost-cutting measures are sustainable. Where we're looking at increasing our spending this year is on long-term sustainable expenditures, both capital and exploration. For instance, we launched a very significant mine redevelopment program last year and the year before at El Cubo, put the brakes on some of that, and now we're back, I think, aggressively developing new areas we've discovered in El Cubo to facilitate long-term ramp-up of production there. And in terms of exploration, we spent close to our budget last year. And we only came with a fairly careful $10.5 million budget, I believe, this year. And thanks to our ability to dramatically increase our free cash flow over the last 4 quarters, we did decide at the board level late Q1 that we would slowly increase our exploration and capital spending in Q2, Q3 so long as we were getting the free cash flow that -- that is needed to basically fund those programs. And as you can see from my Q2 numbers, we were able to significantly increase our capital exploration spending without at all impairing the balance sheet. In fact, we improved the balance sheet in Q2. Bhakti Pavani - Euro Pacific Capital, Inc., Research Division: So the plan to improve the balance sheet and paying down the debt is still on the cards, right?

Oh, yes, yes, yes. We'd like to see $25 million or less on the line of credit by year end and $50 million or more in cash by year end. That's been very much our agenda, to have a stronger balance sheet this year, and we've been very successful at improving it. So now let's talk about my views on metal prices and, therefore, costs going forward: We're bullish on gold and silver. We think this year is a turning point for the precious metals. We're not quite seeing it yet, but the -- even the move from kind of $19 silver to $20 and change is very significant for our company. If you look at our internal cash flow models, our EBITDA model for the company is $11 million of additional EBITDA for every $1 move in the price of silver this year. That's on an annualized basis. So that's a pretty significant jump in EBITDA, and it funds more capital exploration. I expect, going forward, that Q3 and Q4, we are going to see more progress in the silver and gold prices. And every $1 in the silver price, every, what, $50 in the gold price is a very significant impact on our bottom line. So we feel comfortable now with our accelerated capital and exploration spending in Q2 and Q3. Most likely, it will be completed in Q4 and the spending will actually dip again in Q4 as we bring, hopefully, San Sebastian to the board for a decision. And then next year, in the context of higher metal prices, we're again hoping that we can make a positive decision to develop a fourth line at San Sebastian. Bhakti Pavani - Euro Pacific Capital, Inc., Research Division: That sounds good. Now that you have mentioned that you were -- as you have more free cash flows, the plan is to pay down the debt and also to increase the capital spending program. So when it comes to capital spending, are you focusing only on Sebastian? Or is there -- or how is that capital allocated over the 3 mines and to the drilling?

Sure. This year, the lion's share of capital is mine development, and the lion's share of that is El Cubo. This year, the exploration budget is largely Bolañitos, El Cubo and San Sebastian, with a little bit for Guanaceví. Bhakti Pavani - Euro Pacific Capital, Inc., Research Division: Okay. Also, you are almost halfway through the third quarter. Is there any kind of issues that you have been facing? Because a couple of the other companies that I spoke to have been having some issues in the area. So have you, to date, faced those?

Well, there's nothing new. I mean, obviously, we faced the safety issues at the end of Q1. And I -- we feel that we've fully dealt with those, but safety is an ongoing thing. It's not a static issue. It's something that you try and deal with every day, month and year. Other than that, there's really nothing new on the horizon for us. The operations are actually running very well.

[Operator Instructions] The next question comes from Howard Flinker of Flinker & Co.

I have 2 arithmetic questions. Last year, in the second quarter, mark-to-market derivative liabilities and mark-to-market loss on contingent liabilities, are those both -- are both of those the Mexican tax, or is that something else? Daniel W. Dickson: Howie, this is Dan, the CFO. Those are something else. The mark to market on derivative liabilities were for warrants that we had -- that were outstanding that were priced in Canadian dollars and we report in U.S. dollars so we recognize that derivative liability. And the contingent liability is payments owed to AuRico should gold average $1,900, $2,000 and $2,100 by July 2015. At this point in time, it doesn't look like gold's going to average $1,900, so we're not probably going to have to make that $10 million payment, and the following, 10 and 10 [ph]. So the contingent liability is held at about $100,000, which is valued out by a third party for us.

And what are the trigger prices again to AuRico? Daniel W. Dickson: It, gold has got to average $1,900 for a $10 million payment, $2,000 for another $10 million payment and then $2,100 average over a year to make those payments. So right now, it would be great if we could pay that, but it's not looking like we're going to.

And the terminus of that bonus is the end of '15? Daniel W. Dickson: July 12, 2016 -- sorry, July 12 -- sorry, July 12...

I bet you $0.05 you have to pay it.

Howie, we would be thrilled to make a $10 million payment to AuRico because, if we do, it means that gold will average $1,900 or better between now and next July.

That's correct, right. I knew what I said. I'll add something else that you probably did not notice but -- and most people did not pick up. Yesterday, some guy whose name I can't remember, like SCRocco (sic) [SRSrocco] or something like that, published inventory data at the Shanghai exchange for the silver inventory. And he had a few photos of the image from the monitor, where he had receipts or totals or whatever from the Shanghai exchange. I don't have all the details of administration in Shanghai. Maybe you can help me. But between March of last year and June of this year, inventories of silver in the exchange were up 90%, 9-0. It's a rather astonishing number. And I don't know. As I said, I don't know how they trade silver in Shanghai. I think you have to deliver physical product to the buyer or transfer the actual ownership of physical product you have in the -- at your warehouse to the buyer so that the physical product remains but it was extracted. And it's rather startling to me that there would be almost no inventory left in Shanghai. If it's true, and so far I tend to believe them, that bodes really well for silver in the very [indiscernible] future.

Yes, thanks, Howie. Obviously, I'm not an expert on silver and gold inventories worldwide, but my only comment here is that last year was quite a watershed fall in the prices of both metals. And I suspect that people depositing silver into the inventory in Shanghai lost interest quickly and, in fact, started drawing silver away from the -- basically, the tight ring from sellers to buyers is what I'm saying and which explains the drop in inventory in Shanghai. In fact, also what happened last year is that India shied away from gold, but it went [indiscernible], and that might be another...

They bought extra silver because the import duty was in gold.

Correct.

Even so, if in Shanghai -- if those numbers are correct in Shanghai, I know they can't go below 0. And it took only 15 or 16 months to get from 100% to 10%.

Yes...

If it's true, there's not much time left before demand emerges. We'll know pretty soon. It could be a phony.

Well, one of the reasons I'm bullish...

It could be a phony, but the number was so striking, it really caught my eye and I thought I'd pass it on.

Right. Thanks, Howie.

The next question comes from Christos Doulis of PI Financial. Christos Doulis - PI Financial Corp., Research Division: Brad, just a quick question on cost. It was brought up a little bit earlier, but I didn't hear your comment on Cubo. I noticed that the El Cubo cost seemed quite a bit higher in the quarter. I've got it at $112 versus $92 in the previous quarter. Any comment here? Is this a -- are we going to see it come back down again? Is this the bonus that you're referring to? Is that what's driving this? Or are -- should we expect higher costs above that $92 at Cubo in the fourth -- going forward? Daniel W. Dickson: Christos, it's Dan. Yes, with El Cubo, it's more of a function of tonnes, of the drop in tonnes and us shutting down the Santa Cecilia area. It took a long time for us to get that up and running to where we saw it in Q1. So we're kind of eating through a lot of costs with guys not producing the same tonnes. We do expect that cost per tonne to come back into -- we budget at $95 for the year. We expect that to come back down below $100 per tonne in Q3 and Q4. It's just a function if we can get both tonnes out or not. Like Brad said, everything so far in Q3 has been steady as she goes, so hopefully it continues.

[Operator Instructions] The next question comes from Andrew Kaip of BMO Capital Markets. Andrew Kaip - BMO Capital Markets Canada: Brad, I've got just one question, and it has to do with your corporate expenses. They've been trending upward over the last couple of quarters, and I'm wondering if you can provide some insight into where you expect them through the remainder of the year. Daniel W. Dickson: Andrew, it's probably a good question for me. I think, if you look over the past 4 quarters, the trend up, and you'll see it in the note, the G&A note, is actually on a stock-based comp basis. So we actually give out -- on an annualized basis at the AGM, we provide options to staff, and 20% vests immediately. So you'll always see that Q2 is our highest quarter for stock-based comp, and then 20% vests over time. But there's a breakdown between labor and direct charge of stock-based comp and depreciation. And I think, if you see it on a direct-charge basis, relatively flat obviously even if you look at over the 8 quarters. Same for labor, relatively flat. We had about 2, 3 quarters ago some bumps in labor related to some severance costs, but in general, our G&A is relatively flat. And we expect, with stock-based comp, to be about $10 million, $11 million for the year.

There are no further questions at this time. I will now hand the call back over to Bradford Cooke for closing comments.

Well, thank you, operator. And thank you, everybody, for listening in. We're looking forward to a more bullish Q3 and Q4 both in terms of gold and silver prices and in terms of our financial and operating performance. So we'll talk to you in 3 months. Thank you.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.