Galina Meleger - Director, Investor Relations Dan Dickson - Chief Financial Officer Godfrey Walton - President and Chief Operating Officer

Heiko Ihle - H.C. Wainwright & Co. Chris Thompson - PI Financial

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. 2018 Q2 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operation Instructions] I would now like to turn the conference over to Galina Meleger, Director of Investor Relations. Please go ahead.

Thank you, Sabi Good morning, everyone, and welcome to the Endeavour Silver Corp. 2018 second quarter financial results conference call. With me on the line today, we have the company’s Chief Financial Officer, Dan Dickson; and our Chief Operating Officer, Godfrey Walton. Our Chief Executive Officer, Bradford Cooke, will not be joining today’s earnings call as he is traveling. However, he is always reachable by e-mail if you have any further questions after the call today. 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 2018 and future years, including revenue and cost figures, silver and gold production, grades and recoveries and the timing and expenditures required to develop new silver mines in mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information, other than as required by applicable law. On behalf of Endeavour Silver, I would like to thank you for joining our call today. And I’ll now turn it over to our CFO, Dan Dickson.

Thanks very much, Galina, and welcome, everybody, to our Q2 financial results call. I’d like to start with a brief overview of the results released this morning, some updates on our ongoing projects, and then we’ll open it up to Q&A. We did release our production numbers in early July and believe we are in position to attain our production guidance for 2018. For the six months ended June 30, we produced a total of 4.7 million silver equivalent ounces and expect production improvement in the second-half of the year at El Compas achieves commercial production and Guanacevi’s performance improves. On a quarter-over-quarter basis, silver production was up 19% to 1.36 million ounces and coal production was up 5% to 13,674 ounces. Guanacevi has continued to lag management’s expectations, but we’re starting to see incremental improvement. The productivity optimization program that was launched in January is now complete and we’re optimistic that we’ll see benefits of that program in the second-half of 2018. We’ve developed over a kilometer towards that Milache ore body, which will help increase mine output and lower cost on a per unit basis. El Cubo and Bolanitos, both continue to performance as planned or better. Direct production cost per tonne in Q2 increased 3% compared to the same period last year. The higher production cost per tonne were driven mainly by Guanacevi’s performance, but also offset by the improvement at El Cubo. The improved metrics at El Cubo resulted a 9% decrease in consolidated cash cost per ounce falling to $7.61 per ounce. Similarly, all-in sustaining costs decreased 16% to $17.28 compared to Q2 2017. The drop is related to the lower cost on a per ounce basis and lower capital expenditures, offset by higher G&A costs out of the corporate office here in Vancouver. Revenue for the quarter increased 19% to $38.8 million from sales of 1.26 million ounces of silver and 13,800 ounces of gold, averaging $17.16 for silver ounce and $1,270 per gold ounce. On a year-to-date basis, our revenue now totaled $79.1. After quarterly cost of sales of $34.2 million, mine operating earnings amounted to $4.6 million from operations in Mexico. The 26% increase in our cost sales was primarily due to increased depreciation and depletion on Guanacevi operation. If we had to exclude depreciation and depletion of $7.9 million, our share-based payment and our inventory write-downs, mine operating cash flow before taxes was $14.9 million in the second quarter, which represents a 69% increase from the same period last year. For Q2, overall, we reported a net loss of $5.7 million, or $0.04 a share, which was primarily driven by higher depreciation and depletion and a foreign exchange loss due to the depreciation in the Mexican peso. Discussions of tariffs and the uncertainty of the Mexican federal elections drove the Mexican peso to fall against the U.S. dollar at the end of Q2, driving a $3 million foreign exchange loss on our outstanding tax reserved. Since quarter-end, the peso’s reversed that trend and recovered most of that devaluation in the second quarter. As of June 30, working capital totaled $58.9 million, compared to the $66.2 million we had at year-end. The $7.3 million decrease is a result of us investing $23 million into our property, plants and equipment, offset by our cash generated from operations, which included $6 million of expenditures into our exploration assets. At quarter-end, our cash position totaled $31.1 million, compared to $36.6 million at the end of Q1, which represents a $5 million decrease in Q2. The use of cash was for fueling future growth. Specifically, we completed the construction the El Compas mine, we continue to develop at Guanacevin to provide more working stopes, including developing the Milache ore body expected to come online this year. And we increased our exploration expenditure as we’ve seen very encouraging results across our portfolio of assets. As for El Compas, our newest mine, the mine of stockpiling ore, the mine is stockpiling ore with ore grades reconciling to expected projections. The commission of the plant was initiated in Q2 using low-grade ore. As normal course with start-ups, plant circuits are being modified, configured and fine tuned to resolve normal start-up issues. The plan to date has been commissioned with low-grade ore and we will shortly feed planned ore grades from our stockpiles, with the expectation of achieving commercial production in Q3. Total construction costs at El Compas have come in line with our guidance. Total cost was expected to be about $11.3 million, and we’re right there. Other highlights from our exploration and development groups included, we’ve completed trade-off studies at the Terronera Project, and we are currently finalizing our updated PFS with expectations of our publishing in August. We’ve maintained good dialogue with the governing bodies over last two permits, with expectations of obtaining those permits here in the near future. We continue to report positive drill results from our infill drill program at the Terronera and we continue to see strong results since our publishing of our last results. And we reported positive metallurgy and drill results from our Parral exploration property up north. So after that brief overview, operator, I’d like to open it up for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Heiko Ihle with H.C. Wainwright & Co. Please go ahead.

Hey, guys, thanks for taking my question. Can you hear me?

Yes, we can hear you here. Go ahead, Heiko.

Okay, let me go there. Let’s start on Page 22 of the MD&A and that really popped out at me. Your silver recovers at Guanacevi were excellent during the quarter. And, in fact, it was the best quarter – better than any quarter in 2017 and the best since Q4 2016. Is there any fundamental change? And I mean, quarter-over-quarter terms you have 290 basis points, which is, obviously, huge. I guess, this doesn’t make a trend. But is there something we can maybe read into for the rest of the year?

Just so we’re understanding you clearly, Heiko, it’s Dan here. You’re coming in a little bit crackly. You’re asking about recoveries at Guanacevi quarter-on-quarter?

Correct. The recoveries were really good during the quarter.

Yes.

I mean, you are up 290 basis points Q-over-Q. Does that make for a trend for the rest of the year?

Hi, Heiko. This is Godfrey. Thanks for the question. The recoveries have been a lot better at Guanacevi. And that is, because we’ve got better residence time in the leach tanks. So as our production – as we stopped filling that plant, we’ll come back down to the projected recoveries that we’ve done faster than beginning of the year. So it’s a function of lower production at the present time.

Got it. Okay, fair enough. So don’t read anything into, so to speak, okay.

Yes.

And then I kept going, and I went to the IVA tax refunds part of the MD&A. And it said that you received $4.2 million since June 30. And is your expectation to receive the other $17.5 million and said, adding it all up, it’s $21.7 million minus the $4.2 million, so it’s still $17.5 million due. Is there anything to expect, or should we expect this would just be a continued battle with the government?

Yes, and it’s very good point, Heiko. At the end of the quarter, we had $24.5 million sitting with the government related to our value-added taxes. And after the quarter, we received $4.2 million. We’ve actually had very positive dialogue to get that $4.2 million. We have expectations that some more will come in August. Unfortunately, the people that we’ve been dealing with have been on vacation last three weeks and we have another meeting with the Hacienda actually next week – late next week to talk about another $4 million to come in. And then we have – we do have expectations that we should see that define and start coming into be able to collect the full $21 million, I think, it’s very optimistic. If we can get that balance from $24 million down to $10 million, I think, we’d been doing very well. And then, of course, you always have a lag of three months basically as what we’d like to see three months kind of outstanding with the government. Cubo has got some IVA that’s outstanding for beyond two years. So we have seen positive movement from the government specifically collecting that $4 million and we do see some more. But like I say, it will – typically it will hold that around $10 million to $12 million is where is likely will be from a balance standpoint

Very helpful and greatly appreciate. Thank you, guys. I’ll get back in queue.

Thanks, Heiko. I hope all is well.

[Operator Instructions] Our next question comes from Chris Thompson with PI Financial. Please go ahead.

Hi, good morning, guys. Can you hear me?

We hear you well, Chris.

All right. Thanks. Couple of quick questions here. We’ll start off with Guanacevi. Obviously, we’re anticipating steady improvements towards the back-half of this year. Just looking at the unit operating costs, what should we be modeling, I guess, once Milache and Santa Cruz are in production here?

Yes. I think, it’s a very fair question, Chris. We’ve modeled coming into the year just over $100 per tonne. And we’ve seen these high cost per tonne over the last two years as our production on a per unit basis has been down. I mean, the plant, historically our capacity at Guanacevi being up 1,200 tonnes per day. We saw a cost per tonne as low as $78. I think the $78 has passed us now. And if we can get up and the key is getting up to capacity of 1,200 tonnes per day, we can see that come back into the 90s. What we have this quarter where we had with inventories, we had a write-down on that, which flowed through our cost per tonne. We had optimization programs that we’re paying that through – flow through cost per tonnes. We had year-end bonuses that got kind of bumped up and union wages and increases kind of flow through Q2 when all that was finalized. So there’s a lot of extraordinary cost that are flowing through Q2 to get to that $139 of cost per tonne. I think, that is very unrealistic. We saw the same thing happen at Cubo four or five years ago, where we had these massive spikes in our cost per tonne that just weren’t reflective of what was going to be happening going forward. And I think we’ve seen that now at Guanacevi basically for the last four to five quarters. We expect that to end and, like I say, the key is getting the tonnes up to the 1,200 tonnes per day, which will drive that. So in the second quarter, we’re around at 800 tonnes per day going through. As you can see on an absolute cost basis, we’re running the same amount of labor at our operations effectively same amount of contractors. The bottleneck has been the amount of working stopes that we’re seeing in Santa Cruz and getting to Milache, which will be able to kind of de-thaw our production abilities. And in July, we started with long haulings. We expect production to start coming up here in Q3, that should drive that down.

Great, that’s great. And so thanks for that Dan. Just moving on to the other assets quickly, Bolanitos, just trying to get a sense of the great profile we can expect to what’s the back-half of this year maybe after that as far as gold grades. Are we – any chance of getting over the two grand mark here?

Hi, Chris, this is Godfrey. We are affirming there’s a lot more zoning in the – particularly at the Plateros area, where we get high gold off of the bottom of the or at the bottom of a zone and higher silver at the top. And it’s just a matter of getting that development, so that we can blend it properly. But I – to be honest, I don’t think we’re going to hit over two grams gold for the balance of this year.

All right. Okay, that’s good. Thanks, Godfrey. Just quickly similar sort of question, I guess, for EL Cubo, but now it’s over the silver grades. We see nice quarter-on-quarter increase in silver grades. Grades, I guess, that you guys reported in the Q2, are those sustainable? Any chance of an improvement beyond that?

I think, they’re sustainable, Chris. But I don’t see them getting higher than what we’ve had for Q2.

All right. Perfect. And then finally, the ATM. Can you comment on the progress on there to date?

Yes. We launched that ATM June 13. We worked through with BMO, our agents on that matter. We sold 2.3 million ounce or $2.3 million worth of stock in Q2 to kind of just see how the process works. We had a couple hot days right after we launched. Effectively in Q3, we haven’t been in the market, because we’ve been in blackout period. With today’s share performance, I don’t foresee us being in the market any time soon. It’s – some optionality there for us. If we some movement up in our share price, we’ll have some more exploration results like we’re getting. We might tap into that to be able to increase our expenditures on exploration next year. Obviously, partly, that’s going to be advancing Terronera, which is what we disclosed on that, touched on that. I think, the key stuff for us is waiting for these last few permits, which like I say, it’s going to be in the near-term here. Our infill drill program for the year is fully funded and obviously, we’re having very good progress with that. But I don’t see any additional costs or funds needed for 2018 with regards to Terronera. It will just be getting that as feasibility study finished getting the permits done and going to the Board with a construction decision.

Great. Thanks again, Dan. Thanks, guys.

Thanks, Chris.

Thanks, Chris.

[Operator Instructions] There are no questions at this time.

Okay, operator. Well, thank you and thank everybody for joining our – the Endeavour’s Q2 financial results call. Again, if you have any questions, we’re always here happy to help. Mr. Cooke is traveling today, but if you have e-mail that you want to pass or questions you want to pass on to Galina, we’ll be happy to get back to you as quickly as possible.

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