Meghan Brown - Director, Investor Relations Bradford Cooke - CEO Godfrey Walton - President & COO Dan Dickson - CFO

Bhakti Pavani - Euro Pacific Capital Justin Stevens - Raymond James Howard Flinker - Flinker & Company

Welcome to the Endeavour Silver Third Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Meghan Brown, Director, Investor Relations. Please go ahead.

Thank you, Operator. Good morning everyone and welcome to the Endeavour Silver Corp. Third Quarter Conference Call. On the line today, we have the Company’s CEO, Brad Cooke, as well as our President and COO, Godfrey Walton, our CFO, Dan Dickson, and our VP Corporate Development, Dale Mah. 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 2016 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. 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. Thank you. With that, I'll turn the call over to Endeavour's CEO, Brad Cooke.

Thanks Meg, and welcome all. Endeavour posted another strong quarter in Q3 2016 with net earnings of $5.6 million compared to a loss in the same quarter last year. That was really driven by our increase in EBITDA, up 700% to $10.8 million, cash flow from operations up 72% to $8.2 million, mining operating cash flow up 48% to $17.8 million, and revenue interestingly enough basically flat at $42.1 million. So I think the jump in earnings and cash flow was primarily due to the higher prices, more efficient operations, and lower costs, given the slightly lower production that we experienced compared to the same quarter last year. Silver production was down 29% to 1.3 million ounces compared to the same quarter last year. Gold production was off 6% to 14,000 ounces. Silver equivalent production was $2.4 million in the quarter. We did acquire the perspective Parral exploration properties in the Parral District of Chihuahua, and while they're still being treated as exploration properties, the thinking is that it also can be advanced fairly quickly to an economic study and possibly even a production decision within a year or so. As a result of our robust quarter with both Bolañitos and El Cubo being well ahead of the annual plan on both production and costs, the only disappointment really was Guanaceví; it's low on production and high on costs. But we are finally starting to see the changes that we put in place in Q2 and early Q3 starting to improve both the output of the mill and we're also seeing, I think, some improvement on costs as we go forward. As a result of the improved financial performance, we saw our cash jump to $83.2 million at the end of the quarter and working capital was $91.9 million at the end of Q3. We did increase both our production guidance and our capital and exploration budgets and currently have 12 drill rigs working on six projects to grow our resource base. Currently, we're actively drilling at Guanaceví, Bolañitos, El Cubo, Terronera, and Guadalupe y Calvo. So, that's the highlights for the call. I think, Operator, what we'll do is open it up for questions.

[Operator Instructions] The first question comes from Bhakti Pavani with Euro Pacific Capital. Please go ahead.

Could you maybe provide some color on the development at El Compas? Are you guys still drilling there? What's the status of the results study?

Yes. I didn't hear the property that she was asking about.

El Compas.

El Compas. Hi, Bhakti; this is Godfrey. Thanks for the question. Yes, we are still drilling there and the current guidance is that we will be looking at completing a PEA later this year and releasing that information next year. So, everything is still moving forward. We're still drilling, still looking at doing some metallurgical testing, and looking at all the requirements we need to complete to get the plant up and running again.

When do you anticipate the drilling to be completed there?

Well, as we mentioned on the tour, we're going to be drilling there for quite a long time and we'll do enough to be able to feel comfortable with releasing a resource for the PEA, but I expect to be drilling through next year. Then as we acquire other projects in the district, I think we'll be continuing to drill on those as well. So, it's not going to be finished by a set time. It's going to just keep on going.

Okay.

Godfrey, it's Dan here. Can you give some clarity to Bhakti? Like, Bhakti, for 2016 we announced 3,000 metres of drilling that would be done by the end of the year, which I think with the PEA and drilling was about $2 million. Godfrey, where are we on that 3,000 metres? Maybe that would give some clarity to Bhakti.

Okay. Well, we actually increased that metreage, because we have two drill rigs turning. We will be completed, that phase by the end of the year. That was the original plan, and so we're about halfway through that, but then we'll obviously be increasing the drilling for next year.

Okay. Thank you. With regards to Terronera, what's the status there? I guess you guys need to make a decision by the year-end, right?

Well, we are planning on finishing a PFS and we will be completing that and we'll be, I think as we release, we'll be—as we mentioned in our guidance, we'll be releasing that early next year as well.

Okay. Just quickly on El Cubo, is there any opportunity to further reduce costs at that mine?

Well, we're always looking at ways to reduce our costs and Cubo is one of those operations. So, we're examining whether we can increase the amount of long haul drilling that we can help to reduce costs, but they are fairly tight right now, so I don't see a big change in costs, but we will be continuing to look at that.

The next question comes from Justin Stevens with Raymond James. Please go ahead.

Yes, just a few questions for me. At Guanaceví you guys said that you expect to tame the plant production level in the fourth quarter here. Would you say you think you're going to be able to remain on the mine plan going forward, and do you guys have any sort of other significant development that you guys need to do in order to get to new ore bodies?

Okay. Thanks. This is Godfrey. At Guanaceví, I think as Brad mentioned, we are a little behind schedule, behind the overall plan. We are aiming to get back to the 1,200 tonnes a day that we had talked about earlier in the year and that is moving forward. We've revitalized the electrical and ventilation and development that was causing us some delays. So, we won't hit the actual guided targets, but we will be close to the 1,200 tonnes a day by the end of the year. To get into new ore bodies, we do need to do some development, and that includes Milache. We've got about a year's development to get over to that ore body. Then we also need to do some development to get into Santa Cruz Sur.

Sounds good. Can you give me some sort of rough split on where the fourth quarter ore will be coming from there?

Most of the ore is coming from Santa Cruz itself. I think about 75% of it comes out of Santa Cruz and then about 25% comes from North Provenir, Provenir Central, and there's a tiny little bit coming out of Provenir Cuatro.

Perfect. Just one more for me; so for Bolañitos, do you guys expect to maintain sort of similar grades that we saw in Q3, and similar sort of ore mix from the LLSS Young [ph] and the historic stockpile as you sort of drive your throughput down to 800 tonnes a day?

The stockpile is complete at this point, but the grades we do expect to be there about those numbers. So, the 75 grams to 80 grams silver and about a little over 2 grams gold.

[Operator Instructions]. The next question comes from [indiscernible] with BMO Capital Markets. Please go ahead.

So I have a couple of questions. I guess I'll start off with some cost questions. Just looking at the mining cost at Bolañitos, this quarter you guys are having about, I think it was $26 per tonne you're averaging whereas the last quarter it was around $48 and the previous quarter around $38. I was wondering if something had structurally changed. If what you guys are thinking the cost per tonne are going to be going forward at Bolañitos.

Hey, John Paul, this is Dan. Structurally, there's a significant change, once you get through the MDA, but more detail. We had some historical stockpile at Bolañitos from before we acquired it and we've been running that historical stockpile through the plant, which effectively took us from 1,000 tonnes per day up to almost 1,500 tonnes per day in the third quarter. From a cost perspective, those tonnes never had any costs assigned to it when we purchased Bolañitos for less than $7 million, so effectively, we had free tonnes going through. So, in the MD&A we talk about on a total bases our cost per tonne was $48 per tonne on a quarter. In reality, if we adjusted that out to remove those free tonnes, we should be in the $63 per tonne range. You've touched on it. Immediately in the mining costs, you have of $28 versus kind of a historical $40. We'll be always in the high $30s, or we expect to be in the high $30s.

Okay. Perfect. Now, for Guanaceví, the same question with regard to cost. Mining costs went up last quarter about 16 bucks per tonne. I was wondering what your expectations going forward would be for Guanaceví.

Yes. Our expectations going for Guanaceví is it's to come down. I know Brad touched on that quickly on his interlude into this conference call. Really, our tonnage at Guanaceví dipped at end of Q2 and into Q3 and we expect that to come up. It will help those costs. We also have some refurbish costs that are running through our cost per tonne, just to kind of reorganize the ventilation, things that we typically expense. Then additionally, in the first half of the year, we actually had some historical stockpile there as well at Guanaceví that we reduced. We ended up having additional tonnage to what our actual estimate was over the last 10 years of stockpiling that material. But we are at $93 cost per tonne, which was significantly higher than Q1 and Q2. I expect it to drop back down into the mid-$80s at minimum here in the fourth quarter and then into 2017.

Okay. Okay. My questions from then are going to be around the guidance and budgeting around Guanaceví. First, with sustaining CapEx, there's been kind of some changes over the last few quarters. You guys have adjusted from your original guidance. What's your expectation now for guidance for the full year for Guanaceví? What's the number that's out in the market?

The full guidance—in the MD&A we probably have more detail on this, Page 27—the full guidance for Guanaceví's capital program in 2016 was $14.1 million and most of that was mine development, about $9.5 million to $10 million was mine development. Additionally in this quarter we talked about an initial $3.8 million of capital budget across the three assets and that really comes down to items that we want to source, that we're looking at sourcing here in the fourth quarter that would really relate to 2017, and we want to be up front with the market. If we go through that $14.1 million budget, it just comes down to timing. We don't necessarily have clarity of whether we'll get those things delivered and, hence, recognizing those costs. Certain things we want to get refurbished. So, of that $3.8 million breakdown, $1.8 million related to Guanaceví. Hopefully, we can get some of that spent here in the fourth quarter so we hit the ground running in 2017. On a total basis, without even adjustment that we announced here this morning, you're looking at about $15 million to $16 million of capital spend at Guanaceví for the year.

Okay. Thanks for clarifying that for me. The other part of this was the exploration CapEx—the exploration expensed at Guanaceví. You guys were guiding somewhere around 1.3 for the year?

Yes, and we're still on track for that 1.3.

Okay. Okay. I guess there's been a lot of questions already about El Compas and Terronera, so on the site visit, you guys were talking about staffing and I was just wondering how things were progressing with that, with staffing. Do you have any additional color on there?

Yes.

Okay. We have not staffed up as yet. We have small exploration group that are active on site and we have Alfonso that I think you probably met while you were on the tour. But until we've got some clarity on just what we're going to do on the plant and costs and things like that, we will be probably looking at staffing up in Q1/Q2 next year.

Okay. Does that include the GM role and the—I think it was the VP Operations that you guys were looking for?

The GM role, yes, it's until we have—we're sure. Right now, Alfonso is our Interim GM there while we're going through this really data collection phase to get a better feel for the costs. In regards to the VP of Operations that covers all the sites in Mexico, we're moving forward on that and I think in Q4 here we'll be able to make an announcement of somebody who will be joining us.

Okay. That's great news, guys. I look forward to hearing the details on both El Compas and Terronera in the New Year, and I wish you guys all the best.

Okay. Thanks very much, JP.

Thanks, JP. Just a reminder that the critical timeline on Compas' is actually the mine development, which we're primarily going to do with a contractor, so the staffing up can actually take a couple of quarters primarily at the plant. Next question.

The next question comes from Howard Flinker with Flinker & Company. Please go ahead.

Can you tell me or can you guess how much the reduced peso reduced your costs, and if fuel was cheaper this year than last year? I forget the year-over-year change in oil.

For us, I don't have a specific drop in the fuel cost out of Mexico, but for us, fuel's way down the list for one of the key costs for us. So we're not open-pit mining where diesel is a big factor. All our underground machines are relatively small and I believe it's our ninth cost on our purchase basis. So, normally I would have that. I just don't—Pemex controls prices down there and it's definitely lower than what we pay here in Canada or the United States.

That's right. Yes. The prices are depressed, I forget. The peso?

Yes. But from a foreign exchange standpoint, 33% of our cost comes from labor being underground vein [ph] mining, which has a direct impact obviously to the depreciation in the peso. Our estimates of the drop in our cost year-over-year, it's amounted to just under half, probably 40% to 45%. So, again, in Q3, the peso touched almost—got up to the high 19s. It's come back a little bit and it's in the high 18s, so we do get a benefit from that. But a lot of the capital items that we source are coming from U.S. and U.S. denominated currency—U.S. denominated currency.

[Operator Instructions]. This concludes the question-and-answer session. I would like to turn the conference back over to Brad Cooke for any closing remarks.

Thank you, Operator. We enjoyed a good third quarter, and even though metal prices have come back a little bit here in October, there's a wildcard in the near-term future down southwest and the U.S of A., and so I'm not going to be forecasting any metal prices for Q4. I think the operations are in good stead and the only one that was giving us some trouble, Guanaceví, is coming back up to plan. The development pipeline, as you are all aware, very busy at this time, and so in terms of catalysts going forward, it'll be mostly drill news followed by the two economic studies early in the New Year from Terronera and Compas. So, stay tuned for our year-end call that'll be in March, and thanks all for listening in.

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