Update: Endeavour Silver Gives 2015 Production And Cost Guidance, Updates Resources
Jan. 29, 2015 12:22 PM ET Seeking Alpha
Endeavour Silver gave its 2015 production and cash cost guidance.
Gold reserves and resources were also updated in the release.
With all-in costs estimated at $18-$19 an ounce, Endeavour is unprofitable, and other uncertainties remain.
Endeavour Silver (NYSE:EXK) just gave its 2015 production and cash cost guidance, plus announced an updated reserve and resource base. Here are the highlights of the release:
- Gold proven and probable reserves decreased 19% to 113,300 ounces. However, gold measured and indicated resources increased 20% to 665,000 ounces while silver measured and indicated resources increased 8% to 65 million ounces. Total silver equivalent measured and indicated resources are now 111.6 million ounces. Silver equivalent inferred resources decreased slightly and now total 74.2 million ounces.
- Management announced it is developing alternative production scenarios for the El Cubo and Bolanitos mines, which includes a possible significant mine expansion at El Cubo and a decrease in production at Bolanitos, as unit operating costs are expected to decrease significantly. The alternative mine plan will not be completed until early March of 2015 and the mines will continue to produce as normal until that time.
- Due to the expected change in mine plans, the company expects total 2015 silver production of 5.8-6.4 million ounces and gold production in the 47,000 to 52,000 ounce range, with silver equivalent production forecasted between 9-10 million ounces. This is a big drop from 2014's silver production of 7.2 million ounces and 2014 silver equivalent production of 11.6 million ounces.
- Capital and exploration budgets will be significantly reduced this year which should help to boost free cash flow, according to Bradford Cooke, CEO. Endeavour plans to invest $32.7 million on capital projects in 2015, including $18.3 million on mine development, $11.0 million on plant and equipment, and $3.1 million on tailings upgrades.
- All-in sustaining costs are estimated to be in the $18-$19 range per ounce.
Readers will remember that I first recommended Endeavour shares because I felt the Mexican silver producer has huge upside potential from its exploration and development projects, with the potential to produce 15+ million silver ounces one day. The company has grown its total resource base at a compound annual growth rate of 49% since 2004 (from 5.4 million ounces in 2004 to 191 million ounces in 2013, silver equivalents) as well as its production, which has grown at a rate of 45% per year (from 400k ounces in 2004 to 11.3 million ounces in 2013). However, the price of silver was also significantly higher at the time of that article, and the company was profitable as all-in costs were $12.15 in Q1 2014. I turned short-term bearish in the last quarter as a result.
Unfortunately, Endeavour is calling for all-in sustaining costs between $18-$19, which means the company will be losing money at current metals prices. In addition, production will be lower as the company delivers a change in the mine plan at El Cubo and Bolanitos. While I do think that is the right move, as cash costs could decline significantly, I still think there is too much risk and uncertainty here, and shares will likely remain under selling pressure in the near term.
