Galina Meleger - Director, IR Bradford Cooke - CEO Godfrey Walton - President and COO Dan Dickson - CFO

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

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Q3 2018 Financial Results 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 call over to Galina Meleger, Director Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavour Silver Corp. 2018 third quarter financial results conference call. With me on the line today we have the Company’s CEO, Bradford Cooke, as well as our President and Chief Operating Officer, Godfrey Walton; and our Chief Financial Officer, 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 2018 and future years, including revenue and cost forecasts, 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. With that and 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 CEO, Bradford Cooke.

Thanks very much, Galina, and welcome, everybody to this conference call on Endeavour’s third quarter financial results. As I always do, I’d like to start with some highlights and then we’ll open it up for Q&A. So, the headline results released today include a net loss of $5.5 million or about $0.04 a share. But that was off the back of cash flow of $6.9 million, up 21% compared to the same period last year. Revenues for the quarter were down 6%, compared to 2017 Q3 at about $37.6 million. Our cash costs were up slightly, 9% to $8.86 per ounce net of gold credits. But all-in sustaining costs were actually down 8% to $16.14, again net of gold credits. Working cap was a bit lower due to our spending during the third quarter at about $57.4 million. No debt on the book. So, we still have a healthy balance sheet. Production: Silver production increased 13% to 1.4 million ounces; gold production was down a bit, 5% to 13,000 ounces; and silver equivalent production was both flat quarter-on-quarter at 2.4 million ounces, using 75:1 ratio. In general, our financial performance in Q3 was impacted by the lower metal prices. And our earnings performance was particularly impacted by the higher depreciation, depletion charges, primarily at Guanaceví where production continues to lag behind plan. We’ve been working very hard at Guanaceví this year. And we’re still very optimistic that Q4 will show significant improvement at Guanaceví. We were also impacted during the third quarter by a brief shutdown at the new El Compas mine, but it’s back up and running here mid-October, and we are still expecting to prepare commercial production at El Compas this quarter. El Cubo continued to have strong outperformance, carrying on from the first two quarters of the year; Q3 was no different. And Bolañitos, actually suffered from a drop in gold grades in Q3, but we are seeing them coming back up already in October. We did complete a large part of our exploration and development spending during the third quarter. That’s the main reason why our working capital took a dip. And looking ahead to the fourth quarter, we do expect to have both, improved operating and financial performance, largely due to our expectations of higher throughput in grades at Guanaceví, stronger gold grades at Bolañitos, initial commercial production at El Compas. So, we should also I think this quarter realize the full benefit of our short-term cost reduction program that we initiated late in the third quarter. So, lots of things going on, on the operation front. I’ll just briefly touch on our development projects. At Terronera, we released an updated PFS or prefeasibility study, showing a significant improvement in both operating and financial metrics. I think the real headline there was the all-in sustaining costs estimated for Terronera that came in at a very low 1.36 per ounce of silver net of the gold credit. So, I think that is some of my initial comments. And operator, let’s open it up now for questions and answers.

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

Hey, guys. Thanks for taking my question.

Pleasure, Heiko. How’s life?

Life is good. Thank you very much for asking. You just mentioned the full impact of the cost reduction program that we’re likely going to see is it in Q4. Can you just sort of quantify it? I went through the release and some articles about it. I mean, it sounds like its ahead of its own that was announced back in August. Do you want to just sort of quantify what you think we’ll see in Q4 and then maybe also Q1 of -- or even full year ‘19?

Sure. I’ll just give you a brief overview and then I’ll let Godfrey give you some details. The idea behind the cost cutting was that we saw obviously the initial drop in gold and silver prices in the summertime. And having been through this before and knowing that we’re in the middle of a significant spend, not only a Terronera but also Guanaceví where the new Milache and Santa Cruz Sur lines are in development. So, knowing that we were in the middle of a spending phase, a capital spending phase, we felt it was very important not only to focus on how to reduce exploration capital and operating costs but to use the head office as an example. So, maybe over to Godfrey for some details.

Sure. So, the operations, the big reductions really have come in development. And so, development is now paying for itself by being focused on the actual things themselves as opposed to out in the waste. But we’ve also done a number of reductions in acquiring new -- a variety of new things for the operations. Now, who would go out and buy extra supplies, extra maintenance things, we’ve cut back that off. And then, we’ve stopped hiring extra people. And so, those are the really the main things that we have reduced.

We had some layoffs of contractors at the various operations. Dan, do you want to contribute to that?

Yes. I think from head office standpoint, it’s across the space. So, where we started from is up here in Vancouver, Heiko, where we cut back on our Investor Relations, reduced road shows, conferences, for a lack of better term, grind our advisors in tax, legal, looked to do things in house, looked to delay certain things and ultimately also in exploration, we finished our Terronera drill program for the year, and we reached about $11 million in exploration. Our total budget approved by the Board was up to $14 million, and we basically got two drill rigs going -- internal drill rigs that we own going in there and external drilling happening at this point. As far as specific quantities for Q4, the main items end up being from waste development to ore development which should save about $2 million at Guanaceví and $1 million some at Bolañitos. So, all in all, you’ll see it in our all-in sustaining costs, a reduction more so than what we’ve seen in our cash cost in Q4.

I think this has been one of the most -- in over decade of doing this, this has been one of the most comprehensive answers that I’ve ever gotten on conference calls as an answer. And for that, I commend you.

As far as to 2019 question, Heiko, which we actually didn’t answer. We don’t put out guidance in 2019 cost and production until January. The reason being we are going through that process as we speak of looking at mine plans, various levels of mine plans. And obviously at today’s prices, it’s something that we’re trying to figure out what’s the best fit for us going forward. And we just don’t like to comment on that till we’re final.

Fair enough. Okay. Perfect. I’ll hop back in queue. Thank you, guys.

Thanks for your question.

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

Hey. Good morning, guys. Thanks for taking my questions. A couple of specific questions I guess on the operations here, going to El Cubo, first of all. I know you’re cutting back all-in sustaining CapEx there on Villalpando. Are you compromising the mine life in anyway, doing this? Maybe you can comment on that.

Hi, Chris. This is Godfrey. Thanks for the question. Now, we are not comprising the mine life [technical difficulty] development. We’re looking it very carefully and we don’t see any [technical difficulty].

In fact, I think the extension to that question, Chris, is that, our main access ramp Villalpando-Asuncion has actually reached the bottom of the [technical difficulty]. So, all of the future development is basically being development moving out from the bottom.

Okay. All right. Thanks for that, guys. Just Bolañitos quickly. I know previously I think you mentioned you’ll be winding up the throughput from 1,200 to 1,400 ton a day. Maybe two questions, I guess on that, is timeline and additional CapEx required to do that?

No, it’s not. It’s a matter of just accessing more faces and more levels, and that’s all as part of the plan. So, we always keep [technical difficulty] and where we can access. And so, it’s really just a matter of mining a little bit more.

Because it’s adding the number of faces, it is a ramp-up period throughout the quarter.

Okay. So, we can see -- expect I guess 1,400 exiting the year. Is that right?

That’s correct. Yes.

And then, just finally, or rather Guanaceví, obviously Milache and Santa Cruz, you’re going to be turning those on. Have you got any sense of blend of grade? I mean, what should we be putting in our model from a grade perspective when you -- when those are fully led into your production?

Really, Santa Cruz Sur is, so it is not going to show up in production until next year. We’ll hit the vein late this year, but really wanted that production. When we -- Milache will, but it will be slowly increasing the grade, because we are not [technical difficulty] levels, but you’re basically initially just drifting on ore. You’re not developing stopes until probably December. So that’s when you’ll start seeing more grade change.

And Chris, if you look through our reserves and resources which I know you do, the Milache resource and the Santa Cruz resource are up in the 340 range, 340 silver equivalent range, and that would be coming through in 2019, which is in our internal mine plans, being higher grades in 2019, 2020, 2021 than what we’re seeing currently. Partly for 2018, our grades are lower than what the plan was for the year, because Milache and Santa Cruz haven’t come on as quickly as originally guided or hoped.

Right, okay. I know the asset here has a history or you’ve taken, I guess throughput up beyond 1,000 ton a day. I mean, is that realistic for next -- I know you don’t want to give guidance on that. But I mean, what’s your sense about ton per day here?

Chris, we’re looking at our mine plans for next year and we’re just looking at what the best throughput will be. But, we are thinking about the 1,200 range. It’s still early days and not actually putting an exact number to that.

That’s good. That’s what my model has. And then finally, I guess, Terronera, obviously, we’re still waiting for a couple of permits there. A bit of color on that, guys?

Terronera, so, we’re waiting patiently for the final permit from the government. Specifically, we got a letter from CONAGUA, the water authority, basically instructing us to go back to SEMARNAT, the environmental authority. And so, what we were waiting for the water authority, we now have that letter. We’ve gone back to SEMARNAT in October, that’s normally a 90-day exercise. We’re trying to move it faster. But as you know, we’re in a transition period for a new government in Mexico. So, while we would love to have all of our permits by December, we certainly can’t guarantee that because of the change in government.

[Operator Instructions] There are no more questions at this time. This concludes the question-and-answer session. I would now like to turn the conference back over to Bradford Cooke for any closing remarks.

Well, thank you, operator, and thanks, all for dialing in. I think I’d just like to conclude by saying that in addition to our upbeat expectations for both operations and financial performance in Q4, taking a broader look at the markets, I think that this is a challenging time of year for all equities, and particularly for gold and silvers. But we do, based on our research, think that there will be a turning point with significantly better bids for the precious metals before quarter ends. So, our cost cutting program was not intended to be permanent or long-term, especially on the capital side. We just felt that a short-term response was needed for this short-term dip in the precious metal prices. So, we are a upbeat on the precious metal prices for next year. That’s our comments for our Q3 conference call. And we look forward to talking to you again in the New Year. Thank you.

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