Mr.
Dan Dickson reports
ENDEAVOUR SILVER REPORTS FINANCIAL RESULTS FOR THE THIRD QUARTER 2021; EARNINGS CONFERENCE CALL AT 10AM PST (1PM EST) TODAY
Endeavour Silver Corp. has released its financial results for the three and nine months ended Sept. 30, 2021. The company operates two silver-gold mines in Mexico, the Guanacevi mine in Durango state and the Bolanitos mine in Guanajuato state, and has recently suspended operations at the El Compas mine in Zacatecas state. All amounts reported are in U.S. dollars.
Dan Dickson, chief executive officer, commented: "Since our Q2 reporting, our operating costs have decreased to levels that are closer to our 2021 guidance. We continued to withhold metals sales in Q3, which has dampened our financial performance and Q3 earnings. At quarter-end, we held over one million ounces of silver and 1,200 ounces of gold bullion. We expect to sell this inventory in the coming months, which will ensure a strong finish to the year.
"As of the beginning of November, approximately 90 per cent of our work force is fully or partially vaccinated. Our operations are running at steady state and we are pleased with the overall performance. Our focus is also on our growth plan, and we have expanded our project development team and commenced preparations for construction at Terronera."
2021 third quarter highlights:
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Metal production: 1,305,399 ounces (oz) of silver and 10,541 oz of gold for 2.1 million oz silver equivalent (AgEq) at an 80:1 silver:gold ratio, totalling 6.1 million AgEq oz for the nine months ended Sept. 30, 2021;
- Net revenue: $34.6-million from the sale of 699,539 oz silver and 9,925 oz gold at average realized prices of $24.56 per oz silver and $1,791 per oz gold. Management withheld metal sales during the quarter and continues to carry higher metal inventory totalling 1,030,304 oz silver and 1,211 oz gold of bullion inventory and 37,100 oz silver and 2,028 oz gold in concentrate inventory;
- Operating costs: cash costs of $8.16 per oz payable silver and all-in sustaining costs (AISC) of $17.46 per oz payable silver, net of gold credits;
- Cash flow: $7.7-million in cash flow from operations before working capital changes. The company continued to hold significant finished goods, increased deposits for equipment purchases, invested in exploration activities and advanced the Terronera project;
- Earnings: realized loss of $4.5-million or three-cent loss per share. The loss is due to the fact that the finished goods inventory was carried at a cost of $18.3-million compared with the estimated fair market value of $29.2-million at quarter-end;
- Strong balance sheet: cash position of $101.1-million and working capital of $128.7-million. Cash decreased this quarter, as funds were spent to acquire the $10-million Bruner gold project and to prepare for construction at Terronera including advancing initial earthworks, site clearing, temporary camp and ordering of long-lead items. Withheld sales also impacted the cash balance at quarter-end;
-
Acquired the Bruner gold project: a strategic acquisition for an advanced-stage exploration property in Nevada, a favourable jurisdiction. The transaction closed on Aug. 31, 2021, for $10.0-million in cash;
- Suspended operations at El Compas: Management is currently evaluating its alternatives for the assets, with temporary closure estimated to cost $300,000 in the fourth quarter of 2021.
Financial overview
For the three months ended Sept. 30, 2021, the company generated net revenue of $34.6-million a decrease of 3 per cent compared with $35.6-million in the same period in 2020 due to withholding metal sales during the quarter, which significantly increased finished goods inventory. Earnings and financial metrics including mine operating cash flows, operating cash flows and EBITDA were also impacted by the increased holding of production inventory.
Gross sales of $35.0-million in Q3 2021 represented a 3-per-cent decrease over the $36.1-million for the same period in 2020.
There was a 6-per-cent decrease in silver ounces sold and a 2-per-cent decrease in the realized silver price resulting in an 8-per-cent decrease to silver sales. There was a 10-per-cent increase in gold ounces with an 8-per-cent decrease in the realized gold price resulting in a 2-per-cent increase in gold sales. During the period, the company sold 699,539 oz silver and 9,925 oz gold, for realized prices of $24.56 and $1,791 per oz, respectively, compared with sales of 741,262 oz silver and 8,997 oz gold, for realized prices of $25.08 and $1,952 per oz, respectively, in the same period of 2020. For the three months ended Sept. 30, 2021, silver and gold spot prices averaged $24.36 and $1,790, respectively.
The company significantly increased its finished goods silver and gold inventory to 1,067,404 oz and 3,239 oz, respectively, at Sept. 30, 2021, compared with 459,659 oz silver and 2,835 oz gold at June 30, 2021. The cost allocated to these finished goods was $18.3-million at Sept. 30, 2021, compared with $10.1-million at June 30, 2021. At Sept. 30, 2021, the finished goods inventory estimated fair market value was $29.2-million, compared with $17.3-million at June 30, 2021.
After cost of sales of $26.3-million (Q3 2020 -- $29.3-million), mine operating earnings amounted to a $8.3-million (Q3 2020 -- $6.3-million) from mining and milling operations in Mexico. The decrease in cost of sales was primarily related to the 6-per-cent decrease in silver ounces sold offset by higher royalty costs, labour costs and additional costs attributed to global supply constraints. Royalties increased 33 per cent from $2.0-million to $2.7-million due to higher production and realized prices and the increased mining of the high-grade Porvenir Cuatro extensions at the Guanacevi operation, which are subject to the higher royalty rates.
Excluding depreciation and depletion of $4.8-million (Q3 2020 -- $8.1-million) and stock-based compensation of $100,000 (Q3 2020 -- $100,000) mine operating cash flow before taxes was $13.2-million in Q3 2021 (Q3 2020 -- $15.1-million) with Q3 2020 also including a writedown of inventory of $600,000. Operating earnings were $3.0-million (Q3 2020 -- $400,000) after exploration and evaluation expenditures of $4.7-million (Q3 2020 -- $1.7-million), general and administrative expense recovery of $500,000 (Q3 2020 -- expense of $3.7-million), severance costs of $700,000 (Q3 2020 -- nil), and care and maintenance costs of $400,000 (Q3 2020 -- $600,000). The general and administrative expense recovery was primarily due to mark-to-market fluctuations for director cash-settled deferred share units, with a $2.8-million recovery in Q3 2021 versus a $1.5-million expense in Q3 2020.
Net loss was $4.5-million (three-cent loss per share) compared with net earnings of $500,000 (loss of nil per share) in Q3 2020. Compared with Q3 2020, the company increased its investment in exploration and evaluation activities by $3.4-million, experienced a $1.2-million loss in foreign exchange and incurred a $3.0-million unrealized loss on marketable securities.
Current income tax expense increased to $700,000 (Q3 2020 -- $600,000) due to increased profitability impacting special mining duty, while deferred income tax expense of $3.0-million was recognized due to the estimated use of loss carry forwards to reduce taxable income primarily at Guanacevi (Q3 2020 -- $600,000).
Direct operating costs per tonne in Q3 2021 increased 15 per cent, to $115.57 compared with Q3 2020 due to higher operating costs at all operations. The operations have seen a strengthening of the Mexican peso, increased labour costs and increased third party ore purchased Guanacevi compared with prior year and budgeted. Including royalties and special mining duty, direct costs per tonne increased 16 per cent to $130.38. Royalties increased 33 per cent to $2.7-million as increased production from the El Curso and El Porvenir concessions at Guanacevi with higher prices substantially increasing the royalty expense. The improved profitability increased special mining duty expense to $600,000 for Q3 2021 compared with $400,000 for Q3 2020.
Consolidated cash costs per ounce, net of byproduct credits, increased to $8.16 due to the increased direct costs per tonne. All-in sustaining costs per ounce remained relatively flat at $17.46. In Q3 2021 corporate general and administrative included a $2.8-million mark-to-market expense recovery for deferred share units whereas the mark to market expense was $1.5-million in Q3 2020.
The condensed consolidated interim financial statements and management's discussion and analysis can be viewed on the company's website, on SEDAR and EDGAR.
Conference call
A conference call to discuss these results will be held today, Tuesday, Nov. 9, at 10 a.m. Pacific Standard Time (1 p.m. Eastern Standard Time). To participate in the conference call, please dial the numbers below. No pass code is necessary:
Toll-free in Canada and the United States: 1-800-319-4610
Local Vancouver: 604-638-5340
Outside of Canada and the U.S.: 604-638-5340
A replay of the conference call will be available by dialling 1-800-319-6413 in Canada and the U.S. (toll-free) or 604-638-9010 outside of Canada and the U.S. The required pass code is 7870 followed by the number sign. The replay will also be available on the company's website.
About Endeavour Silver Corp.
Endeavour Silver is a mid-tier precious metals mining company that owns and operates two high-grade, underground, silver-gold mines in Mexico. Endeavour is currently advancing the Terronera mine project toward a development decision and exploring its portfolio of exploration and development projects in Mexico, Chile and the United States to achieve its goal to become a premier senior silver producer. Its philosophy of corporate social integrity creates value for all stakeholders.
COMPARATIVE HIGHLIGHTS
Q3 2021 highlights Three months ended Sept. 30 Nine months ended Sept. 30
2021 2020 2021 2020
Production
Silver ounces produced 1,305,399 942,274 3,427,223 2,396,478
Gold ounces produced 10,541 10,260 32,816 24,553
Payable silver ounces produced 1,295,126 932,837 3,394,103 2,373,246
Payable gold ounces produced 10,328 10,041 32,177 24,078
Silver equivalent ounces produced 2,148,679 1,763,074 6,052,503 4,360,718
Cash costs per silver ounce $8.16 $3.69 $9.59 $4.95
Total production costs per ounce 13.14 13.53 15.84 13.74
All-in sustaining costs per ounce 17.46 17.48 20.70 17.16
Processed tonnes 222,461 206,324 673,932 519,771
Direct operating costs per tonne 115.57 100.36 116.14 99.39
Direct costs per tonne 130.38 112.37 133.12 107.68
Silver co-product cash costs 13.98 13.32 15.86 11.91
Gold co-product cash costs 1,020 1,037 1,078 1,117
Financial
Revenue ($ millions) 34.6 35.6 116.8 77.7
Silver ounces sold 699,539 741,262 2,443,184 2,041,601
Gold ounces sold 9,925 8,997 30,398 21,669
Realized silver price per ounce 24.56 25.08 26.26 19.40
Realized gold price per ounce 1,791 1,952 1,784 1,820
Net earnings (loss) ($ millions) (4.5) 0.5 14.4 (18.8)
Adjusted net earnings (loss) ($ millions) (4.5) 0.5 (8.2) (18.8)
Mine operating earnings (loss) ($ millions) 8.3 6.3 24.1 6.5
Mine operating cash flow ($ millions) 13.2 15.1 43.7 27.1
Operating cash flow before working capital changes 7.7 10.3 21.6 7.2
Earnings before ITDA ($ millions) 4.4 10.6 44.2 5.1
Working capital ($ millions) 128.7 53.8 128.7 53.8
Shareholders
Earnings (loss) per share -- basic (0.03) 0.00 0.09 (0.13)
Adjusted earnings (loss) per share -- basic (0.03) 0.00 (0.05) (0.13)
Operating cash flow before working
capital changes per share 0.04 0.07 0.13 0.05
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(expressed in thousands, except for share and per-share amounts)
Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2021 2020 2021 2020
Revenue $34,562 $35,586 $116,803 $77,714
Cost of sales
Direct production costs 18,639 18,418 63,590 46,940
Royalties 2,698 2,029 9,498 3,720
Share-based payments 105 87 334 270
Depreciation, depletion and amortization 4,843 8,122 18,963 18,096
Writedown of inventory to net realizable value - 639 272 2,167
26,285 29,295 92,657 71,193
Mine operating earnings 8,277 6,291 24,146 6,521
Expenses
Exploration and evaluation 4,660 1,670 13,815 5,717
General and administrative (522) 3,695 7,294 8,837
Care and maintenance costs 364 533 940 4,789
Severance costs 737 - 737 -
Impairment reversal (gain) of non-current assets - - (16,791) -
5,239 5,898 5,995 19,343
Operating earnings (loss) 3,038 393 18,151 (12,822)
Finance costs 195 359 702 1,025
Other income (expense)
Foreign exchange (expense) (1,184) 890 (1,219) (3,287)
Gain on asset disposals - - 5,841 -
Investment and other (expense) (2,462) 678 2,091 1,332
(3,646) 1,568 6,713 (1,955)
Earnings (loss) before income taxes (803) 1,602 24,162 (15,802)
Income tax expense (recovery)
Current income tax expense 659 595 2,476 1,056
Deferred income tax expense (recovery) 3,017 556 7,260 1,906
3,676 1,151 9,736 2,962
Net earnings (loss) and comprehensive
earnings (loss) for the period (4,479) 451 14,426 (18,764)
Basic earnings (loss) per share
based on net earnings (loss) (0.03) 0.00 0.09 (0.13)
Diluted earnings (loss) per share
based on net earnings (loss) (0.03) 0.00 0.09 (0.13)
We seek Safe Harbor.
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