UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of MAY, 2018
Commission File Number: 001-33153
ENDEAVOUR SILVER CORP.
(Translation of registrant's name into English)
Suite 301 - 700 West Pender Street
Vancouver, British Columbia, Canada, V6C 1G8
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ ] Form 20-F [ x ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ x ]
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _________
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Endeavour Silver Corp. | ||
(Registrant) | ||
Date: May 3, 2018 | By: | /s/ Bradford Cooke |
Bradford Cooke | ||
Title: | CEO |
ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION |
(unaudited prepared by management) |
(expressed in thousands of US dollars) |
March 31, | December 31, | ||||||||
Notes | 20 18 | 20 17 | |||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 36,560 | $ | 38,277 | |||||
Restricted cash | - | 1,000 | |||||||
Other investments | 148 | 168 | |||||||
Accounts receivable | 4 | 35,241 | 34,012 | ||||||
Inventories | 5 | 12,344 | 13,131 | ||||||
Prepaid expenses | 1,983 | 1,911 | |||||||
Total current assets | 86,276 | 88,499 | |||||||
Non-current deposits | 610 | 610 | |||||||
Deferred income tax asset | 1,913 | 655 | |||||||
Mineral properties, plant and equipment | 7 | 89,628 | 88,816 | ||||||
Total assets | $ | 178,427 | $ | 178,580 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 18,285 | $ | 19,068 | |||||
Income taxes payable | 1,354 | 3,185 | |||||||
Total current liabilities | 19,639 | 22,253 | |||||||
Deferred lease inducement | 229 | 236 | |||||||
Provision for reclamation and rehabilitation | 8,020 | 7,982 | |||||||
Deferred income tax liability | 1,243 | 1,592 | |||||||
Total liabilities | 29,131 | 32,063 | |||||||
Shareholders' equity | |||||||||
Common shares, unlimited shares authorized , no par value, issued
and outstanding 127,488 ,410 shares (Dec 31, 20 17 - 127,488,410 shares) |
Page 4 | 450,740 | 450,740 | ||||||
Contributed surplus | Page 4 | 9,201 | 8,747 | ||||||
Accumulated comprehensive income (loss) | Page 4 | - | 127 | ||||||
Retained earnings (deficit) | (310,645 | ) | (313,097 | ) | |||||
Total shareholders' equity | 149,296 | 146,517 | |||||||
Total liabilities and shareholders' equity | $ | 178,427 | $ | 178,580 |
Commitments and contingencies (Notes 7 and 13)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 2 |
ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME |
(unaudited prepared by management) |
(expressed in thousands of US dollars, except for shares and per share amounts) |
Three months ended | |||||||||
March 31, | March 31, | ||||||||
Notes | 2018 | 2017 | |||||||
Revenue | $ | 40,330 | $ | 36,441 | |||||
Cost of sales : | |||||||||
Direct production costs | 25,806 | 24,048 | |||||||
Royalties | 698 | 440 | |||||||
Share-based payments | 8 | 37 | - | ||||||
Depreciation and depletion | 9,759 | 4,113 | |||||||
Write down of inventory to net realizable value | 5 | 755 | - | ||||||
37,055 | 28,601 | ||||||||
Mine operating earnings | 3,275 | 7,840 | |||||||
Expenses : | |||||||||
Exploration | 9 | 2,023 | 3,336 | ||||||
General and administrative | 10 | 2,318 | 1,955 | ||||||
4,341 | 5,291 | ||||||||
Operating earnings (loss) | (1,066 | ) | 2,549 | ||||||
Finance costs | 49 | 236 | |||||||
Other income (expense): | |||||||||
Foreign exchange | 2,273 | 2,147 | |||||||
Investment and other | 69 | 77 | |||||||
2,342 | 2,224 | ||||||||
Earnings (loss) before income taxes | 1,227 | 4,537 | |||||||
Income tax expense (recovery): | |||||||||
Current income tax expense | 688 | 299 | |||||||
Deferred income tax expense (recovery) | (1,786 | ) | (1,797 | ) | |||||
(1,098 | ) | (1,498 | ) | ||||||
Net earnings (loss) for the period | 2,325 | 6,035 | |||||||
Other comprehensive income (loss), net of tax | |||||||||
Unrealized gain (loss) on other investments | - | 17 | |||||||
Total other comprehensive income (loss) for the period | - | 17 | |||||||
Comprehensive income (loss) for the period | $ | 2,325 | $ | 6,052 | |||||
Basic earnings (loss) per share based on net earnings | $ | 0.02 | $ | 0.05 | |||||
Diluted earnings (loss) per share based on net earnings | 8 (e) | $ | 0.02 | $ | 0.05 | ||||
Basic weighted average number of shares outstanding | 127,488,410 | 127,095,764 | |||||||
Diluted weighted average number of shares outstanding | 8 (e) | 127,827,863 | 128,523,833 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 3 |
ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |
(unaudited prepared by management) |
(expressed in thousands of US dollars, except share amounts) |
Accumulated | |||||||||||||||||||||
Comprehensive | Retained | Total | |||||||||||||||||||
Number of | Share | Contributed | Income ("OCI") | Earnings | Shareholders' | ||||||||||||||||
Note | shares | Capital | Surplus | (Loss) | (Deficit) | Equity | |||||||||||||||
Balance at December 31, 2016 | 127,080,264 | $ | 449,594 | $ | 6,689 | $ | 44 | $ | (323,068 | ) | $ | 133,259 | |||||||||
Exercise of options | 8 (a) | 28,000 | 109 | (35 | ) | - | - | 74 | |||||||||||||
Share based compensation | 8 (a)(d) | - | - | 396 | - | - | 396 | ||||||||||||||
Unrealized gain (loss) on other investments | - | - | - | 17 | - | 17 | |||||||||||||||
Earnings (loss) for the year | - | - | - | - | 6,035 | 6,035 | |||||||||||||||
Balance at March 31, 2017 | 127,108,264 | 449,703 | 7,050 | 61 | (317,033 | ) | 139,781 | ||||||||||||||
Exercise of options | 8 (a) | 32,000 | 98 | (30 | ) | - | - | 68 | |||||||||||||
Issued for performance share units | 8 (d) | 193,825 | 439 | (439 | ) | - | - | - | |||||||||||||
Issued on acquisition of mineral properties, net | 154,321 | 500 | - | - | - | 500 | |||||||||||||||
Share based compensation | 8 (a)(d) | - | - | 2,453 | - | - | 2,453 | ||||||||||||||
Unrealized gain (loss) on other investments | - | - | - | 138 | - | 138 | |||||||||||||||
Realized (gain) loss on other investments | - | - | - | (72 | ) | - | (72 | ) | |||||||||||||
Expiry and forfeiture of options | - | - | (287 | ) | - | 287 | - | ||||||||||||||
Earnings (loss) for the year | - | - | - | - | 3,649 | 3,649 | |||||||||||||||
Balance at December 31, 2017 | 127,488,410 | 450,740 | 8,747 | 127 | (313,097 | ) | 146,517 | ||||||||||||||
Share based compensation | 8 (a)(d) | - | - | 416 | - | - | 416 | ||||||||||||||
Unrealized gain (loss) on other investments tranferred to retained earnings | - | - | - | (127 | ) | 127 | - | ||||||||||||||
Realloction of performance share unit liability | 3(a) | - | - | 38 | - | - | 38 | ||||||||||||||
Earnings (loss) for the year | - | - | - | - | 2,325 | 2,325 | |||||||||||||||
Balance at March 31, 2018 | 127,488,410 | $ | 450,740 | $ | 9,201 | $ | - | $ | (310,645 | ) | $ | 149,296 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 4 |
ENDEAVOUR SILVER CORP. |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS |
(unaudited prepared by management) |
(expressed in thousands of US dollars) |
Three months ended | |||||||||
March 31, | March 31, | ||||||||
Notes | 2018 | 2017 | |||||||
Operating activities | |||||||||
Net earnings (loss) for the year | $ | 2,325 | $ | 6,035 | |||||
Items not affecting cash: | |||||||||
Share-based compensation | 8 | 4 16 | 337 | ||||||
Depreciation and depletion | 7 | 9,837 | 4,182 | ||||||
Deferred income tax expense (recovery) | (1,786 | ) | (1,665 | ) | |||||
Unrealized foreign exchange loss (gain) | (50 | ) | (462 | ) | |||||
Finance costs | 38 | 236 | |||||||
Write off of mineral properties | - | 233 | |||||||
Write down of inventory to net realizable value | 5 | 755 | - | ||||||
Unrealized loss (gain) on other investments | 20 | - | |||||||
Net changes in non-cash working capital | 11 | (3,536 | ) | 771 | |||||
Cash from operating activities | 8,019 | 9,667 | |||||||
Investing activities | |||||||||
Property, plant and equipment expenditures | 7 | (10,965 | ) | (9,368 | ) | ||||
Cash used in investing activities | (10,965 | ) | (9,368 | ) | |||||
Financing activities | |||||||||
Repayment of credit facility | - | (2,500 | ) | ||||||
Restricted cash | 1,000 | - | |||||||
Interest paid | - | (167 | ) | ||||||
Exercise of options | 8 (a) | - | 74 | ||||||
Cash from (used in) financing activities | 1,000 | (2,593 | ) | ||||||
Effect of exchange rate change on cash and cash equivalents | 229 | 462 | |||||||
Increase (decrease) in cash and cash equivalents | (1,946 | ) | (2,294 | ) | |||||
Cash and cash equivalents, beginning of year | 38,277 | 72,317 | |||||||
Cash and cash equivalents, end of year | $ | 36,560 | $ | 70,485 |
Supplemental cash flow information (Note 11)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 5 |
1. |
CORPORATE INFORMATION |
Endeavour Silver Corp. (the Company or Endeavour Silver) is a corporation governed by the Business Corporations Act (British Columbia). The Company is engaged in silver mining in Mexico and related activities including acquisition, exploration, development, extraction, processing, refining and reclamation. The Company is also engaged in exploration activities in Chile. The address of the registered office is #1130 609 Granville Street, Vancouver, B.C., V7Y 1G5. |
|
2. |
BASIS OF PRESENTATION |
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. |
|
The Board of Directors approved the condensed consolidated interim financial statements for issue on May 2, 2018. |
|
The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. |
|
These consolidated financial statements are presented in the Companys functional currency of US dollars and include the accounts of the Company and its wholly owned subsidiaries: Endeavour Management Corp., Endeavour Zilver SARL, Endeavour Gold Corporation S.A. de C.V., EDR Silver de Mexico S.A. de C.V. SOFOM , Minera Santa Cruz Y Garibaldi S.A de C.V., Metalurgica Guanaceví S.A. de C.V., Minera Plata Adelante S.A. de C.V., Refinadora Plata Guanaceví S.A. de C. V., Minas Bolañitos S. A. de C.V., Guanaceví Mining Services S.A. de C.V., Recursos Humanos Guanaceví S.A. de C.V., Recursos Villalpando S.A. de C.V., Servicios Administrativos Varal S.A. de C.V., Minera Plata Carina SPA, MXRT Holding Ltd., Compania Minera del Cubo S.A. de C.V., Minas Lupycal S.A. de C.V., Metales Interamericanos S.A. de C.V., Oro Silver Resources Ltd., Minera Oro Silver de Mexico S.A. de C.V., MXRT Holdings Ltd., Terrornera Mining Company and Terronera Precious Metals S.A. de C.V. All intercompany transactions and balances have been eliminated upon consolidation of these subsidiaries. |
|
3. |
SIGNIFICANT ACCOUNTING POLICIES |
The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Companys annual audited consolidated financial statements as at and for the year ended December 31, 2017 except as described below. |
|
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Companys accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements as at and for the year ended December 31, 2017 and accordingly, should be read in conjunction with the Companys annual audited consolidated financial statements for the year ended December 31, 2017. |
(a) |
Accounting standards adopted during the year |
Amendments to IFRS 2, Share-based
Payment (IFRS 2)
On June 20, 2016, the IASB issued amendments to IFRS
2 clarifying how to account for certain types of share-based payment
transactions. The amendments provide requirements on the accounting for: the
effects of vesting and non-vesting conditions on the measurement of cash-settled
share-based payments; share-based transactions with a net settlement feature for
withholding tax obligations; and a modification to the terms and conditions of a
share-based payment that changes the classification of a transaction from
cash-settled to equity settled.
The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective or early application is permitted if information is available without the use of hindsight. The Company has adopted the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, 2018 on a prospective basis.
The Company has Performance Share Units (PSU) with a net settlement feature, which permits cash settlement for withholding tax obligations. The expense for the PSUs has previously been bifurcated with the cash settlement portion of the expense recognized as a liability until settlement, and the remaining expense allocated to Contributed Surplus. Upon adoption of the amendments to IFRS 2, the PSU liability at January 1, 2018, the liability classified portion of $38 was reallocated to Contributed Surplus.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 6 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
IFRS 9 Financial Instruments (IFRS
9)
In November 2009, the IASB issued IFRS 9 as the first step in its
project to replace IAS 39,
Financial Instruments: Recognition and
Measurement
. On July 24, 2014 the IASB issued the complete IFRS 9. IFRS 9
retains but simplifies the mixed measurement model and establishes two primary
measurement categories for financial assets: amortized cost and fair value. The
basis of classification depends on an entitys business model and the
contractual cash flows of the financial asset.
Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument.
IFRS 9 amends some of the requirements of IFRS 7, Financial Instruments: Disclosures , including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on the measurement of financial liabilities and de-recognition of financial instruments. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 with early adoption permitted, and must be applied retrospectively with some exemptions permitted.
As a result of the adoption of IFRS 9, we have changed our accounting policy for financial instruments retrospectively.
The change did not result in a change in carrying value of any of our financial instruments on transition date. IFRS 9 introduced a single expected credit loss impairment model, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model did not have a significant impact on the Companys financial statements.
The Companys financial instruments are accounted for as follows under IFRS 9 as compared to the Companys previous policy in accordance with IAS 39.
January 1, 2018 | |||
IAS 39 | IFRS 9 | ||
Assets | |||
Cash and cash equivalents | Amortized cost | Amortized cost | |
Restricted cash | Amortized cost | Amortized cost | |
Trade and other receivables (other than derivatives) | Amortized cost | Amortized cost | |
Trade receivables (derivative component) | Fair value through profit or loss | Fair value through profit or loss | |
Marketable securities | Fair value through other comprehensive income | Fair value through profit or loss | |
Liabilities | |||
Accounts payable and accrued liabilities | Amortized cost | Amortized cost |
Under IFRS 9, the Companys equity marketable securities are designated as financial assets at fair value through profit or loss. For equity instruments not held for trading, we may make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. We did not make any such election upon adoption of IFRS 9.
IFRS 9 does not require restatement of comparative periods. Accordingly, the Company has reflected the retrospective impact of the adoption of IFRS 9 due to the change in accounting policy for marketable securities as an adjustment to opening components of equity as at January 1, 2018.
The fair value of marketable securities is $168 under both IAS 39 and IFRS 9 as at January 1, 2018, the date of initial application of IFRS 9, and is presented in Other Investments in the consolidated balance sheet. On adoption, the unrealized gain in fair value of $127, previously recognized in accumulated other comprehensive income has been reallocated to retained earnings.
As a result of the adoption of IFRS 9, the Companys accounting policy for financial instruments has been updated as follows:
Financial Instruments
The Company recognizes financial assets and financial liabilities on the
date the Company becomes party to the contractual provisions of the instruments.
A financial asset is derecognized either when the Company has transferred
substantially all the risks and rewards of ownership of the financial assets or
when cash flows expire. A financial liability is derecognized when the
obligation specified in the contract is discharged, cancelled or expired.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 7 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
We classify and measure financial assets (excluding derivatives) on initial recognition as described below:
|
Cash and equivalents and restricted cash include cash and term deposits with original maturities of less than 90 days are classified as financial assets at fair value through profit and loss and are measured at fair value. Unrealized gains and losses related to changes in fair value are reported in income; |
|
|
Trade and other receivables are classified as and measured at amortized cost using the effective interest method, less impairment allowance, in any; |
|
|
Investments in equity instruments are designated as financial assets through profit or loss and are recorded at fair value on settlement date, net of transaction costs. Subsequent to initial recognition, changes in fair value are recognized in income. |
Derivative financial instruments, including embedded derivatives in trade receivables measured at amortized cost, are recorded in the consolidated balance sheets at fair value. Subsequent to initial recognition, changes in estimated fair value at each reporting date are recognized through profit or loss.
A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements and since we do not have any financial liabilities designated at fair value through profit or loss, the adoption of IFRS 9 did not impact our accounting policies for financial liabilities.
IFRS 15,
Revenue from Contracts with
Customers (IFRS 15)
On May 28, 2014, the IASB issued IFRS 15. The new
standard is effective for annual periods beginning on or after January 1, 2018
with early adoption permitted. IFRS 15 replaces IAS 11
Construction
Contracts
, IAS 18
Revenue
, IFRIC 13
Customer Loyalty
Programmes
, IFRIC 15
Agreements for the Construction of Real Estate
,
IFRIC 18
Transfer of Assets from Customers
and SIC 31
Revenue Barter
Transactions Involving Advertising Services
.
The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have also been introduced, which may affect the amount and/or timing of revenue recognized.
On April 12, 2016 the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers , which is effective at the same time as IFRS 15. The clarifications to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application of the standard to licenses of intellectual property.
The Company adopted IFRS 15 and the clarifications effective January 1, 2018 with no impact on the consolidated financial statements.
Dore sales
IFRS 15 requires
that revenue from contracts with customers be recognized upon the transfer of
control over goods or services to the customer. The recognition of revenue upon
transfer of control to the customer is consistent with our revenue recognition
policy as set out in Note 3(l) of the 2017 Annual Financial Statements, as the
condition is generally satisfied when title transfers to the customer. As such,
upon adoption, this requirement under IFRS 15 resulted in no impact to our
financial statements as the timing of revenue recognition on our dore sales is
unchanged.
Concentrate sales
We
assessed all of our existing concentrate sales agreements and determined that
there is no change in the timing of revenue recognition, as control transfers to
the smelting companies at the time of delivery, consistent with our current
accounting policy as set out in Note 3(l) of the 2017 Annual Financial
Statements.
(b) |
Changes in IFRS not yet adopted |
IFRS 16, Leases (IFRS 16)
On
January 13, 2016, the IASB published a new standard, IFRS 16, Leases,
eliminating the current dual accounting model for lessees, which distinguishes
between on-balance sheet finance leases and off-balance sheet operating leases.
Under the new standard, a lease becomes an on-balance sheet liability that
attracts interest, together with a new right-of-use asset. In addition, lessees
will recognize a front-loaded pattern of expense for most leases, even when cash
rentals are constant. IFRS 16 is effective for annual periods beginning on or
after January 1, 2019, with earlier adoption permitted. The Company has begun a
preliminary assessment however, the Company is not able at this time to estimate
reasonably the impact that the amendments will have on the financial statements.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 8 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
4. |
ACCOUNTS RECEIVABLE |
March 31 | December 31 | |||||||||
Note | 2018 | 2017 | ||||||||
Trade receivables (1) | $ | 6,466 | $ | 8,114 | ||||||
IVA receivables (2) | 22,728 | 19,989 | ||||||||
Income taxes recoverable | 5,924 | 5,549 | ||||||||
Due from related parties | 5 | 1 | 2 | |||||||
Other receivables | 122 | 358 | ||||||||
$ | 35,241 | $ | 34,012 |
(1) |
The trade receivables consist of receivables from provisional silver and gold sales from the Bolañitos and El Cubo mines. The fair value of receivables arising from concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted closing price on the measurement date from the exchange that is the principal active market for the particular metal. As such, these receivables, which meet the definition of an embedded derivative, are classified within Level 2 of the fair value hierarchy (Note 14). |
|
(2) |
The Companys Mexican subsidiaries pay value added tax, Impuesto al Valor Agregado (IVA), on the purchase and sale of goods and services. The net amount paid is recoverable but is subject to review and assessment by the tax authorities. The Company regularly files the required IVA returns and all supporting documentation with the tax authorities, however, the Company has been advised that certain IVA amounts receivable from the tax authorities are being withheld pending completion of the authorities audit of certain of the Companys third-party suppliers. Under Mexican law the Company has legal rights to those IVA refunds and the results of the third party audits should have no impact on refunds. A smaller portion of IVA refund requests are from time to time improperly denied based on the alleged lack of compliance of certain formal requirements and information returns by the Companys third-party suppliers. The Company takes necessary legal action on the delayed refunds as well as any improperly denied refunds. |
|
These improper delays and denials have occurred within Compania Minera del Cubo (El Cubo) and Refinadora Plata Adelante S.A. de C.V. (Guanaceví,). At March 31, 2018, El Cubo holds $12,054 and Guanaceví holds $8,720 in IVA receivables which the Company and its advisors deem to be recoverable from tax authorities (December 31, 2017 $10,392 and $8,812 respectively). The Company is in regular contact with the tax authorities in respect of its IVA filings and believes the full amount of its IVA receivables will ultimately be received; however, the timing of recovery of these amounts and the nature and extent of any adjustments to the Companys IVA receivables remains uncertain. |
5. |
INVENTORIES |
March 31 | December 31 | ||||||
2018 | 2017 | ||||||
Warehouse inventory | $ | 8 ,272 | $ | 7,809 | |||
Stock pile inventory | 137 | - | |||||
Work in process inventory | 616 | 49 6 | |||||
Finished goods inventory (1)(2) | 3,319 | 4,826 | |||||
$ | 12,344 | $ | 13,131 |
(1) |
The Company held 160,034 silver ounces and 1,497 gold ounces as of March 31, 2018 (December 31, 2017 241,321 and 1,226, respectively). These ounces are carried at the lower of cost and net realizable value. As at March 31, 2018, the quoted market value of the silver ounces was $2,605 (December 31, 2017 - $4,070) and the quoted market value of the gold ounces was $1,982 (December 31, 2017 - $1,590). |
|
(2) |
The finished goods inventory balance at March 31, 2018 includes a write down to net realizable value of $755 for finished goods inventory held at the Guanaceví mine. Of this amount $463 is comprised of cash costs and $292 relates to depreciation and depletion. |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 9 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
Mineral | Machinery & | Transport & | |||||||||||||||||
properties | Plant | equipment | Building | office equipment | Total | ||||||||||||||
Cost | |||||||||||||||||||
Balance at December 31, 2016 | $ | 457,401 | $ | 94,871 | $ | 61,812 | $ | 10,671 | $ | 9,595 | $ | 634,350 | |||||||
Additions | 28,682 | 3,177 | 5,386 | 1,191 | 2,038 | 40,474 | |||||||||||||
Disposals | (233 | ) | (27 | ) | (4,354 | ) | - | (1,100 | ) | (5,714 | ) | ||||||||
Balance at December 31, 2017 | 485,850 | 98,021 | 62,844 | 11,862 | 10,533 | 669,110 | |||||||||||||
Additions | 7,673 | 1,517 | 797 | 108 | 730 | 10,825 | |||||||||||||
Disposals | - | - | - | - | - | - | |||||||||||||
Balance at March 31, 2018 | $ | 493,523 | $ | 99,538 | $ | 63,641 | $ | 11,970 | $ | 11,263 | $ | 679,935 | |||||||
Accumulated amortization and impairment | |||||||||||||||||||
Balance at December 31, 2016 | $ | 419,320 | $ | 85,563 | $ | 46,196 | $ | 9,214 | $ | 7,819 | $ | 568,112 | |||||||
Amortization | 12,161 | 1,672 | 2,682 | 188 | 947 | 17,650 | |||||||||||||
Disposals | - | (26 | ) | (4,353 | ) | - | (1,089 | ) | (5,468 | ) | |||||||||
Balance at December 31, 2017 | 431,481 | 87,209 | 44,525 | 9,402 | 7,677 | 580,294 | |||||||||||||
Amortization | 8,197 | 536 | 917 | 85 | 278 | 10,013 | |||||||||||||
Disposals | - | - | - | - | - | - | |||||||||||||
Balance at March 31, 2018 | $ | 439,678 | $ | 87,745 | $ | 45,442 | $ | 9,487 | $ | 7,955 | $ | 590,307 | |||||||
Net book value | |||||||||||||||||||
At December 31, 2017 | $ | 54,369 | $ | 10,812 | $ | 18,319 | $ | 2,460 | $ | 2,856 | $ | 88,816 | |||||||
At March 31, 2018 | $ | 53,845 | $ | 11,793 | $ | 18,199 | $ | 2,483 | $ | 3,308 | $ | 89,628 |
Included in Mineral properties is $11,485 in acquisition costs for exploration and evaluation properties (December 31, 2017 $11,334).
As of March 31, 2018, the Company has $23 committed to capital equipment purchases.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 10 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
8. |
SHARE CAPITAL |
(a) |
Purchase Options |
Options to purchase common shares have been granted to directors, officers, employees and consultants pursuant to the Companys current stock option plan, approved by the Companys shareholders in fiscal 2009 and re-ratified in 2015, at exercise prices determined by reference to the market value on the date of grant. The stock option plan allows for, with approval by the Board, granting of options to its directors, officers, employees and consultants to acquire up to 7.0% of the issued and outstanding shares at any time.
The following table summarizes the status of the Companys stock option plan and changes during the year:
Expressed in Canadian dollars | Period Ended | Year Ended | |||||||||||
March 31, 20 18 | December 31, 2017 | ||||||||||||
Number | Weighted | Number | Weighted | ||||||||||
of shares | average | of shares | average | ||||||||||
Outstanding, beginning of year | 5,792,800 | $ | 4.00 | 4,458,050 | $ | 3.93 | |||||||
Granted | - | - | 1,572,000 | $ | 4.32 | ||||||||
Exercised | - | - | (60,000 | ) | $ | 3.03 | |||||||
Cancelled | - | - | (177,250 | ) | $ | 5.49 | |||||||
Outstanding, end of the period | 5,792,800 | $ | 4.00 | 5,792,800 | $ | 4.00 | |||||||
Options exercisable at the end of the period | 4,509,600 | $ | 3.91 | 4,509,600 | $ | 3.91 |
The following table summarizes the information about stock options outstanding at March 31, 2018:
During the three months ended March 31, 2018, the Company recognized share-based compensation expense of $416 (March 31, 2017 - $396) based on the fair value of the vested portion of options granted in the current and prior years.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 11 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
(b) |
Deferred Share Units |
The Company has a Deferred Share Unit (DSU) plan whereby deferred share units may be granted to independent directors of the Company in lieu of compensation in cash or share purchase options. The DSUs vest immediately and are redeemable for cash based on the market value of the units at the time of a directors retirement.
Expressed in Canadian dollars | Period Ended | Year Ended | |||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Number | Weighted | Number | Weighted | ||||||||||
of units | average grant | of units | average grant | ||||||||||
Outstanding, beginning of year | 548,392 | $ | 3.44 | 510,560 | $ | 3.39 | |||||||
Granted | - | - | 37,832 | $ | 4.11 | ||||||||
Redeemed | - | - | - | - | |||||||||
Outstanding, end of period | 548,392 | $ | 3.44 | 548,392 | $ | 3.44 | |||||||
Fair value at period end | 548,392 | $ | 3.13 | 548,392 | $ | 3.02 |
During the period ended March 31, 2018, the Company recognized directors compensation expense related to DSUs, which is included in general and administrative salaries, wages and benefits, of $11 (March 31, 2017 recovery of $183 based on the fair value of new grants and the change in the fair value of the DSUs granted in the current and prior years. As of March 31, 2018 there are 548,392 deferred share units outstanding (December 31, 2017 548,392) with a fair market value of $1,330 (December 31, 2017 - $1,319) recognized in accounts payable and accrued liabilities.
(c) |
Share Appreciation Rights |
As part of the Companys bonus program, the Company grants share appreciation rights (SARs) to its employees in Mexico and Chile. The SARS are subject to vesting conditions and, when exercised, constitute a cash bonus based on the value of the appreciation of the Companys common shares between the SARs grant date and the exercise date.
Period Ended | Year Ended | ||||||||||||
March 31, 2018 | December 31, 2017 | ||||||||||||
Number | Weighted | Number | Weighted | ||||||||||
of units | average | of units | average grant | ||||||||||
Outstanding, beginning of year | 911,993 | $ | 3.80 | 579,660 | $ | 4.20 | |||||||
Granted | - | - | 489,000 | $ | 3.30 | ||||||||
Exercised | (12,832 | ) | $ | 2.21 | (46,668 | ) | $ | 2.21 | |||||
Cancelled | (24,666 | ) | $ | 3.89 | (109,999 | ) | $ | 4.38 | |||||
Outstanding, end of period | 874,495 | $ | 3.82 | 911,993 | $ | 3.80 | |||||||
Exercisable at the end of the period | 452,679 | $ | 3.90 | 212,672 | $ | 3.69 |
During the period ended March 31, 2018, the Company recognized a recovery related to SARs, which is included in operation and exploration salaries, wages and benefits, of $69 (March 31, 2017 recovery of $11) based on the fair value of new grants and the change in the fair value of the SARs granted in the current and prior years. As of March 31, 2018 there are 874,795 SARs outstanding (December 31, 2017 911,993) with a fair market value of $272 (December 31, 2017 - $341) recognized in accounts payable and accrued liabilities.
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 12 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
(d) |
Performance Share Units Plan |
The Company has a Performance Share Unit (PSU) plan whereby performance share units may be granted to employees of the Company. Once performance conditions have been met, a PSU is redeemable into one common share entitling the holder to receive the common share for no additional consideration. The current maximum number of common shares authorized for issuance from treasury under the PSU plan is 1,000,000.
Period Ended | Year Ended | ||||||
March 31, 2018 | December 31, 2017 | ||||||
Number of units | Number of units | ||||||
Outstanding, beginning of year | 200,000 | 325,000 | |||||
Granted | - | 200,000 | |||||
Cancelled | - | - | |||||
Settled for shares | - | (193,825 | ) | ||||
Settled for cash | - | (131,175 | ) | ||||
Outstanding, end of period | 200,000 | 200,000 |
There were no PSUs granted during the three months ended March 31, 2018 (March 31, 2017 Nil) under the Companys PSU plan. A total of 200,000 PSUs were granted on May 4, 2017 under the Companys PSU plan. The 200,000 PSUs vest on May 3, 2020, subject to achievement of pre-determined performance criteria. The PSUs vest at the end of a three year period if certain performance and vesting criteria, based on the Companys share price performance relative to a representative group of other mining companies, has been met. During the three months ended March 31, 2018, the Company recognized share based compensation expense of $52 related to the PSUs (March 31, 2017 recovery of $59).
(e) |
Diluted Earnings per Share |
Three months ended | |||||||
March 31, | March 31, | ||||||
2018 | 2017 | ||||||
Net earnings | $ | 2,32 5 | $ | 6,035 | |||
Basic weighted average number of shares outstanding | 127,488,410 | 127,095,764 | |||||
Effect of dilutive securities: | |||||||
Stock options | 139,453 | 1,10 3,0 6 9 | |||||
Performance share units | 200,000 | 325,000 | |||||
Diluted weighted average number of share outstanding | 127,827,863 | 128,523,833 | |||||
Diluted earnings per share | $ | 0.02 | $ | 0.05 |
As of March 31, 2018 there are 4,656,300 anti-dilutive stock options (March 31, 2017 47,250 stock options).
9. |
EXPLORATION |
Three months ended | |||||||
March 31, | March 31, | ||||||
2018 | 2017 | ||||||
Depreciation and depletion | $ | 23 | $ | 28 | |||
Share-based compensation | 36 | 39 | |||||
Salaries, wages and benefits | 706 | 530 | |||||
Direct exploration expenditures | 1,258 | 2,739 | |||||
$ | 2,023 | $ | 3,336 |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 13 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
10. |
GENERAL AND ADMINISTRATIVE |
Three months ended | |||||||
March 31 | March 31 | ||||||
2018 | 2017 | ||||||
Depreciat ion and depletion | $ | 5 5 | $ | 41 | |||
Share-based compensation | 343 | 298 | |||||
Salaries, wages and benefits | 878 | 736 | |||||
Direct general and administrative expenditures | 1,042 | 880 | |||||
$ | 2,318 | $ | 1,955 |
Included in salaries, wages and benefits is $11 in directors deferred share unit recovery for the three months ended March 31, 2018 (March 31, 2017 recovery of $183).
11. |
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS |
Three months ended | |||||||
March 31, | March 31, | ||||||
2018 | 2017 | ||||||
Net changes in non-cash working capital: | |||||||
Accounts receivable | $ | (1,229 | ) | $ | (1,149 | ) | |
Inventories | 348 | 944 | |||||
Prepaid expenses | (72 | ) | 263 | ||||
Accounts payable and accrued liabilities | (752 | ) | 2,037 | ||||
Income taxes payable | (1,831 | ) | (1,324 | ) | |||
$ | (3,536 | ) | $ | 771 | |||
Non-cash financing and investing activities: | |||||||
Fair value of exercised options allocated to share capital | - | 35 | |||||
Other cash disbursements: | |||||||
Income taxes paid | 1,068 | 1,603 | |||||
Special mining duty paid | 1,012 | - |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 14 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
12. |
SEGMENT DISCLOSURES |
The Companys operating segments are based on internal management reports that are reviewed by the Companys executives (the chief operating decision makers) in assessing performance. The Company has three operating mining segments, Guanaceví, Bolañitos and El Cubo, which are located in Mexico as well as Exploration and Corporate segments. The Exploration segment consists of projects in the exploration and evaluation phases in Mexico and Chile. |
March 31, 2018 | ||||||||||||||||||||||
Corporate | Exploration | Guanaceví | Bolanitos | El Cubo | El Compas | Total | ||||||||||||||||
Cash and cash equivalents | $ | 12,860 | $ | 383 | $ | 8,812 | $ | 4,286 | $ | 9,818 | $ | 401 | $ | 36,560 | ||||||||
Investments | 148 | - | - | - | - | - | 148 | |||||||||||||||
Accounts receivables | 103 | 1,858 | 11,165 | 4,616 | 15,752 | 1,747 | 35,241 | |||||||||||||||
Inventories | - | - | 6,704 | 2,622 | 3,018 | - | 12,344 | |||||||||||||||
Prepaid expenses | 1,238 | 110 | 245 | 76 | 193 | 121 | 1,983 | |||||||||||||||
Non-current deposits | 76 | - | 316 | 144 | 74 | - | 610 | |||||||||||||||
Deferred income tax asset | - | - | 767 | 1,146 | - | - | 1,913 | |||||||||||||||
Mineral property, plant and equipment | 669 | 11,472 | 38,597 | 7,358 | 16,598 | 14,934 | 89,628 | |||||||||||||||
Total assets | $ | 15,094 | $ | 13,823 | $ | 66,606 | $ | 20,248 | $ | 45,453 | $ | 17,203 | $ | 178,427 | ||||||||
Accounts payable and accrued liabilities | $ | 4,785 | $ | 455 | $ | 4,574 | $ | 2,495 | $ | 5,125 | $ | 851 | $ | 18,285 | ||||||||
Income taxes payable | 584 | - | 631 | 128 | 11 | - | 1,354 | |||||||||||||||
Deferred lease inducement | 229 | - | - | - | - | - | 229 | |||||||||||||||
Provision for reclamation and rehabilitation | - | - | 2,097 | 1,781 | 4,092 | 50 | 8,020 | |||||||||||||||
Deferred income tax liability | - | 200 | - | 816 | 227 | - | 1,243 | |||||||||||||||
Total liabilities | $ | 5,598 | $ | 655 | $ | 7,302 | $ | 5,220 | $ | 9,455 | $ | 901 | $ | 29,131 |
December 31, 2017 | ||||||||||||||||||||||
Corporate | Exploration | Guanaceví | Bolanitos | El Cubo | El Compas | Total | ||||||||||||||||
Cash and cash equivalents | $ | 20,884 | $ | 1,034 | $ | 6,212 | $ | 2,360 | $ | 7,594 | $ | 193 | $ | 38,277 | ||||||||
Restricted cash | 1,000 | - | - | - | - | - | 1,000 | |||||||||||||||
Investments | 168 | - | - | - | - | - | 168 | |||||||||||||||
Accounts receivables | 341 | 893 | 12,115 | 4,100 | 15,602 | 961 | 34,012 | |||||||||||||||
Inventories | - | - | 8,476 | 2,178 | 2,477 | - | 13,131 | |||||||||||||||
Prepaid expenses | 1,090 | 128 | 125 | 77 | 176 | 315 | 1,911 | |||||||||||||||
Non-current deposits | 76 | - | 316 | 144 | 74 | - | 610 | |||||||||||||||
Deferred income tax asset | - | - | - | 655 | - | - | 655 | |||||||||||||||
Mineral property, plant and equipment | 691 | 11,285 | 42,264 | 6,766 | 15,929 | 11,881 | 88,816 | |||||||||||||||
Total assets | $ | 24,250 | $ | 13,340 | $ | 69,508 | $ | 16,280 | $ | 41,852 | $ | 13,350 | $ | 178,580 | ||||||||
Accounts payable and accrued liabilities | $ | 5,965 | $ | 225 | $ | 4,484 | $ | 1,774 | $ | 5,721 | $ | 899 | $ | 19,068 | ||||||||
Income taxes payable | 727 | - | 1,499 | 940 | 19 | - | 3,185 | |||||||||||||||
Deferred lease inducement | 236 | - | - | - | - | - | 236 | |||||||||||||||
Provision for reclamation and rehabilitation | - | - | 2,086 | 1,772 | 4,074 | 50 | 7,982 | |||||||||||||||
Deferred income tax liability | - | 200 | 528 | 637 | 227 | - | 1,592 | |||||||||||||||
Total liabilities | $ | 6,928 | $ | 425 | $ | 8,597 | $ | 5,123 | $ | 10,041 | $ | 949 | $ | 32,063 |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 15 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
Corporate | Exploration | Guanaceví | Bolanitos | El Cubo | El Compas | Total | ||||||||||||||||
Three months ended March 31, 2018 | ||||||||||||||||||||||
Silver revenue | $ | - | $ | - | $ | 10,343 | $ | 3,930 | $ | 9,205 | $ | - | $ | 23,478 | ||||||||
Gold revenue | - | - | 2,166 | 7,448 | 7,238 | - | 16,852 | |||||||||||||||
Total revenue | $ | - | $ | - | $ | 12,509 | $ | 11,378 | $ | 16,443 | $ | - | $ | 40,330 | ||||||||
Salaries, wages and benefits: | ||||||||||||||||||||||
mining | $ | - | $ | - | $ | 1,239 | $ | 1,189 | $ | 2,015 | $ | - | $ | 4,443 | ||||||||
processing | - | - | 393 | 242 | 461 | - | 1,096 | |||||||||||||||
administrative | - | - | 537 | 572 | 685 | - | 1,794 | |||||||||||||||
stock based compensation | - | - | 13 | 12 | 12 | - | 37 | |||||||||||||||
change in inventory | - | - | 698 | (82 | ) | (128 | ) | - | 488 | |||||||||||||
Total salaries, wages and benefits | - | - | 2,880 | 1,933 | 3,045 | - | 7,858 | |||||||||||||||
Direct costs: | ||||||||||||||||||||||
mining | - | - | 4,714 | 2,619 | 3,341 | - | 10,674 | |||||||||||||||
processing | - | - | 1,483 | 1,576 | 1,807 | - | 4,866 | |||||||||||||||
administrative | - | - | 471 | 429 | 676 | - | 1,576 | |||||||||||||||
change in inventory | - | - | 1,067 | (145 | ) | (53 | ) | - | 869 | |||||||||||||
Total direct production costs | - | - | 7,735 | 4,479 | 5,771 | - | 17,985 | |||||||||||||||
Depreciation and depletion: | ||||||||||||||||||||||
depreciation and depletion | - | - | 6,509 | 324 | 2,897 | - | 9,730 | |||||||||||||||
change in inventory | - | - | 290 | (15 | ) | (246 | ) | - | 29 | |||||||||||||
Total depreciation and depletion | - | - | 6,799 | 309 | 2,651 | - | 9,759 | |||||||||||||||
Royalties | - | - | 303 | 320 | 75 | - | 698 | |||||||||||||||
Write down of inventory to NRV | - | - | 755 | - | - | - | 755 | |||||||||||||||
Total cost of sales | $ | - | $ | - | $ | 18,472 | $ | 7,041 | $ | 11,542 | $ | - | $ | 37,055 | ||||||||
Earnings (loss) before taxes | $ | 195 | $ | (2,023 | ) | $ | (5,963 | ) | $ | 4,337 | $ | 4,901 | $ | (220 | ) | $ | 1,227 | |||||
Current income tax expense (recovery) | - | - | 137 | 348 | 203 | - | 688 | |||||||||||||||
Deferred income tax expense (recovery) | - | - | (1,295 | ) | (491 | ) | - | - | (1,786 | ) | ||||||||||||
Total income tax expense (recovery) | - | - | (1,158 | ) | (143 | ) | 203 | - | (1,098 | ) | ||||||||||||
Net earnings (loss) | $ | 195 | $ | (2,023 | ) | $ | (4,805 | ) | $ | 4,480 | $ | 4,698 | $ | (220 | ) | $ | 2,325 |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 16 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
Corporate | Exploration | Guanaceví | Bolanitos | El Cubo | El Compas | Total | ||||||||||||||||
Three months ended March 31, 2017 | ||||||||||||||||||||||
Silver revenue | $ | - | $ | - | $ | 12,639 | $ | 2,585 | $ | 6 ,76 1 | $ | - | $ | 21,985 | ||||||||
Gold revenue | - | - | 1,924 | 7,041 | 5,491 | - | 14,456 | |||||||||||||||
Total revenue | $ | - | $ | - | $ | 14,563 | $ | 9,626 | $ | 12,252 | $ | - | $ | 36,441 | ||||||||
Salaries, wages and benefits: | ||||||||||||||||||||||
mining | $ | - | $ | - | $ | 1,329 | $ | 1,045 | $ | 1,756 | $ | - | $ | 4,130 | ||||||||
processing | - | - | 441 | 200 | 362 | - | 1,003 | |||||||||||||||
administrative | - | - | 687 | 538 | 659 | - | 1,884 | |||||||||||||||
stock based compensation | - | - | - | - | - | - | - | |||||||||||||||
change in inventory | - | - | 621 | (198 | ) | 22 | - | 445 | ||||||||||||||
Total salaries, wages and benefits | - | - | 3,078 | 1,585 | 2,799 | - | 7,462 | |||||||||||||||
Direct costs: | ||||||||||||||||||||||
mining | - | - | 3,167 | 2,455 | 3,138 | - | 8,760 | |||||||||||||||
processing | - | - | 1,765 | 1,327 | 1,923 | - | 5,015 | |||||||||||||||
administrative | - | - | 600 | 379 | 610 | - | 1,589 | |||||||||||||||
change in inventory | - | - | 1,507 | (448 | ) | 163 | - | 1,222 | ||||||||||||||
Total direct production costs | - | - | 7,039 | 3,713 | 5,834 | - | 16,586 | |||||||||||||||
Depreciation and depletion: | ||||||||||||||||||||||
depreciation and depletion | - | - | 3,503 | 460 | 338 | - | 4,301 | |||||||||||||||
change in inventory | - | - | (130 | ) | (46 | ) | (12 | ) | - | (188 | ) | |||||||||||
Total depreciation and depletion | - | - | 3,373 | 414 | 326 | - | 4,113 | |||||||||||||||
Royalties | - | - | 343 | 43 | 54 | - | 440 | |||||||||||||||
Total cost of sales | $ | - | $ | - | $ | 13,833 | $ | 5,755 | $ | 9,013 | $ | - | $ | 28,601 | ||||||||
Earnings (loss) before taxes | $ | 33 | $ | (3,002 | ) | $ | 730 | $ | 3,871 | $ | 3,239 | $ | (334 | ) | $ | 4,537 | ||||||
Current income tax expense (recovery) | - | - | 101 | 275 | (77 | ) | - | 29 9 | ||||||||||||||
Deferred income tax expense (recovery) | - | - | (734 | ) | (1,166 | ) | 103 | - | (1,797 | ) | ||||||||||||
Total income tax expense (recovery) | - | - | (633 | ) | (891 | ) | 26 | - | (1,498 | ) | ||||||||||||
Net earnings (loss) | $ | 33 | $ | (3,002 | ) | $ | 1,363 | $ | 4,762 | $ | 3,213 | $ | (334 | ) | $ | 6,035 |
The Exploration segment included $86 of costs incurred in Chile for the three months ended March 31, 2018 (March 31, 2017 - $81).
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 17 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
13. |
INCOME TAXES |
Tax Assessments |
|
Minera Santa Cruz y Garibaldi SA de CV (MSCG), a subsidiary of the Company, received a MXN 238 million assessment on October 12, 2010 by Mexican fiscal authorities for failure to provide the appropriate support for certain expense deductions taken in MSCGs 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies, and deemed an unrecorded distribution of dividends to shareholders, among other individually immaterial items. MSCG immediately initiated a Nullity action and filed an administrative attachment to dispute the assessment. |
|
In June 2015, the Superior Court ruled in favour of MSCG on a number of the matters under appeal; however, the Superior Court ruled against MSCG for failure to provide appropriate support for certain deductions taken in MSCGs 2006 tax return. In June 2016, the Company received a MXN 122.9 million ($6,200) tax assessment based on the June 2015 ruling. The 2016 tax assessment comprised of MXN 41.8 million in taxes owed ($2,100), MXN 17.7 million ($900) in inflationary charges, MXN 40.4 million ($2,000) in interest and MXN 23.0 million ($1,200) in penalties. The 2016 tax assessment was issued for failure to provide the appropriate support for certain expense deductions taken in MSCGs 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies. The MXN 123 million assessment includes interest and penalties. If MSCG agrees to pay the tax assessment, or a lesser settled amount, it is eligible to apply for forgiveness of 100% of the penalties and 50% of the interest. |
|
The Company filed an appeal against the June 2016 tax assessment on the basis certain items rejected by the courts were included in the new tax assessment, while a number of deficiencies exist within the assessment. Since issuance of the assessment interest charges of MXN 5.6 million ($300) and inflationary charges of MXN 8.5 million ($400) has accumulated. |
|
Included in the Companys consolidated financial statements, are net assets of $595, including $42 in cash, held by MSCG. Following the Tax Courts rulings, MSCG is in discussions with the tax authorities with regards to the shortfall of assets within MSCG to settle its estimated tax liability. An alternative settlement option would be to transfer the shares and assets of MSCG to the tax authorities. As of March 31, 2018, the Company has recognized an allowance for transferring the shares and assets of MSCG amounting to $595. The Company is currently assessing MSCGs settlement options based on on-going court proceedings and discussion with the tax authorities. |
14. |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
Financial assets and liabilities | |
As at March 31, 2018, the carrying and fair values of the Companys financial instruments by category are as follows: |
Fair value | |||||||||||||
through profit | Amortized | Carrying | Fair | ||||||||||
or loss | cost | value | value | ||||||||||
$ | $ | $ | $ | ||||||||||
Financial assets: | |||||||||||||
Cash and cash equivalents | 36,560 | - | 36,560 | 36,560 | |||||||||
Investments | 148 | - | 148 | 148 | |||||||||
Trade and other receivables | - | 6,589 | 6,589 | 6,589 | |||||||||
Total financial assets | 36,708 | 6,589 | 43,297 | 43,297 | |||||||||
Financial liabilities: | |||||||||||||
Accounts payable and accrued liabilities | 18,285 | 18,285 | 18,285 | ||||||||||
Total financial liabilities | - | 18,285 | 18,285 | 18,285 |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 18 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
Fair value measurements
Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
Level 1:
Marketable
securities are determined based on a market approach reflecting the closing
price of each particular security at the reporting date. The closing price is a
quoted market price obtained from the exchange that is the principal active
market for the particular security. As a result, these financial assets have
been included in Level 1 of the fair value hierarchy.
Deferred share units are determined based on a market approach reflecting the Companys closing share price.
Level 2:
The Company
determines the fair value of the embedded derivatives related to its trade
receivables based on the quoted closing price obtained from the silver and gold
metal exchanges.
The Company determines the fair value of the SARs liability using an option-pricing model.
Level 3:
The Company has no
assets or liabilities included in Level 3 of the fair value hierarchy
There were no transfers between levels 1, 2 and 3 during the three months ended March 31, 2018.
Assets and liabilities as at March 31, 2018 measured at fair value on a recurring basis include:
Total | Level 1 | Level 2 | Level 3 | ||||||||||
$ | $ | $ | $ | ||||||||||
Financial assets: | |||||||||||||
Investments | 148 | 148 | - | - | |||||||||
Trade receivables | 6 ,46 6 | - | 6 ,46 6 | - | |||||||||
Total financial assets | 6 ,6 14 | 148 | 6 ,46 6 | - | |||||||||
Financial liabilities: | |||||||||||||
Deferred share units | 1,330 | 1,330 | - | - | |||||||||
Share appreciation rights | 272 | - | 272 | - | |||||||||
Total financial liabilities | 1,6 0 2 | 1,330 | 272 | - |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 19 |
ENDEAVOUR SILVER CORP. |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
Three months ended March 31, 2018 and 2017 |
(unaudited prepared by management) |
(expressed in thousands of US dollars, unless otherwise stated) |
ENDEAVOUR SILVER CORP. | CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS | PAGE 20 |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE THREE MONTHS ENDED MARCH 31, 2018 |
This Management Discussion and Analysis (MD&A) should be read in conjunction with the condensed consolidated interim financial statements of Endeavour Silver Corp. (Endeavour or the Company) for the three months ended March 31, 2018 and the related notes contained therein, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). In addition, the following should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017 and the related MD&A. The Company uses certain non-IFRS financial measures in this MD&A as described under Non-IFRS Measures. Additional information relating to the Company, including the most recent Annual Information Form (the Annual Information Form), is available on SEDAR at www.sedar.com, and the Companys most recent annual report on Form 40-F has been filed with the U.S. Securities and Exchange Commission (the SEC). This MD&A contains forward-looking statements that are subject to risk factors set out in a cautionary note contained herein. All dollar amounts are expressed in United States (U.S.) dollars and tabular amounts are expressed in thousands of U.S. dollars unless otherwise indicated. This MD&A is dated as of May 2, 2018 and all information contained is current as of May 2, 2018 unless otherwise stated.
Cautionary Note to U.S. Investors concerning Estimates of Mineral Reserves and Measured, Indicated and Inferred Mineral Resources:
This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws. The terms mineral reserve, proven mineral reserve and probable mineral reserve are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) and the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ materially from the definitions in SEC Industry Guide 7 under the U.S. Securities Act of 1933, as amended.
Under SEC Industry Guide 7 standards, a final or bankable feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into SEC Industry Guide 7 reserves. Inferred mineral resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of contained ounces in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute reserves by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this MD&A contains descriptions of the Companys mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the U.S. federal securities laws and the rules and regulations thereunder, including SEC Industry Guide 7.
609 Granville Street, Suite 1130, PO Box #10328, Vancouver, B.C., Canada V7Y 1G5 |
Phone: 604.685.9775 | Fax: 604.685.9744 | Toll Free: 1.877.685.9775 Email: info@edrsilver.com |
www.edrsilver.com |
Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of the U.S. Securities Litigation Reform Act of 1995, as amended and forward-looking information within the meaning of applicable Canadian securities legislation. Such forward-looking statements and information include, but are not limited to, statements regarding Endeavours anticipated performance in 2018, including silver and gold production, timing and expenditures to develop new silver mines and mineralized zones, silver and gold grades and recoveries, cash costs per ounce, capital expenditures and sustaining capital. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward- looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements.
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. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company and its operations to be materially different from those expressed or implied by such statements. Such factors include, among others: fluctuations in the prices of silver and gold, fluctuations in the currency markets (particularly the Mexican peso, Canadian dollar and U.S. dollar); changes in national and local governments, legislation, taxation, controls, regulations and political or economic developments in Canada and Mexico; operating or technical difficulties in mineral exploration, development and mining activities; risks and hazards of mineral exploration, development and mining (including, but not limited to environmental hazards, industrial accidents, unusual or unexpected geological conditions, pressures, cave-ins and flooding); inadequate insurance, or inability to obtain insurance; availability of and costs associated with mining inputs and labour; the speculative nature of mineral exploration and development, diminishing quantities or grades of mineral reserves as properties are mined; the ability to successfully integrate acquisitions; risks in obtaining necessary licenses and permits, and challenges to the Companys title to properties; as well as those factors described under Risk Factors in the Companys Annual Information Form. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or information, there may be other factors that cause results to be materially different from those anticipated, described, estimated, assessed or intended. There can be no assurance that any forward-looking statements or information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements or information. Accordingly, readers should not place undue reliance on forward-looking statements or information.
Qualified Person
The scientific and technical information contained in this MD&A relating to the Companys mines and mineral projects has been reviewed and approved by Godfrey Walton, M.Sc., P.Geo., President and Chief Operating Officer of Endeavour, a Qualified Person within the meaning of NI 43-101.
TABLE OF CONTENTS
Operating Highlights | Page 3 | Consolidated Financial Results | Page 14 | |
Consolidated Operations | Page 5 | Non IFRS Measures | Page 15 | |
Guanaceví Operations | Page 7 | Quarterly Results and Trends | Page 20 | |
Bolañitos Operations | Page 8 | Annual Outlook | Page 23 | |
El Cubo Operations | Page 10 | Liquidity and Capital Resources | Page 26 | |
Development Activities | Page 11 | Changes in Accounting Policies | Page 31 | |
Exploration Results | Page 13 | Controls and Procedures | Page 35 |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 2 |
Q1 2018 Highlights | Three Months Ended March 31 | ||||||
2018 | 2017 | % Change | |||||
Production | |||||||
Silver ounces produced | 1,350 ,840 | 1,0 76,974 | 25% | ||||
Gold ounces produced | 13,20 8 | 11,724 | 13% | ||||
Payable silver ounces produced | 1,324,856 | 1,0 54,110 | 26% | ||||
Payable gold ounces produced | 12,944 | 11,459 | 13% | ||||
Silver equivalent ounces produced (1) | 2,341,440 | 1,956,274 | 20 % | ||||
Cash costs per silver ounce (2)(3) | 6.50 | 7.81 | (17%) | ||||
Total production costs per ounce (2)(4) | 13.70 | 11.62 | 18% | ||||
All-in sustaining costs per ounce (2)(5) | 14.18 | 18.24 | (22%) | ||||
Processed tonnes | 325,669 | 30 3,222 | 7% | ||||
Direct production costs per tonne (2)(6) | 79.38 | 75.77 | 5% | ||||
Silver co-product cash costs (7) | 10 .76 | 11.96 | (10 %) | ||||
Gold co-product cash costs (7) | 857 | 861 | (0 %) | ||||
Financial | |||||||
Revenue ($ millions) | 40 .3 | 36.4 | 11% | ||||
Silver ounces sold | 1,40 6,143 | 1,235,594 | 14% | ||||
Gold ounces sold | 12,674 | 11,290 | 12% | ||||
Realized silver price per ounce | 16.70 | 17.79 | (6%) | ||||
Realized gold price per ounce | 1,330 | 1,280 | 4% | ||||
Net earnings (loss) ($ millions) | 2.3 | 6.0 | (61%) | ||||
Mine operating earnings ($ millions) | 3.3 | 7.8 | (58%) | ||||
Mine operating cash flow (8) ($ millions) | 13.8 | 12.0 | 16% | ||||
Operating cash flow before working capital changes (9) | 11.6 | 8.9 | 30 % | ||||
Earnings before ITDA (10) ($ millions) | 11.1 | 9.0 | 24% | ||||
Working capital ($ millions) | 66.6 | 81.7 | (18%) | ||||
Shareholders |
|||||||
Earnings (loss) per share basic | 0 .0 2 | 0 .0 5 | (60 %) | ||||
Operating cash flow before working capital changes per share (9) | 0 .0 9 | 0 .0 7 | 29% | ||||
Weighted average shares outstanding | 127,488,410 | 127,0 95,764 | 0 % |
(1) |
Silver equivalents are calculated using a 75:1 ratio. 2017 Silver equivalents have been restated from 70:1 to 75:1 for comparative purposes. |
(2) |
The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Companys mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15. |
(3) |
Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17. |
(4) |
Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17. |
(5) |
All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18. |
(6) |
Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17. |
(7) |
Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value. See Reconciliation to IFRS on page 18. |
(8) |
Mine operating cash flow is calculated by adding back amortization, depletion, inventory write-downs and share-based compensation to mine operating earnings. Mine operating earnings and mine operating cash flow are before taxes. See Reconciliation to IFRS on page 15. |
(9) |
See Reconciliation to IFRS on page 19 for the reconciliation of operating cash flow before working capital changes and page 15 for the operating cash flow before working capital changes per share. |
(10) |
See Reconciliation of Earnings before interest, taxes, depreciation and amortization on page 16. |
The above highlights are key measures used by management, however they should not be the sole measures used in determining the performance of the Companys operations.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 3 |
HISTORY AND STRATEGY
The Company is engaged in silver mining in Mexico and related activities including property acquisition, exploration, development, mineral extraction, processing, refining and reclamation. The Company is also engaged in exploration activities in Chile.
Since 2002, the Companys business strategy has been to focus on acquiring advanced-stage silver mining properties in Mexico. Mexico, despite its long and prolific history of metal production, appears to be relatively under-explored using modern exploration techniques and offers promising geological potential for precious metals exploration and production.
The Companys Guanaceví and Bolañitos mines acquired in 2004 and 2007, respectively, demonstrate its business model of acquiring fully built and permitted silver mines that were about to close for lack of ore. By bringing the money and expertise needed to find new silver ore-bodies, the Company successfully re-opened and expanded these mines to develop their full potential. The benefit of acquiring fully built and permitted mining and milling infrastructure is that, if new exploration efforts are successful, the mine development cycle from discovery to production only takes a matter of months instead of the several years normally required in the traditional mining business model.
In 2012, the Company acquired the El Cubo silver-gold mine located in Guanajuato, Mexico. The El Cubo property came with substantial reserves and resources and the mine was already operating at 1,100 tonnes per day (tpd). After acquisition, the Company initiated a two-year operational turn-around and capital investment program aimed at increasing throughput, grade and productivity in order to reduce operating costs and return the operation to profitability.
In addition to operating the Guanaceví, Bolañitos and El Cubo mines, the Company is advancing three exploration and development projects. These projects include the Companys high grade discovery on the Terronera property in Jalisco state, the permitted El Compas property and the leased La Plata plant in Zacatecas state that were acquired in 2016, and the prospective Parral properties in Chihuahua state that were also acquired in 2016. The Company is also exploring a number of other properties towards achieving its goal to become a premier senior producer in the silver mining sector.
The Company has historically funded its acquisition, exploration and development activities through equity financings, debt facilities and convertible debentures. In recent years, the Company has financed most of its acquisition, exploration, development and operating activities from production cash flows. The Company may choose to undertake equity, debt, convertible debt or other financings, on an as-needed basis, in order to facilitate its growth.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 4 |
REVIEW OF OPERATING RESULTS
The Company operates the Guanaceví, Bolañitos and El Cubo mines in Mexico. In addition, the Company is advancing three exploration and development projects in Mexico, including the Companys high-grade discovery on the Terronera property in Jalisco state, the permitted El Compas property and leased La Plata plant in Zacatecas state, and the prospective Parral properties in Chihuahua state.
Consolidated Production Results for the Three Months Ended March 31, 2018 and 2017
CONSOLIDATED | Three Months Ended March 31 | ||||||||
2018 | 2017 | % Change | |||||||
Ore tonnes processed | 325,669 | 303,222 | 7% | ||||||
Average silver grade (gpt) | 151 | 126 | 20% | ||||||
Silver recovery (%) | 85.4 | 87.4 | (2%) | ||||||
Total silver ounces produced | 1,350,840 | 1,076,974 | 25% | ||||||
Payable silver ounces produced | 1,324,856 | 1,054,110 | 26% | ||||||
Average gold grade (gpt) | 1.49 | 1.41 | 6% | ||||||
Gold recovery (%) | 84.5 | 85.2 | (1%) | ||||||
Total gold ounces produced | 13,208 | 11,724 | 13% | ||||||
Payable gold ounces produced | 12,944 | 11,459 | 13% | ||||||
Silver equivalent ounces produced (1) | 2,341,440 | 1,956,274 | 20% | ||||||
Cash costs per silver ounce (2)(3) | 6.50 | 7.81 | (17%) | ||||||
Total production costs per ounce (2)(4) | 13.70 | 11.62 | 18% | ||||||
All in sustaining cost per ounce (2)(5) | 14.18 | 18.24 | (22%) | ||||||
Direct production costs per tonne (2)(6) | 79.38 | 75.77 | 5% | ||||||
Silver co-product cash costs (7) | 10 .76 | 11.96 | (10 %) | ||||||
Gold co-product cash costs (7) | 857 | 861 | (0%) |
(1) |
Silver equivalents are calculated using a 75:1 ratio. 2017 Silver equivalents have been restated from 70:1 to 75:1 for comparative purposes. |
(2) |
The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Companys mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15. |
(3) |
Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17. |
(4) |
Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17. |
(5) |
All-in sustaining costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18. |
(6) |
Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17. |
(7) |
Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value. See Reconciliation to IFRS on page 18. |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 5 |
Consolidated Production
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Consolidated silver production during Q1, 2018 was 1,350,840
ounces (oz), an increase of 25% compared to 1,076,974 oz in Q1, 2017, and gold
production was 13,208 oz, an increase of 13% compared to 11,724 oz in Q1, 2017.
Plant throughput was 325,669 tonnes at average grades of 151 grams per tonne
(gpt) silver and 1.49 gpt gold, compared to 303,402 tonnes grading 126 gpt
silver and 1.41 gpt gold in Q1, 2017. Silver production was higher in Q1, 2018
compared to Q1, 2017 due to higher mine output and ore grades at El Cubo and
Bolanitos, partly offset by lower mine output at Guanacevi as the mine continues
to recover from some operating issues last year. Gold production in Q1, 2018
compared to Q1, 2017 was higher at El Cubo and Guanacevi and lower at Bolanitos
due to variations in gold grades at each mine.
Consolidated Operating Costs
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Direct production costs per tonne in Q1, 2018 increased 5%
compared with Q1, 2017. The higher production costs per tonne were driven mainly
by lower Guanaceví mine output due to mine development falling behind schedule
in 2017 and the costs related to a launching a productivity optimization
program. The productivity optimization program implemented by a third party
launched in January 2018 at Guanacevi aims to review and improve every aspect of
operations, from employee culture to people and equipment availability to
planning, execution, supervision and reporting. This seven month program is
intended to return Guanacevi to normal operations in Q3, 2018.
The higher costs at Guanaceví were offset by lower costs at Bolañitos and increased proportion of production due to higher grades at El Cubo.
The improved grades resulted in 17% lower cash costs per oz, net of by-product credits (a non-IFRS measure and a standard of the Silver Institute). Similarly, all-in sustaining costs (also a non-IFRS measure) which, compared to Q1, 2017, decreased 22% to $14.18 per oz in Q1, 2018. This decrease in all-in sustaining costs was a result of the lower operating costs per oz and the lower capital expenditures in Q1, 2018 compared to Q1, 2017.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 6 |
Guanaceví Operations
The Guanaceví operation is currently mining high grade ore from two underground silver-gold mines along a five kilometre (km) length of the prolific Santa Cruz vein. Guanaceví provides steady employment for over 475 people and engages 425 contractors. Guanaceví mine production continues to lag below plant capacity due to the operational issues mentioned under Guanaceví Production Results. Management has initiated a seven month mine site training program aimed at significantly improving work force productivity and cutting costs, and will continue to closely monitor the operating performance at Guanaceví. Returning Guanaceví to long-term profitability also lies in developing two new orebodies, Milache and SCS. Underground ramp access is already underway towards Milache and initial production there is expected by year-end. Mine development at SCS is scheduled to commence H1, 2018 with initial production scheduled to coincide with production from Milache.
Production Results for the Three Months Ended March 31, 2018 and 2017
GUANACEVÍ | Three Months Ended March 31 | ||||||||
2018 | 2017 | % Change | |||||||
Ore tonnes processed | 78,971 | 87,599 | (10 %) | ||||||
Average silver grade (g/ t) | 224 | 213 | 5% | ||||||
Silver recovery (%) | 87.3 | 88.5 | (1%) | ||||||
Total silver ounces produced | 496,329 | 530,683 | (6%) | ||||||
Payable silver ounces produced | 495,811 | 529,671 | (6%) | ||||||
Average gold grade (g/ t) | 0.64 | 0.49 | 31% | ||||||
Gold recovery (%) | 89.0 | 86.4 | 3% | ||||||
Total gold ounces produced | 1,447 | 1,192 | 21% | ||||||
Payable gold ounces produced | 1,445 | 1,190 | 21% | ||||||
Silver equivalent ounces produced (1) | 604,854 | 620,083 | (2%) | ||||||
Cash costs per silver ounce (2)(3) | 15.31 | 12.85 | 19% | ||||||
Total production costs per ounce (2)(4) | 28.06 | 18.94 | 48% | ||||||
All in sustaining cost per ounce (2)(5) | 22.62 | 23.78 | (5%) | ||||||
Direct production costs per tonne (2)(6) | 120.63 | 94.99 | 27% | ||||||
Silver co-product cash costs (7) | 15.58 | 13.50 | 15% | ||||||
Gold co-product cash costs (7) | 1,241 | 971 | 28% |
(1) |
Silver equivalents are calculated using a 75:1 ratio. 2017 Silver equivalents have been restated from 70:1 to 75:1 for comparative purposes. |
(2) |
The Company reports non-IFRS measures which include cash costs net of by-product on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Companys mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15. |
(3) |
Cash costs net of by-product per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17. |
(4) |
Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17. |
(5) |
All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18. |
(6) |
Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 171. |
(7) |
Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value. See Reconciliation to IFRS on page 18. |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 7 |
Guanaceví Production Results
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Silver production at the Guanaceví mine during Q1, 2018 was
496,329 oz, a decrease of 6% compared to 530,683 oz in Q1, 2017, and gold
production was 1,447 oz, an increase of 21% compared to 1,192 oz in Q1, 2017.
Plant throughput was 78,971 tonnes at average grades of 224 gpt silver and 0.64
gpt gold, compared to 87,779 tonnes grading 213 gpt silver and 0.49 gpt gold in
Q1, 2017. Guanacevi, mine output was lower due to mine development falling
behind schedule in 2017 and the reallocation of mine personnel to implement a
productivity optimization program. The optimization program is designed to
re-install sustainable improvements to our mining processes and operating
cultures that will ultimately have a positive effect to increase efficiency,
lower costs and reduce overall risk. The Q1, 2018 focus was to reenforce
operating controls, monitoring systems and work flows, with mine output expected
to increase at the end of Q2, 2018 until the end of the program. Silver and gold
grades were both higher due to better dilution control, so that silver
equivalent production in Q1, 2018 was only slightly lower than Q1, 2017.
Guanaceví Operating Costs
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
As a result of a 10% decrease in throughput, and initiation of
the optimization program, direct production costs per tonne in Q1, 2018 rose 27%
compared with Q1, 2017. The higher costs per tonne was partially offset with
higher silver and gold grade ore resulting in 19% higher cash costs per oz, net
of by-product credits (a non-IFRS measure and a standard of the Silver
Institute). All-in sustaining costs (also a non-IFRS measure) which, compared to
Q1, 2017, decreased 5% to $22.62 per oz in Q1, 2018. This decrease in all-in
sustaining costs was a result of management significantly decreasing capital
investments and exploration expenditures in Q1, 2018 compared to Q1, 2017.
Bolañitos Operations
The Bolañitos operation encompasses three silver-gold mines and a flotation plant. Bolañitos provides steady employment for over 350 people and engages 200 contractors.
Production Results for the Three Months Ended March 31, 2018 and 2017
BOLAÑITOS | Three Months Ended March 31 | ||||||||
2018 | 2017 | % Change | |||||||
Ore tonnes processed | 115,0 14 | 94,351 | 22% | ||||||
Average silver grade (g/ t) | 86 | 66 | 30 % | ||||||
Silver recovery (%) | 80 .3 | 84.3 | (5%) | ||||||
Total silver ounces produced | 255,441 | 168,723 | 51% | ||||||
Payable silver ounces produced | 247,866 | 161,974 | 53% | ||||||
Average gold grade (g/ t) | 1.91 | 2.40 | (20 %) | ||||||
Gold recovery (%) | 83.6 | 85.4 | (2%) | ||||||
Total gold ounces produced | 5,90 7 | 6,218 | (5%) | ||||||
Payable gold ounces produced | 5,776 | 6,0 63 | (5%) | ||||||
Silver equivalent ounces produced (1) | 698,466 | 635,0 73 | 10 % | ||||||
Cash costs per silver ounce (2)(3) | (2.77) | (10 .28) | 73% | ||||||
Total production costs per ounce (2)(4) | (1.42) | (7.43) | 81% | ||||||
All in sustaining cost per ounce (2)(5) | 4.20 | (3.82) | 210 % | ||||||
Direct production costs per tonne (2)(6) | 60 .87 | 65.18 | (7%) | ||||||
Silver co-product cash costs (7) | 9.64 | 9.98 | (3%) | ||||||
Gold co-product cash costs (7) | 768 | 718 | 7% |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 8 |
(1) |
Silver equivalents are calculated using a 75:1 ratio. 2017. Silver equivalents have been restated from 70:1 to 75:1 for comparative purposes. |
(2) |
The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Companys mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15. |
(3) |
Cash costs net of by-product per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17. |
(4) |
Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17. |
(5) |
All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18. |
(6) |
Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17. |
(7) |
Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value. See Reconciliation to IFRS on page 18. |
Bolañitos Production Results
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Silver production at the Bolañitos mine was 255,441 oz in Q1,
2018, an increase of 51% compared to 168,723 oz in Q1, 2017, and gold production
was 5,907 oz in Q1, 2018, a decrease of 5% compared to 6,218 oz in Q1, 2017.
Plant throughput in Q1, 2018 was 115,014 tonnes at average grades of 86 gpt
silver and 1.91 gpt gold, compared to 94,351 tonnes grading 66 gpt silver and
2.40 gpt gold in Q1, 2017. Silver production increased due to higher throughput
and silver grades, while gold production decreased due to the lower gold
grades.
Bolañitos Operating Costs
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Direct production costs per tonne in Q1, 2018 decreased 7% to
$60.87 per tonne due to increased production. The lower cost per tonne was
offset by lower gold grades resulting in higher cash costs per ounce, net of
by-product credits (which is a non-IFRS measure and a standard of the Silver
Institute), to negative $2.77 per oz of payable silver in Q1, 2018 compared to
negative $10.28 per oz in Q1, 2017. Similarly, all-in sustaining costs (also a
non-IFRS measure) increased in Q1, 2018 to $4.20 per oz is comparable to
negative $3.82 per oz in Q1, 2017 primarily attributed to the lower gold credit
and slightly higher capital expenditures.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 9 |
El Cubo Operations
Endeavours third mine, El Cubo, was acquired in July 2012 as an operational turn around opportunity and offered the potential to become a core asset with a reasonable reserve/resource mine life. El Cubo currently employs over 620 people and engages 425 contractors.
Production Results for the Three Months Ended March 31, 2018 and 2017
EL CUBO | Three Months Ended March 31 | ||||||||
2018 | 2017 | % Change | |||||||
Ore tonnes processed | 131,684 | 121,272 | 9% | ||||||
Average silver grade (g/ t) | 164 | 111 | 48% | ||||||
Silver recovery (%) | 86.3 | 87.2 | (1%) | ||||||
Total silver ounces produced | 599,070 | 377,568 | 59% | ||||||
Payable silver ounces produced | 581,179 | 362,465 | 60% | ||||||
Average gold grade (g/ t) | 1.64 | 1.31 | 25% | ||||||
Gold recovery (%) | 84.3 | 84.5 | (0 %) | ||||||
Total gold ounces produced | 5,854 | 4,314 | 36% | ||||||
Payable gold ounces produced | 5,723 | 4,20 6 | 36% | ||||||
Silver equivalent ounces produced (1) | 1,038,120 | 701,118 | 48% | ||||||
Cash costs per silver ounce (2)(3) | 2.93 | 8.52 | (66%) | ||||||
Total production costs per ounce (2)(4) | 7.90 | 9.45 | (16%) | ||||||
All in sustaining cost per ounce (2)(5) | 11.22 | 20.0 0 | (44%) | ||||||
Direct production costs per tonne (2)(6) | 70.81 | 70.12 | 1% | ||||||
Silver co-product cash costs (7) | 8.75 | 12.36 | (29%) | ||||||
Gold co-product cash costs (7) | 697 | 889 | (22%) |
(1) |
Silver equivalents are calculated using a 75:1 ratio. Silver equivalents have been restated from 70:1 to 75:1 for comparative purposes. |
(2) |
The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Companys mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15. |
(3) |
Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17. |
(4) |
Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17. |
(5) |
All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18. |
(6) |
Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17. |
(7) |
Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value. See Reconciliation to IFRS on page 18 . |
El Cubo Production Results
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Silver production at the El Cubo mine was 599,070 oz in Q1,
2018, an increase of 59% compared to 377,568 oz in Q1, 2017, and gold production
was 5,854 oz in Q1, 2018, an increase of 36% compared to 4,314 oz in Q1, 2017.
Plant throughput in Q1, 2018 was 131,684 tonnes at average grades of 164 gpt
silver and 1.64 gpt gold, compared to 121,272 tonnes grading 111 gpt silver and
1.31 gpt gold in Q1, 2017. The higher metal production is a result of higher
throughput and grades.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 10 |
El Cubo Operating Costs
Three months ended March 31, 2018 (compared to the three
months ended March 31, 2017)
Higher throughput was offset by higher contractor costs
resulting in similar direct production costs of $70.81 per tonne. An increase in
metal grades resulted in 66% reduced cash costs per ounce, net of by-product
credits (a non-IFRS measure and a standard of the Silver Institute), decreasing
in Q1, 2018 to $2.93 per oz of payable silver compared to $8.52 per oz in Q1,
2017. Similarly, all-in sustaining costs decreased 44% at $11.22 per oz in Q1,
2018 compared to $20.00 per oz in Q1, 2017. The decrease in all-in sustaining
costs was a result of the lower operating costs per unit.
Development Activities
Terronera Project
The Terronera project features a newly discovered high grade silver-gold mineralized zone in the Terronera vein, which is now over 1,400 metres long, 400 metres deep, 3 to 16 metres thick, and still open along strike to the southeast and down dip. In April 2017, the Company updated its NI 43-101 Mineral Resource and Reserve Estimates and completed a pre-feasibility study (PFS) for the Terronera mine project located 40 kilometres northeast of Puerto Vallarta in the state of Jalisco, Mexico.
The Company retained a number of engineering consulting firms to work with Endeavours technical services group in optimizing and updating the PFS. Since filing the PFS in 2017 the following optimal operating parameters have been determined:
| Optimal throughput based on current Mineral Reserves and Resources is 1,500 tonnes per day | |
| Optimal development plan based on time needed to develop the mine is two stages of 750 tpd each | |
| Annual production at 1,500 tpd is estimated at 5.0 million oz silver equivalents per year (at a 75:1 silver:gold ratio) based on 300 gpt net payable silver equivalents per tonne (still being optimized) | |
| Mineral Resource model updated to include the small but very high grade La Luz vein (still being optimized) | |
| Mine plan is initially 100% cut and fill in the Terronera vein due to perceived weak rock strength in the vein and 100% resuing in the narrow La Luz vein (still being optimized) | |
| Plant design is crush, grind, flash flotation, regrind and conventional flotation to produce a single bulk sulfide silver-gold concentrate | |
| Tailings facility is dry stack so that the process water is recycled for minimum water consumption and maximum tailings stability | |
| Power generation alternatives are electric power grid or compressed natural gas with diesel backup (still being optimized) | |
| Geotechnical studies were completed for the mine, plant and tailings sites | |
| Hydrological studies were completed around the mine, plant and tailings sites | |
| Metallurgical studies were refined to provide a simpler process flowsheet and plant design | |
| Indigenous studies were completed for the region | |
| Public road upgrade study was completed in consultation with the local communities | |
| Project offices and housing site and plan including solar power approved by local community | |
| Land acquisition agreements completed for the mine, plant and tailings areas | |
| Final mine and plant permits received August 2017, mine and plant bond posted February 2018 |
The 2018, 5,400 meter exploration drill program is now underway with one drill rig targeting the southeast extension of the Terronera vein, and a second underground drill rig is planned to test the Quiteria vein at depth below the Quiteria mine. Any new resources defined this year would potentially extend the Terronera mine life and have a positive impact on the project economics.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 11 |
A new infill drill program of up to 10,000 meters in up to 25 holes was recently approved to upgrade the inferred resources to indicated resources, mainly at depth in the Terronera vein and to a lesser extent in the La Luz vein, which should benefit the net present value and internal rate of return. One or two more rigs will be added in Q2, 2018 for this infill drill program depending on permitting for drill pads.
The following activities are required to finalize an updated PFS on the Terronera project:
| Complete review of Mineral Reserve and Resource model | |
| Complete optimization of mine plan | |
| Complete review of power options | |
| Complete review of explosives permit alternatives | |
| Finalize economic model | |
| Receive dumps and tailings permits |
Permitting delays have affected the mine dumps and plant tailings permits. Therefore, management does not expect to break ground on mine development until the end of the first half of 2018, with mine and plant commissioning anticipated to commence in the fourth quarter of 2019.
El Compas Project
The El Compas project is a high quality, permitted gold-silver mine and a leased plant in the historic silver mining district of Zacatecas, with good exploration potential to expand resources and scale up production. There is also potential for the Company to acquire other properties in the area in order to consolidate resources and exploration targets in the district.
Due to the positive economics, low initial capital requirements, and managements experience in having successfully developed similar mines in Mexico, a decision was made to proceed with development in Q3, 2017. The Company initiated the installation of project infrastructure, collaring the mine access ramp and refurbishing the plant. As previously announced, the development of the main access ramp proceeded using a form of low impact gunpowder and in March 2018 El Compas received its explosives permit, which allowed the mine to accelerate the development of the main access ramp. The main ramp was at 355 metres as of March 31, 2018 and the San Juan vein was intersected allowing a small amount of low grade ore to be stockpiled for plant commissioning. The last plant component, a mobile crushing circuit, arrived on site in March and was installed in April. Commissioning will commence mid May 2018.
Since publishing the PEA, the Company continued to optimize mining methods, the crushing circuit and grinding alternatives and has been successful on a number of fronts in improving the operating metrics. The work index of the ore and the size on the motor allows the capacity of the milling circuit to increase to 325 tpd, which allows for the mining method to be changed to mechanized cut and fill from captive cut and fill. Mechanized cut and fill increases the mining rate but has the same cost profile as captive cut and fill previously disclosed in the PEA.
Additionally, the modified plant flow sheet will allow the Company to increase the ore grind size and produce a single concentrate, while still achieving recoveries similar to those outlined in the PEA, lowering overall power costs and improving the long-term stability of the tailings facility.
As a result of the modified mine plan and plant design and the delay in receiving the explosives permit, the total start up CAPEX has been revised upwards to $11.3 million compared to the previous $10.0 million cost estimated in the PEA. However, the operational benefits of the modified plant design and increased mining rate should improve the overall economics of the project. The Company anticipates achieving commercial production at El Compas in July 2018.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 12 |
Highlights of development progress in Q1, 2018:
| Zero lost-time accidents since the start of construction -- safety inductions and training completed with 167 workers on site; | |
| Plant refurbishment complete -- including grinding, flotation and thickening circuits, power line, electrical, plumbing, and administration office are complete; | |
| Other plant items completed in April include the mobile crushing unit, conveyors, filters, modified plant lease agreement, laboratory and tailings facility; | |
| Mine power line and mine portal infrastructure complete, mine access road completed in April, mine development to access ore nearing completion; | |
| Explosives licence received in March, initial production to start by the end of April, commercial production by July 31, 2018; | |
| 6,600-metre exploration drill program now underway to follow up Misie-Karla-Karla HW and Calicanto veins discoveries last year. |
Highlights of improved operating metrics
| Plant design modified to increase capacity from 250 tonnes per day (tpd) to 325 tpd as a result of the lower work index of the ore and utilizing the existing motor capacity on the mill; | |
| Mine plan expanded from 200 tpd to 250 tpd using mechanized cut and fill mining method; | |
| Potential to expand to 500 tpd with further plant refurbishment and more reserves and resources; | |
| Ore grind size increased while maintaining metal recoveries to improve the tailings stability long term and decrease overall life of mine power costs; | |
| Higher mine output, plant throughput and grind size should each have a beneficial impact on the El Compas PEA (defined below) project economics; | |
| Comparing the improved operating metrics with the El Compas PEA, production is expected to rise 25 per cent to 1,175,000 ounces silver equivalent per year (using 75:1 silver:gold ratio); | |
| Capex (capital expenditures) will rise 13 per cent to $11.3-million; | |
| Cash costs in the El Compas PEA (preliminary economic assessment) of $9.09 per silver equivalent (AgEq) ounce and all-in- sustaining costs of $9.64 per AgEq oz should improve with expanded production. |
Exploration Results
In 2018, the Company plans to drill 44,000 metres and spend $11.1 million on brownfields and greenfields exploration, development engineering, and land payments across its portfolio of properties. At the three existing mines, 17,000 metres of core drilling are planned at a cost of $2.8 million. At the exploration and development projects, expenditures of $8.3 million are planned to drill 27,300 metres, to advance engineering studies and meet property holding obligations. Drilling is now underway at Bolanitos, El Cubo, El Compas, Terronera and Parral.
At El Compas, 6,600 metres are planned to be drilled for $1.0 million primarily on the Calicanto concessions. The 2018 drilling is to further test the new zones of high grade mineralization within the Misie-Karla-Karla HW and Calicanto veins discovered in 2017.
At Terronera, $1.7 million is budgeted to complete an updated PFS and a 5,400 metre drill program. The 2018 drilling will focus on extending mineralization in the Terronera vein to the southeast of the current resource, plus testing other known mineralized veins.
At Parral, $2.2 million is budgeted for drilling 12,000 metres to extend historic and new resource areas and complete a PEA. During Q1, 2018 the Company drilled 1,591 metres at the San Patricio area resulting in continued intersection of mineralized veins. Preparatory work was completed at the historical Veta Colorada mine for drilling in Q2, 2018.
In Chile, the Company has budgeted for a 3,000 metre drill program on one property to explore for bulk tonnage silver-lead-zinc manto mineralization.
In Q1, 2018 at the operating mines, 1,237 metres were drilled at the El Cubo operation testing the north part of the Cubo district and 909 metres were drilled at the Bolanitos operations testing the depth of the La Luz and Plateros veins. Results are pending.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 13 |
Consolidated Financial Results
Three months ended March 31, 2018 (compared to the three months ended March 31, 2017)
In Q1, 2018, the Companys mine operating earnings were $3.3 million (Q1, 2017: $7.8 million) on sales of $40.3 million (Q1, 2017: $36.4 million) with cost of sales of $37.0 million (Q1, 2017: $28.6 million).
In Q1, 2018, the Company had an operating loss of $1.0 million (Q1, 2017: operating income of $2.5 million) after exploration costs of $2.0 million (Q1, 2017: $3.3 million) and general and administrative costs of $2.3 million (Q1, 2017: $2.0 million).
Earnings before taxes in Q1, 2018 were $1.2 million (Q1, 2017: $4.5 million) after finance costs of $0.1 million (Q1, 2017: $0.2 million), a foreign exchange gain of $2.2 million (Q1, 2017: $2.1 million), and investment and other expense of $0.1 million (Q1, 2017: $0.1 million). The Company realized net earnings for the period of $2.3 million (Q1, 2017: $6.0 million) after an income tax recovery of $1.1 million (Q1, 2017 $1.5 million).
Sales of $40.3 million in Q1, 2018 represented an 11% increase over the $36.4 million for the same period in 2017. There was a 14% increase in silver ounces sold, offset by a 6% decrease in the realized silver price resulting in a 7% increase in silver sales. Similarly, there was a 12% increase in gold ounces sold with a 4% increase in realized gold prices resulting in a 17% increase in gold sales. During the period, the Company sold 1,406,143 oz silver and 12,674 oz gold, for realized prices of $16.70 and $1,330 per oz respectively, compared to sales of 1,235,594 oz silver and 11,290 oz gold, for realized prices of $17.79 and $1,280 per oz, respectively, in the same period of 2017. The realized price of silver and gold were within 1% of average silver and gold spot prices during the period of $16.78 and $1,329 respectively, with the differences due to the timing of sales and the mark-to-market adjustments for the concentrate sales that are pending finalization.
The Company decreased its finished goods silver and gold inventory to 160,034 oz and 1,497 oz, respectively at March 31, 2018 compared to 241,321 oz silver and 1,226 oz gold at December 31, 2017. The cost allocated to these finished goods was $3.3 million at March 31, 2018 compared to $4.8 million at December 31, 2017. At March 31, 2018, the finished goods inventory fair market value was $4.6 million compared to the fair value of $5.7 million at December 31, 2017.
Cost of sales for Q1, 2018 was $37.0 million, an increase of 29% over the cost of sales of $28.6 million for the same period of 2017. The 29% increase in cost of sales was primarily due to the sale of 14% more silver ounces during the period and increased depletion at the Guanacevi and El Cubo mines.
Exploration expenses decreased in Q1, 20187 to $2.0 million from $3.3 million in the same period of 2017 primarily due to planned timing of drilling activities for 2018. General and administrative expenses increased by 15% to $2.3 million in Q1, 2018 compared to $2.0 million in the same period of 2017 due to a stronger Canadian dollar during Q2, 2018 compared to Q1, 2017 and also due to increased costs for directors deferred share units, which are marked to market at each period end. In Q1, 2018 there was a related expense of $11 thousand due to a moderate increase in the companys share price during the quarter compared to a recovery of $183 thousand due to a decrease in the Companys share price during Q1, 2017.
The Company experienced a foreign exchange gain of $2.2 million in Q1, 2018 compared to a gain of $2.1 million in Q1, 2017. The $2.2 million gain was primarily due to the strengthening of the Mexican peso against the U.S. Dollar from December 31, 2017 to March 31, 2018, which resulted in higher valuations on the peso denominated cash and receivable amounts.
There was an income tax recovery of $1.1 million in Q1, 2018 compared to a recovery of $1.5 million in Q1, 2017. The $1.1 million tax recovery is comprised of $0.7 million in current income tax expense (Q1, 2017: expense of $0.3 million) and $1.8 million in deferred income tax recovery (Q1, 2017: recovery of $1.8 million). The deferred income tax recovery of $1.8 million is a result of the Mexican peso appreciation and its monetary impact on loss carryforwards related to the Guanacevi mine.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 14 |
Non-IFRS Measures
Mine operating cash flow is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Mine operating cash flow is calculated as revenue minus direct production costs and royalties. Mine operating cash flow is used by management to assess the performance of the mine operations, excluding corporate and exploration activities and is provided to investors as a measure of the Companys operating performance.
Expressed in thousands US dollars | Three Months Ended March 31 | |||||
2018 | 2017 | |||||
Mine operating earnings | $ | 3,275 | $ | 7,840 | ||
Share-based compensation | 37 | - | ||||
Amortization and depletion | 9,759 | 4,113 | ||||
Write down (recovery) of inventory to net realizable value | 755 | - | ||||
Mine operating cash flow before taxes | $ | 13,826 | $ | 11,953 |
Operating cash flow before working capital adjustment is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Operating cash flow before working capital adjustments is calculated as operating cash flow minus working capital adjustments. Operating cash flow before working capital adjustments is used by management to assess operating performance irrespective of working capital changes and is provided to investors as a measure of the Companys operating performance.
Expressed in thousands US dollars | Three Months Ended March 31 | |||||
2018 | 2017 | |||||
Cash from operating activities | $ | 8,0 19 | $ | 9,667 | ||
Net changes in non-cash working capital | (3,536) | 771 | ||||
Operating cash flow before working capital adjustments | $ | 11,555 | $ | 8,896 |
Operating cash flow per share is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Operating cash flow per share is calculated by dividing cash from operating activities by the weighted average shares outstanding. Operating cash flow per share is used by management to assess operating performance irrespective of working capital changes and is provided to investors as a measure of the Companys operating performance.
Expressed in thousands US dollars | Three Months Ended March 31 | |||||
except for share numbers and per share amounts | 2018 | 2017 | ||||
Operating cash flow before working capital adjustments | $ | 11,555 | $ | 8,896 | ||
Basic weighted average shares outstanding | 127,488,410 | 127,0 95,764 | ||||
Operating cash flow before working capital changes per share | $ | 0 .0 9 | $ | 0 .0 7 |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 15 |
EBITDA is a non-IFRS financial measure, which excludes the following from net earnings:
| Income tax expense; | |
| Finance costs; | |
| Amortization and depletion |
Adjusted EBITDA excludes the following additional items from EBITDA
| Share based compensation; | |
| Non-recurring write offs |
Management believes EBITDA is a valuable indicator of the Companys ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures. Management uses EBITDA for this purpose. EBITDA is also frequently used by investors and analysts for valuation purposes whereby EBITDA is multiplied by a factor or EBITDA multiple based on an observed or inferred relationship between EBITDA and market values to determine the approximate total enterprise value of a Company.
EBITDA is intended to provide additional information to investors and analysts. It does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of operating performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined by IFRS. Other companies may calculate EBITDA and Adjusted EBITDA differently.
Expressed in thousands US dollars | Three Months Ended March 31 | |||||
2018 | 2017 | |||||
Net earnings (loss) for the period | $ | 2,325 | $ | 6,0 35 | ||
Depreciation and depletion cost of sales | 9,759 | 4,113 | ||||
Depreciation and depletion exploration | 23 | 28 | ||||
Depreciation and depletion general & administration | 55 | 41 | ||||
Finance costs | 49 | 236 | ||||
Current income tax expense | 688 | 299 | ||||
Deferred income tax expense (recovery) | (1,786) | (1,797) | ||||
Earnings before interest, taxes, depletion and amortization | $ | 11,113 | $ | 8,955 | ||
Share based compensation | 416 | 337 | ||||
Adjusted earnings before interest, taxes depletion and amortization | $ | 11,529 | $ | 9,292 |
Cash costs per ounce, total production costs per ounce and direct production costs per tonne are measures developed by precious metals companies in an effort to provide a comparable standard; however, there can be no assurance that the Companys reporting of these non-IFRS measures are similar to those reported by other mining companies. Cash costs per ounce, production costs per ounce and direct production costs per tonne are measures used by the Company to manage and evaluate operating performance at each of the Companys operating mining units. They are widely reported in the silver mining industry as a benchmark for performance, but do not have a standardized meaning and are disclosed in addition to IFRS measures. The following tables provide a detailed reconciliation of these measures to the Companys cost of sales, as reported in its consolidated financial statements.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 16 |
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||
Expressed in thousands US dollars | ||||||||||||||||||||||||
Guanaceví | Bolañitos | El Cubo | Total | Guanaceví | Bolañitos | El Cubo | Total | |||||||||||||||||
Direct production costs per financial statements | $ | 10,602 | $ | 6,400 | $ | 8,804 | $ | 25,806 | $ | 10,117 | $ | 5,299 | $ | 8,633 | $ | 24,049 | ||||||||
Royalties | 303 | 320 | 75 | 698 | 343 | 43 | 54 | 440 | ||||||||||||||||
Special mining duty (1) | - | 54 | 175 | 229 | - | 94 | (87) | 7 | ||||||||||||||||
Opening finished goods | (2,942) | (385) | (387) | (3,714) | (3,948) | - | (385) | (4,333) | ||||||||||||||||
Finished goods NRV adjustment | 463 | - | - | 463 | - | - | - | - | ||||||||||||||||
Closing finished goods | 1,100 | 612 | 658 | 2,370 | 1,809 | 714 | 289 | 2,812 | ||||||||||||||||
Direct production costs | 9,526 | 7,001 | 9,325 | 25,852 | 8,321 | 6,150 | 8,504 | 22,975 | ||||||||||||||||
By-product gold sales | (2,166) | (7,448) | (7,238) | (16,852) | (1,924) | (7,041) | (5,491) | (14,456) | ||||||||||||||||
Opening gold inventory fair market value | 631 | 681 | 278 | 1,590 | 771 | - | 253 | 1,024 | ||||||||||||||||
Closing gold inventory fair market value | (400) | (921) | (661) | (1,982) | (363) | (774) | (177) | (1,314) | ||||||||||||||||
Cash costs net of by-product | 7,591 | (687) | 1,704 | 8,608 | 6,805 | (1,665) | 3,089 | 8,229 | ||||||||||||||||
Amortization and depletion | 6,799 | 309 | 2,651 | 9,759 | 3,373 | 414 | 326 | 4,113 | ||||||||||||||||
Share-based compensation | 13 | 12 | 12 | 37 | - | - | - | 0 | ||||||||||||||||
Opening finished goods depletion | (1,096) | (8) | (8) | (1,112) | (567) | - | (1) | (568) | ||||||||||||||||
NRV cost adjustment | (292) | - | - | (292) | - | - | - | - | ||||||||||||||||
Closing finished goods depletion | 898 | 23 | 231 | 1,152 | 422 | 48 | 8 | 478 | ||||||||||||||||
Total production costs | $ | 13,913 | ($351) | $ | 4,590 | $ | 18,152 | $ | 10,033 | ($1,203) | $ | 3,422 | $ | 12,252 |
Three Months Ended March 31, 2018 | Three Months Ended March 31, 20 17 | |||||||||||||||||||||||
Guanaceví | Bolañitos | El Cubo | Total | Guanaceví | Bolañitos | El Cubo | Total | |||||||||||||||||
Throughput tonnes | 78,971 | 115,014 | 131,684 | 325,669 | 87,599 | 94,351 | 121,272 | 303,222 | ||||||||||||||||
Payable silver ounces | 495,811 | 247,866 | 581,179 | 1,324,856 | 529,671 | 161,974 | 362,465 | 1,054,110 | ||||||||||||||||
Cash costs per ounce | $ | 15.31 | ($2.77) | $ | 2.93 | $ | 6.50 | $ | 12.85 | ($10.28) | $ | 8.52 | $ | 7.81 | ||||||||||
Total production costs per oz | $ | 28.06 | ($1.42) | $ | 7.90 | $ | 13.70 | $ | 18.94 | ($7.43) | $ | 9.45 | $ | 11.62 | ||||||||||
Direct production costs per tonne | $ | 120.63 | $ | 60.87 | $ | 70.81 | $ | 79.38 | $ | 94.99 | $ | 65.18 | $ | 70.12 | $ | 75.77 |
(1) |
Special mining duty is an EBITDA royalty tax presented as a current income tax in accordance with IFRS. |
All-in sustaining costs per ounce and all-in costs per ounce are measures developed by the World Gold Council (and used as a standard of the Silver Institute) in an effort to provide a comparable standard within the precious metal industry; however, there can be no assurance that the Companys reporting of these non-IFRS measures are similar to those reported by other mining companies. These measures are used by the Company to manage and evaluate operating performance at each of the Companys operating mining units and consolidated group, and are widely reported in the silver mining industry as a benchmark for performance, but do not have a standardized meaning and are disclosed in addition to IFRS measures. The following tables provide a detailed reconciliation of these measures to the Companys cost of sales, as reported in the Companys consolidated financial statements.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 17 |
Exp ressed in thousan ds US d ollars | Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | ||||||||||||||||||||||
Guanaceví | Bolañitos | El Cub o | Total | Guanaceví | Bolañ itos | El Cubo | Total | |||||||||||||||||
Cash costs net of by-product | $ | 7,591 | ($687) | $ | 1,704 | $ | 8,608 | $ | 6,805 | ($1,665) | $ | 3,089 | $ | 8,229 | ||||||||||
Operations stock based compensation | 13 | 12 | 12 | 37 | - | - | - | - | ||||||||||||||||
Corporate general and administrative | 496 | 573 | 851 | 1,920 | 523 | 514 | 579 | 1,616 | ||||||||||||||||
Corporate stock based compensation | 89 | 102 | 152 | 343 | 96 | 95 | 107 | 298 | ||||||||||||||||
Reclamation - amortization/ accretion | 11 | 8 | 19 | 38 | 7 | 4 | 10 | 21 | ||||||||||||||||
Mine site expensed exploration | 27 | 105 | 210 | 342 | 131 | 103 | 354 | 588 | ||||||||||||||||
Capital expenditures sustaining | 2,991 | 928 | 3,573 | 7,492 | 5,033 | 330 | 3,111 | 8,474 | ||||||||||||||||
All In Sustaining Costs | $ | 11,218 | $ | 1,041 | $ | 6,521 | $ | 18,780 | $ | 12,595 | ($619) | $ | 7,249 | $ | 19,226 | |||||||||
Growth exploration | 1,657 | 2,720 | ||||||||||||||||||||||
Growth capital expenditures | 3,473 | 802 | ||||||||||||||||||||||
All In Costs | $ | 23,910 | $ | 22,748 |
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||
Guanaceví | Bolañitos | El Cub o | Total | Guanaceví | Bolañ itos | El Cubo | Total | |||||||||||||||||
Throughput tonnes | 78,971 | 115,014 | 131,684 | 325,669 | 87,599 | 94,351 | 121,272 | 303,222 | ||||||||||||||||
Payable silver ounces | 495,811 | 247,866 | 581,179 | 1,324,856 | 529,671 | 161,974 | 362,465 | 1,054,110 | ||||||||||||||||
Silver equivalent production (ounces) | 604,854 | 698,466 | 1,038,120 | 2,341,440 | 620,083 | 635,073 | 701,118 | 1,956,274 | ||||||||||||||||
Sustaining cost per ounce | $ | 22.62 | $ | 4.20 | $ | 11.22 | $ | 14.18 | $ | 23.78 | ($3.82 | ) | $ | 20.00 | $ | 18.24 | ||||||||
All In costs per ounce | $ | 18.05 | $ | 21.58 |
Silver co-product cash costs and gold co-product cash costs are measures used by the Company to manage and evaluate operating performance at each of the Company s operating mining units and consolidated group, but do not have a standardized meaning and are disclosed in addition to IFRS measures. The following tables provide a detailed reconciliation of the semeasures to the Company s cost of sales, as reported in its consolidated financial statements.
Expressed in thousands US dollars | Three Months Ended M arch 31, 2018 | Three Months Ended March 31, 2017 | ||||||||||||||||||||||
Guanaceví | Bolañitos | El Cubo | Total | Guanaceví | Bolañitos | El Cub o | Total | |||||||||||||||||
Direct production costs per financial statements | $ | 10,602 | $ | 6,400 | $ | 8,804 | $ | 25,806 | $ | 10,117 | $ | 5,299 | $ | 8,633 | $ | 24,049 | ||||||||
Royalties | 303 | 320 | 75 | 698 | 343 | 43 | 54 | 440 | ||||||||||||||||
Special mining duty (1) | - | 54 | 175 | 229 | - | 94 | (87) | 7 | ||||||||||||||||
Opening finished goods | (2,942) | (385) | (387) | (3,714) | (3,948) | - | (385) | (4,333) | ||||||||||||||||
Finished goods NRV adjustment | 463 | - | - | 463 | - | - | - | - | ||||||||||||||||
Closing finished goods | 1,100 | 612 | 658 | 2,370 | 1,809 | 714 | 289 | 2,812 | ||||||||||||||||
Direct production costs | 9,526 | 7,001 | 9,325 | 25,852 | 8,321 | 6,150 | 8,504 | 22,975 |
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||
Guanaceví | Bolañitos | El Cubo | Total | Guanaceví | Bolañitos | El Cubo | Total | |||||||||||||||||
Silver production (ounces) | 496,329 | 255,441 | 599,070 | 1,350,840 | 530,683 | 168,723 | 377,568 | 1,076,974 | ||||||||||||||||
Average realized silver price ($) | 16.70 | 16.70 | 16.70 | 16.70 | 17.79 | 17.79 | 17.79 | 17.79 | ||||||||||||||||
Silver value ($) | 8,288,694 | 4,265,865 | 10,004,469 | 22,559,028 | 9,440,851 | 3,001,582 | 6,716,935 | 19,159,367 | ||||||||||||||||
Gold production (ounces) | 1,447 | 5,907 | 5,854 | 13,208 | 1,192 | 6,218 | 4,314 | 11,724 | ||||||||||||||||
Average realized gold price ($) | 1,330 | 1,330 | 1,330 | 1,330 | 1,280 | 1,280 | 1,280 | 1,280 | ||||||||||||||||
Gold value ($) | 1,924,510 | 7,856,310 | 7,785,820 | 17,566,640 | 1,525,760 | 7,959,040 | 5,521,920 | 15,006,720 | ||||||||||||||||
Total metal value ($) | 10,213,204 | 12,122,175 | 17,790,289 | 40,125,668 | 10,966,611 | 10,960,622 | 12,238,855 | 34,166,087 | ||||||||||||||||
Pro-rated silver costs | 81% | 35% | 56% | 56% | 86% | 27% | 55% | 56% | ||||||||||||||||
Pro-rated gold costs | 19% | 65% | 44% | 44% | 14% | 73% | 45% | 44% | ||||||||||||||||
Silver co-product cash costs | $ | 15.58 | $ | 9.64 | $ | 8.75 | $ | 10.76 | $ | 13.50 | $ | 9.98 | $ | 12.36 | $ | 11.96 | ||||||||
Gold co-product cash costs | $ | 1,241 | $ | 768 | $ | 697 | $ | 857 | $ | 971 | $ | 718 | $ | 889 | $ | 861 |
(1) |
Special mining duty is an EBITDA royalty tax presented as a current income tax in accordance with IFRS. |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 18 |
Quarterly Results and Trends
The following table presents selected financial information for each of the most recent eight quarters:
Table in thousands of U.S. dollars except for | 2018 | 2017 | 2016 | |||||||||||||||||||||
share numbers and per share amounts | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | ||||||||||||||||
Revenue | $ | 40,330 | $ | 41,640 | $ | 39,782 | $ | 32,636 | $ | 36,441 | $ | 28,650 | $ | 42,066 | $ | 44,510 | ||||||||
Direct cost | 25,806 | 28,399 | 27,400 | 23,483 | 24,048 | 21,044 | 24,033 | 26,975 | ||||||||||||||||
Royalties | 698 | 503 | 457 | 340 | 440 | 1,216 | 247 | 276 | ||||||||||||||||
Mine operating cash flow | 13,826 | 12,738 | 11,925 | 8,813 | 11,953 | 6,390 | 17,786 | 17,259 | ||||||||||||||||
Share-based compensation | 37 | 47 | 63 | 92 | - | - | (208) | 230 | ||||||||||||||||
Amortization and depletion | 9,759 | 4,804 | 4,394 | 3,271 | 4,113 | 1,893 | 2,761 | 4,144 | ||||||||||||||||
Write down on inventory | 755 | - | 166 | - | - | - | - | - | ||||||||||||||||
Mine operating earnings (loss) | $ | 3,275 | $ | 7,887 | $ | 7,302 | $ | 5,450 | $ | 7,840 | $ | 4,497 | $ | 15,233 | $ | 12,885 | ||||||||
Basic earnings (loss) per share | $ | 0.02 | $ | 0.02 | $ | 0.01 | $ | 0.00 | $ | 0.05 | ($0.04) | $ | 0.04 | $ | 0.01 | |||||||||
Diluted earnings (loss) per share | $ | 0.02 | $ | 0.02 | $ | 0.01 | $ | 0.00 | $ | 0.05 | ($0.04) | $ | 0.04 | $ | 0.01 | |||||||||
Weighted shares outstanding | 127,488,410 | 127,486,671 | 127,456,410 | 12,318,926 | 127,095,764 | 126,676,562 | 125,277,591 | 113,236,504 | ||||||||||||||||
Net earnings (loss) | $ | 2,325 | $ | 2,669 | $ | 996 | ($16) | $ | 6,035 | ($5,204) | $ | 5,586 | $ | 1,699 | ||||||||||
Amortization and depletion | 9,837 | 4,935 | 4,540 | 3,333 | 4,182 | 1,994 | 2,834 | 4,211 | ||||||||||||||||
Finance costs | 49 | 105 | 166 | 208 | 236 | 246 | 345 | 294 | ||||||||||||||||
Current income tax | 688 | 2,924 | 882 | 545 | 299 | 132 | 2,732 | 3,480 | ||||||||||||||||
Deferred income tax | (1,786) | (3,737) | (510) | (403) | (1,797) | 991 | (693) | 459 | ||||||||||||||||
EBITDA | $ | 11,113 | $ | 6,896 | $ | 6,074 | $ | 3,667 | $ | 8,955 | ($1,841) | $ | 10,804 | $ | 10,143 |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 19 |
The following table presents selected production information for each of the most recent eight quarters:
Highlights | 2018 | 2017 | 2016 | |||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||
Processed tonnes | 325,669 | 349,924 | 322,784 | 30 3,943 | 303,222 | 317,555 | 355,611 | 377,198 | ||||||||||||||||
Guanaceví | 78,971 | 83,881 | 74,649 | 74,984 | 87,599 | 87,850 | 82,0 59 | 98,756 | ||||||||||||||||
Bolañitos | 115,0 14 | 124,172 | 114,526 | 113,875 | 94,351 | 10 1,568 | 132,686 | 136,322 | ||||||||||||||||
El Cubo | 131,684 | 141,871 | 133,60 9 | 115,084 | 121,272 | 128,137 | 140,866 | 142,120 | ||||||||||||||||
Silver ounces | 1,350 ,840 | 1,436,962 | 1,262,064 | 1,143,788 | 1,076,974 | 1,0 88,845 | 1,284,646 | 1,551,851 | ||||||||||||||||
Guanaceví | 496,329 | 544,117 | 522,907 | 468,741 | 530,683 | 540,70 8 | 542,385 | 629,221 | ||||||||||||||||
Bolañitos | 255,441 | 280,712 | 253,787 | 231,016 | 168,723 | 185,813 | 255,350 | 276,885 | ||||||||||||||||
El Cubo | 599,070 | 612,133 | 485,370 | 444,031 | 377,568 | 362,324 | 486,911 | 645,745 | ||||||||||||||||
Silver grade | 151 | 152 | 144 | 135 | 126 | 123 | 133 | 148 | ||||||||||||||||
Guanaceví | 224 | 241 | 250 | 219 | 213 | 211 | 235 | 232 | ||||||||||||||||
Bolañitos | 86 | 86 | 85 | 78 | 66 | 71 | 76 | 80 | ||||||||||||||||
El Cubo | 164 | 157 | 135 | 137 | 111 | 10 3 | 128 | 156 | ||||||||||||||||
Silver recovery | 85.4 | 84.1 | 84.5 | 86.6 | 87.4 | 87.0 | 84.3 | 86.2 | ||||||||||||||||
Guanaceví | 87.3 | 83.7 | 87.2 | 88.8 | 88.5 | 90.7 | 87.5 | 85.4 | ||||||||||||||||
Bolañitos | 80 .3 | 81.8 | 81.1 | 80 .9 | 84.3 | 80 .1 | 78.8 | 79.0 | ||||||||||||||||
El Cubo | 86.3 | 85.5 | 83.7 | 87.6 | 87.2 | 85.4 | 84.0 | 90.6 | ||||||||||||||||
Gold ounces | 13,208 | 14,577 | 13,648 | 13,0 58 | 11,724 | 11,40 2 | 14,364 | 15,649 | ||||||||||||||||
Guanaceví | 1,447 | 1,245 | 1,224 | 1,079 | 1,192 | 1,232 | 1,163 | 1,365 | ||||||||||||||||
Bolañitos | 5,907 | 7,20 4 | 6,523 | 6,965 | 6,218 | 5,926 | 7,875 | 8,470 | ||||||||||||||||
El Cubo | 5,854 | 6,128 | 5,901 | 5,014 | 4,314 | 4,244 | 5,326 | 5,814 | ||||||||||||||||
Gold grade | 1.49 | 1.56 | 1.58 | 1.58 | 1.41 | 1.35 | 1.55 | 1.58 | ||||||||||||||||
Guanaceví | 0.64 | 0.54 | 0 .57 | 0.50 | 0.49 | 0.49 | 0.51 | 0 .49 | ||||||||||||||||
Bolañitos | 1.91 | 2.18 | 2.15 | 2.27 | 2.40 | 2.22 | 2.30 | 2.38 | ||||||||||||||||
El Cubo | 1.64 | 1.61 | 1.65 | 1.60 | 1.31 | 1.24 | 1.46 | 1.56 | ||||||||||||||||
Gold recovery | 84.5 | 83.3 | 83.4 | 84.6 | 85.2 | 83.0 | 80.8 | 81.9 | ||||||||||||||||
Guanaceví | 89.0 | 85.5 | 89.5 | 89.5 | 86.4 | 89.0 | 86.4 | 87.7 | ||||||||||||||||
Bolañitos | 83.6 | 82.8 | 82.4 | 83.8 | 85.4 | 81.7 | 80.3 | 81.2 | ||||||||||||||||
El Cubo | 84.3 | 83.4 | 83.3 | 84.7 | 84.5 | 83.1 | 80.5 | 81.6 | ||||||||||||||||
Cash costs per oz | $ | 6.50 | $ | 7.97 | $ | 8.11 | $ | 8.36 | $ | 7.81 | $ | 9.39 | $ | 5.27 | $ | 5.37 | ||||||||
Guanaceví | $ | 15.31 | $ | 12.39 | $ | 13.68 | $ | 14.94 | $ | 12.85 | $ | 12.66 | $ | 11.12 | $ | 10.82 | ||||||||
Bolañitos | ($2.77) | ($2.73) | ($0.52) | ($4.78) | ($10.28) | ($4.87) | ($15.17) | ($7.08) | ||||||||||||||||
El Cubo | $ | 2.93 | $ | 8.78 | $ | 6.37 | $ | 7.95 | $ | 8.52 | $ | 11.65 | $ | 9.16 | $ | 5.21 | ||||||||
Total cost per oz (1) | $ | 13.70 | $ | 11.38 | $ | 11.74 | $ | 12.02 | $ | 11.62 | $ | 11.31 | $ | 7.28 | $ | 8.30 | ||||||||
Guanaceví | $ | 28.0 6 | $ | 19.92 | $ | 20.48 | $ | 21.63 | $ | 18.94 | $ | 15.84 | $ | 14.15 | $ | 13.87 | ||||||||
Bolañitos | ($1.42) | ($1.47) | $ | 1.81 | ($2.0 7) | ($7.43) | ($3.59) | ($13.20) | ($1.67) | |||||||||||||||
El Cubo | $ | 7.90 | $ | 9.38 | $ | 7.13 | $ | 8.78 | $ | 9.44 | $ | 11.92 | $ | 9.99 | $ | 6.97 | ||||||||
AISC per oz | $ | 14.18 | $ | 12.70 | $ | 11.74 | $ | 20.46 | $ | 18.24 | $ | 20.11 | $ | 11.47 | $ | 10.53 | ||||||||
Guanaceví | $ | 22.62 | $ | 17.57 | $ | 23.47 | $ | 27.40 | $ | 23.78 | $ | 26.74 | $ | 21.53 | $ | 20.11 | ||||||||
Bolañitos | $ | 4.20 | $ | 1.01 | $ | 3.96 | $ | 3.61 | ($3.82) | $ | 1.02 | ($11.16) | ($4.25) | |||||||||||
El Cubo | $ | 11.22 | $ | 13.56 | $ | 17.95 | $ | 21.60 | $ | 20.00 | $ | 19.62 | $ | 11.60 | $ | 7.20 | ||||||||
Costs per tonne | $ | 79.38 | $ | 84.38 | $ | 84.81 | $ | 84.0 1 | $ | 75.77 | $ | 70 .72 | $ | 71.18 | $ | 73.01 | ||||||||
Guanaceví | $ | 120.63 | $ | 99.39 | $ | 117.15 | $ | 111.42 | $ | 94.99 | $ | 93.60 | $ | 93.24 | $ | 83.38 | ||||||||
Bolañitos | $ | 60 .87 | $ | 67.04 | $ | 71.52 | $ | 66.60 | $ | 65.18 | $ | 54.35 | $ | 49.03 | $ | 63.94 | ||||||||
El Cubo | $ | 70 .81 | $ | 90.69 | $ | 78.13 | $ | 83.38 | $ | 70.12 | $ | 68.0 1 | $ | 79.20 | $ | 74.51 |
(1) |
Total Production Cost per ounce |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 20 |
Key Economic Trends
Precious Metal Price Trends
The prices of silver and gold are the largest single factor in determining profitability and cash flow from operations, therefore, the financial performance of the Company has been, and is expected to continue to be, closely linked to the prices of silver and gold. During Q1, 2018, the average price of silver was $16.78 per ounce, with silver trading between $16.25 and $17.52 per ounce based on the London Fix silver price. This compares to an average of $17.429 per ounce during Q1, 2017, with a low of $15.95 and a high of $18.34 per ounce. During Q1, 2018, the Company realized an average price of $16.70 per silver ounce compared with $17.79 for the corresponding period in 2017.
During Q1, 2018, the average price of gold was $1,329 per ounce, with gold trading between $1,308 and $1,355 per ounce based on the London Fix PM gold price. This compares to an average of $1,219 per ounce during Q1, 2017, with a low of $1,151 and a high of $1,258 per ounce. During Q1, 2018, the Company realized an average price of $1,330 per ounce compared with $1,280 for the corresponding period in 2017.
During 2017, the average price of silver was $17.05 per ounce, with silver trading between a range of $15.22 and $18.56 per ounce based on the London Fix silver price. This compares to an average of $17.14 per ounce during 2016, with a low of $13.58 and a high of $20.71 per ounce. During 2017, the Company realized an average price of $17.24 per ounce compared with $16.84 for 2016.
During 2017, the average price of gold was $1,257 per ounce, with gold trading between a range of $1,146 and $1,346 per ounce based on the London Fix PM gold price. This compares to an average of $1,251 per ounce during 2016, with a low of $1,077 and a high of $1,366 per ounce. During 2017, the Company realized an average price of $1,285 per ounce compared with $1,253 for 2016.
The major influences on precious metals prices from Q3, 2014 to January 2016 included weaker investment demand, selling from precious metal exchange traded funds, as well as strong U.S. equity and bond markets that pulled investments from other asset classes, including precious metals. In addition, precious metal prices were also affected by an expectation of improving economic conditions, which led to the reduction of the U.S. Federal Reserves quantitative easing program in 2014 and the anticipation of rising borrowing rates over the past two years. From February 2016, supply concerns, prevailing low to negative interest rates and political uncertainty led to renewed investment demand in precious metals. However, nearing the end of 2016, the U.S. election results revived sentiment in favour of the U.S. economy and U.S. dollar, resulting in both silver and gold prices depreciating against the U.S. currency. In 2017, management believes that investor uncertainty surrounding the effect of the U.S. administrations policies, particularly escalating signals of implementing tariffs, led to renewed interest in precious metals.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 21 |
Currency Fluctuations
The Companys
operations are located in Mexico and therefore a significant portion of
operating costs and capital expenditures are denominated in Mexican pesos. The
Companys corporate activities are based in Vancouver, Canada with the
significant portion of these expenditures being denominated in Canadian dollars.
Generally, as the U.S. dollar strengthens, these currencies weaken, and as the
U.S. dollar weakens, these currencies strengthen.
During Q1, 2018, the Mexican peso appreciated against the U.S. dollar. During Q1, 2018, the average foreign exchange rate was $18.72 Mexican pesos per U.S. dollar, with the peso trading within a range of $18.16 to $19.63. This compares to an average of $20.30 during Q1, 2017, with a range of $18.71 to $21.92 Mexican pesos per U.S. dollar.
During the year ended December 31, 2017, the Mexican peso reversed a long negative trend and significantly appreciated against the U.S. dollar until the fourth quarter. During 2017, the average foreign exchange rate was $18.91 Mexican pesos per U.S. dollar, with the peso trading within a range of $17.50 to $21.92. This compares to an average of $18.68 during the year ended December 31, 2016, with a range of $17.17 to $20.82 Mexican pesos per U.S. dollar. The reversal of the trend in the earlier periods of 2017 is attributed to the correction from the sharp fall during the U.S. election and from rising oil prices.
During Q1, 2018, the Canadian dollar slightly depreciated against the U.S. dollar. During Q1, 2018, the average foreign exchange rate was $1.264 Canadian dollar per U.S. dollar, with the Canadian dollar trading within a range of $1.229 and $1.309. This compares to an average of $1.1324 during Q1, 2017, within a range of $1.301 and $1.350 Canadian dollar per U.S. dollar.
During 2017, the Canadian dollar appreciated relative to the U.S. dollar, with significant appreciation in the third quarter. During 2017, the average foreign exchange rate was $1.298 Canadian dollar per U.S. dollar, with the Canadian dollar trading within a range of $1.211 and $1.374. This compares to an average of $1.3251 during 2016, with a range of $1.2533 and $1.4602 U.S. dollar per Canadian dollar.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 22 |
Cost Trends
The Companys profitability is subject to industry wide cost pressures on development and operating costs with respect to labour, energy, consumables and capital expenditures. Underground mining is labour intensive and approximately 33% of the Companys production costs are directly tied to labour. In order to mitigate the impact of higher labour and consumable costs, the Company focuses on continuous improvement by promoting more efficient use of materials and supplies and by pursuing more advantageous pricing while increasing performance and without compromising operational integrity.
2018 Outlook
Production
In 2018, silver equivalent production is
planned to increase by 20% compared to 2017. The Company plans higher silver and
gold production at all three existing mines and initial production from the new
fourth mine at El Compas by the end of March 2018 with commercial production
scheduled for the end of July 2018.
With planned higher production, cash costs and all-in sustaining costs are expected to decline in 2018 compared to the revised guidance in 2017. The total capital budget in 2018 will increase from 2017 due to the development of the new El Compas mine, and two new high grade orebodies at Guanaceví, whereas the exploration budget will decrease as the Companys focus shifts towards development.
Silver production is anticipated to be in the range of 5.8 -6.4 million ounces and gold production is expected be in the 58,000-64,000 oz range. Silver equivalent production is anticipated to be 10.2 -11.2 million ounces using a 75:1 silver:gold ratio , as shown in the table below.
After resolving several operational issues in 2017, management recently launched a seven-month mine-site training program aimed at significantly improving workforce productivity and cutting costs. Plant throughput should rise from the 900 tpd in Q4, 2017 to 1,050 tpd in Q4, 2018 averaging 1,000 tpd in 2018. Two new orebodies at Milache and SCS are being developed to commence production before year-end in order to reduce the onus on Porvenir Norte and Santa Cruz and increase operational flexibility.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 23 |
At Bolañitos, steady mine production and plant throughput are expected at 1,200 tpd (similar to 2017), primarily from the LL-Asunción and Plateros vein orebodies plus some historic mine fill. Silver grades are expected to be higher than 2017 but gold grades will be lower. Improvement in metal recoveries is expected due to modifications in the flotation circuit implemented late last year.
At El Cubo, mine production and plant throughput are also expected to remain steady at 1,400 tpd from the V-Asunción, Dolores, and San Nicolas veins. Ore grades should increase considerably as a higher grade area of the V-Asuncion orebody is scheduled for mining this year. Metal recoveries should rise incrementally after modifications to the flotation circuit late last year.
Mine | Ag (M oz) | Au (K oz) | Ag Eq (M oz) | Tonnes/Day (tpd) | ||||||||
Guanaceví | 2.2-2.5 | 5.0-5.5 | 2.6-2.9 | 900-1,050 | ||||||||
Bolañitos | 1.0-1.1 | 23.5-25.5 | 2.8-3.0 | 1,100-1,250 | ||||||||
El Cubo | 2.5-2.7 | 22.5-24.5 | 4.2-4.5 | 1,300-1,450 | ||||||||
El Compas | 0.1-0.1 | 7.0-8.5 | 0.6-0.8 | 0-250 | ||||||||
Total | 5.8-6.4 | 58.0-64.0 | 10.2-11.2 | 3,300-4,000 |
Operating Costs
Cash costs, net of gold by-product
credits, are expected to be $6.00 -$7.00 per oz of silver produced in 2018.
Consolidated cash costs expressed on a co-product basis are anticipated to be
$10.00 -$11.00 per oz silver and $750-$800 per oz gold.
All-in sustaining costs (AISC), net of gold by-product credits, in accordance with the World Gold Council standard, are estimated to be $15.00 -$16.00 per oz of silver produced in 2018 reflecting new investments in exploration and development programs. When non-cash items such as stock-based compensation are excluded, AISC is budgeted to be in the $14.50 -$15.50 range. If the investment to develop the SCS and Milache ore bodies into production at Guanaceví was excluded, AISC would decrease by $2.00 per oz to $13.00 -$14.00 per oz.
On a co-product basis, AISC are anticipated to be $15.50 -$16.00 per oz silver and $1,150-$1,200 per oz gold. Direct operating costs are estimated to be in the range of $80-$85 per tonne.
Management has assumed a $17 per oz silver price, $1,275 per oz gold price, and 19:1 Mexican peso per US dollar exchange rate for its 2018 cost estimates.
Capital Investments
In 2018, Endeavour plans to
invest $48.4 million on capital projects including $41.1 million in sustaining
capital at three currently operating mines and $7.3 million in growth capital at
two development projects (including the El Compas project). At managements
assumed metal prices, the sustaining capital investments will be covered by
operating cash flow.
Growth capital of $7.2 million is budgeted to complete the construction and commissioning of the El Compas project to commercial production.
At Guanaceví, a capital budget of $25.9 million is planned for 2018, including sustaining capital of $10.3 million to develop 9.2 kilometres of mine access at the North Porvenir and Santa Cruz mines. Additionally, $7.7 million and $5.6 million are budgeted for the development of the Milache and SCS ore bodies, respectively. An additional $2.3 million is planned to support site infrastructure, including plant equipment, office equipment and building improvements.
At Bolañitos, a capital budget of $2.6 million is planned for 2018, including $0.5 million on mine development to access resources in LL-Asunción and Plateros veins, plus mineralized fill from historic stopes not included in resources. An additional $2.1 million is planned to support site infrastructure, including mobile equipment, plant equipment, office equipment and building improvements.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 24 |
At El Cubo, a capital budget of $12.6 million is planned for 2018, including 5.9 kilometres of mine development for $7.6 million, $2.0 million for refurbishment of underground mobile equipment, $1.8 million to increase the capacity of the tailings facility and an additional $1.2 million for site infrastructure, including vehicles, plant equipment, office equipment and building improvements.
In 2017, the Company received government environmental permits to build the Terronera mine and plant however, the Company still awaits receipt of the dumps and tailings permits. Upon receipt of the final permits currently anticipated in Q2, 2018, and assuming a positive production decision and appropriate financing, the 2018 growth capital budget will be amended accordingly.
Mine | Mine | Other | Sustaining Capital | Growth | Total | ||||||||||
Development | Capital | Capital | Capital | ||||||||||||
Guanaceví | $ | 23.6 million | $ | 2.3 million | $ | 25.9 million | - | $ | 25.9 million | ||||||
Bolañitos | $ | 0.5 million | $ | 2.1 million | $ | 2.6 million | - | $ | 2.6 million | ||||||
El Cubo | $ | 7.6 million | $ | 5.0 million | $ | 12.6 million | - | $ | 12.6 million | ||||||
El Compas | - | - | - | $ | 7.2 million | $ | 7.2 million | ||||||||
Corporate | - | - | - | $ | 0.1 million | $ | 0.1 million | ||||||||
Total | $ | 31.7 million | $ | 9.4 million | $ | 41.1 million | $ | 7.3 million | $ | 48.4 million |
Exploration Expenditures
In 2018, the Company plans
to drill 44,000 metres and spend $11.1 million on brownfields and greenfields
exploration, development engineering, and land payments across its portfolio of
properties. At the three existing mines, 17,000 metres of core drilling are
planned at a cost of $2.8 million. At the exploration and development projects,
expenditures of $8.3 million are planned to drill 27,300 metres, to advance
engineering studies and meet property holding obligations. Drilling is now
underway at Bolanitos, El Cubo, El Compas, Terronera and Parral.
At El Compas, 6,600 metres are planned to be drilled for $1.0 million primarily on the Calicanto concessions. The 2018 drilling is to further test the new zones of high grade mineralization within the Misie-Karla-Karla HW and Calicanto veins discovered in 2017.
At Terronera, $1.7 million is budgeted to complete an updated PFS and a 6,600 metre drill program. The 2018 drilling will focus on extending mineralization in the Terronera vein to the southeast of the current resource, plus testing other known mineralized veins.
At Parral, $2.2 million is budgeted for drilling 12,000 metres to extend historic and new resource areas and complete a PEA.
In Chile, the Company has budgeted for a 3,000 metre drill program on one property to explore for bulk tonnage silver-lead-zinc manto mineralization.
Project | 2018 Activity | Drill Metres | Expenditures | ||||||
Guanaceví | Drilling | 6,600 | $ | 0.8 million | |||||
Bolañitos | Drilling | 5,400 | $ | 1.0 million | |||||
El Cubo | Drilling | 5,000 | $ | 1.0 million | |||||
El Compas | Drilling | 6,600 | $ | 1.0 million | |||||
Terronera | Drilling/Update PFS | 5,400 | $ | 1.2 million | |||||
Parral | Drilling/PEA | 12,000 | $ | 2.2 million | |||||
Guadalupe y Calvo | Mapping | - | $ | 0.2 million | |||||
Chile | Drilling | 3,000 | $ | 1.3 million | |||||
Mexico | Holding Costs/Land Payment | - | $ | 2.4 million | |||||
Total | 44,000 | $ | 11.1 million |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 25 |
Liquidity and Capital Resources
Cash and cash equivalents (including restricted cash) decreased from $39.3 million at December 31, 2017 to $36.6 million at March 31, 2018. The Company had working capital of $66.6 million at March 31, 2018 (December 31, 2017 - $66.2 million). The $0.4 million increase in working capital is due to cash generated from operating activities.
Operating activities generated cash of $8.0 million during Q1, 2018 compared to $9.7 million of cash during the same period in 2017. The significant non-cash adjustments to the net income of $2.3 million were amortization and depletion of $9.8 million, share-based compensation of $0.4 million, a deferred income tax recovery of $1.8 million, a write down of inventory to net realizable value of $0.8 million and a change in non-cash working capital of $3.5 million. The change in non-cash working capital was primarily due to an decrease in income tax payable, with normal fluctuations in other working capital items.
The Company's Mexican subsidiaries pay value added tax, Impuesto al Valor Agregado ("IVA"), on the purchase and sale of goods and services. The net amount paid is recoverable but is subject to review and assessment by the tax authorities. The Company regularly files the required IVA returns and all supporting documentation with the tax authorities, however, the Company has been advised that certain IVA amounts receivable from the tax authorities are being withheld pending completion of the authorities' audit of certain of the Company's third-party suppliers. Under Mexican law the Company has legal rights to those IVA refunds and the results of the third party audits should have no impact on refunds. A smaller portion of IVA refund requests are from time to time improperly denied based on the alleged lack of compliance of certain formal requirements and information returns by the Company's third-party suppliers. The Company takes necessary legal action on the delayed refunds as well as any improperly denied refunds.
Mangement believes that delays and denials with respect to IVA refunds for Compania Minera del Cubo (El Cubo) and Refinadora Plata Adelante S.A. de C.V. (Guanaceví,) are improper. At March 31, 2018, El Cubo holds $12.1 million and Guanaceví holds $8.7 million in IVA receivables which the Company and its advisors deem to be recoverable from tax authorities (December 31, 2017 $10.4 million and $8.8 million respectively). The Company is in regular contact with the tax authorities in respect of its IVA filings and believes that the full amount of its IVA receivables will ultimately be received; however, the timing of recovery of these amounts and the nature and extent of any adjustments to the Companys IVA receivables remains uncertain. See Financial Instrument Risk Exposure and Risk Management-Liquidity Risk.
Investing activities during the period used $11.0 million compared to $9.4 million in the same period of 2017. The investments in 2018 primarily relate sustaining capital at the existing operations and the construction of the El Compas operation.
Capital spending totaled $11.0 million in property, plant and equipment during Q1, 2018. At Guanaceví, the Company invested $3.0 million, with $2.7 million spent on 2.7 kilometres of mine development and $0.3 million on mine equipment and various support items.
At El Cubo, the Company invested $3.6 million, including $3.0 million on 2.0 kilometres of mine development, $0.3 million on mine equipment, $0.1 million on the plant and tailings dam, and $0.2 million on other site equipment. At Bolañitos, the Company invested $0.9 million, including $0.5 million on 0.8 kilometres of mine development and $0.4 on various site equipment.
At El Compas, the Company has spent a total of $3.1 million in developing the El Compas ore body and refurbishment of the plant. $1.4 million was incurred in the quarter on the plant, $1.3 million was incurred on development of the main ore ramp and $0.4 million on various other equipment. See further discussion under Development Activities.
Exploration incurred $0.3 million in holding costs and Corporate expenditures totaled $0.1 million during the quarter.
Management of the Company believes that operating cash flow and existing working capital will be sufficient to cover 2018 capital requirements and commitments. The Company is assessing financing alternatives, including equity or debt or a combination of both to fund future growth, including the development of the Terronera project.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 26 |
In April 2018, the Company filed a short form base shelf prospectus (the Base Shelf) that qualifies the distribution of up to CDN$ 150 million of common shares, warrants or units of the Company comprising any combination of common shares and warrants (Securities). The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may vary with market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are deemed to be at the market distributions. The Base Shelf also provides the Company with the ability to conduct an At-The-Market offering through an At-The-Market facility (ATM) equity distribution agreement.
As at March 31, 2018, the Companys issued share capital was $450.7 million, representing 127,488,410 common shares, and the Company had options outstanding to purchase 5,792,800 common shares with a weighted average exercise price of CAD$4.00.
Contingencies
Minera Santa Cruz y Garibaldi SA de CV (MSCG), a subsidiary of the Company, received a MXN 238 million assessment on October 12, 2010 by Mexican fiscal authorities for failure to provide the appropriate support for certain expense deductions taken in MSCGs 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies, and deemed an unrecorded distribution of dividends to shareholders, among other individually immaterial items. MSCG immediately initiated a Nullity action and filed an administrative attachment to dispute the assessment.
In June 2015, the Superior Court ruled in favour of MSCG on a number of the matters under appeal; however, the Superior Court ruled against MSCG for failure to provide appropriate support for certain deductions taken in MSCGs 2006 tax return. In June 2016, the Company received a MXN 122.9 million ($6.2 million) tax assessment based on the June 2015 ruling. The 2016 tax assessment comprised of MXN 41.8 million in taxes owed ($2.1 million), MXN 17.7 million ($0.9 million) in inflationary charges, MXN 40.4 million ($2.0 million) in interest and MXN 23.0 million ($1.2 million) in penalties. The 2016 tax assessment was issued for failure to provide the appropriate support for certain expense deductions taken in MSCGs 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies. If MSCG agrees to pay the tax assessment, or a lesser settled amount, it is eligible to apply for forgiveness of 100% of the penalties and 50% of the interest.
The Company filed an appeal against the June 2016 tax assessment on the basis that certain items rejected by the courts were included in the new tax assessment and a number of deficiencies exist within the assessment. Since issuance of the assessment interest charges of MXN 5.6 million ($0.3 million) and inflationary charges of MXN 8.5 million ($0.4 million) has accumulated.
Included in the Companys consolidated financial statements, are net assets of $595,000, including $42,000 in cash, held by MSCG. Following the Tax Courts rulings, MSCG has been in discussions with the tax authorities with regards to the shortfall of assets within MSCG to settle its estimated tax liability. An alternative settlement option would be to transfer the shares and assets of MSCG to the tax authorities. As of December 31, 2017, the Company recognized an allowance for transferring the shares and assets of MSCG amounting to $595,000. The Company is currently assessing MSCGs settlement options based on ongoing court proceedings and discussion with the tax authorities.
On acquisition of the El Cubo operation, under the terms of the acquired Las Torres lease, the Company was required to provide financial guarantees to the owner of the Las Torres Facility as security against any environmental damages. As at December 31, 2017, there was a $1.0 million letter of credit provided by the Company as security to the owner of the Las Torres facility that expires on August 14, 2018. In March 2018 a payment was made to the owner of the Las Torres Facility for $0.5 million and the letter of credit has been removed.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 27 |
Capital Requirements
See 2018 Outlook on page 23 for discussion on planned capital and exploration expenditures.
Contractual Obligations
The Company had the following contractual obligations at March 31, 2018:
Payments due by period (in thousands of dollars) | |||||||||||||||
Contractual Obligations | |||||||||||||||
Total | Less than 1 | 1 - 3 years | 3 - 5 years | More than | |||||||||||
year | 5 years | ||||||||||||||
Capital Assets purchases | $ | 23 | $ | 23 | $ | - | $ | - | $ | - | |||||
Operating lease | 3,875 | 432 | 903 | 836 | 1,704 | ||||||||||
Other Long-Term Liabilities | 8,020 | - | 8,020 | - | - | ||||||||||
Total | $ | 11,918 | $ | 455 | $ | 8,923 | $ | 836 | $ | 1,704 |
Transactions with Related Parties
The Company shares common administrative services and office space with Aztec Metals Corp., which is considered a related party company by virtue of Bradford Cooke being a common director. During 2017 , the Company also shared common administrative services and office space with Canarc Resource Corp., which was considered a related party company by virtue of Bradford Cooke being a common director. From time to time, Endeavour incurs third-party costs on behalf of the related parties, which are charged on a full cost recovery basis. The charges for these costs totaled $2,000 for the three months ended March 31, 2018 (March 31,2017 - $10,000). The Company had a $1,000 net receivable related to administration costs outstanding as at March 31, 2018 (December 31, 2017 $2,000).
During the period ended March 31, 2018, the Company was charged $37,000 (March 31, 2017 - $11,000) for legal services by Koffman Kalef LLP, a firm in which the Companys corporate secretary is a partner. The Company has $Nil payable to the legal firm as at March 31, 2018 (December 31, 2017 - $Nil).
Financial Instruments and fair value measurements
As at March 31, 2018, the carrying and fair values of Endeavours financial instruments by category were as follows:
As at M arch 31, 2018 | As at December 31, 2017 | |||||||||||
Expressed in thousands US dollars | Carrying | Estimated | Carrying | Estimated | ||||||||
value | Fair value | value | Fair value | |||||||||
Financial assets: | ||||||||||||
Cash and cash equivalents | $ | 36,560 | $ | 36,560 | $ | 39,277 | $ | 39,277 | ||||
Other investments | 148 | 148 | 168 | 168 | ||||||||
Trade receivables | 6,466 | 6,466 | 8,114 | 8,114 | ||||||||
Other receivables | 123 | 123 | 360 | 360 | ||||||||
Total financial assets | $ | 43,297 | $ | 43,297 | $ | 47,919 | $ | 47,919 | ||||
Financial liabilities: | ||||||||||||
Accounts payable and accrued liabiities | $ | 18,285 | $ | 18,285 | $ | 20 ,822 | $ | 20 ,822 | ||||
Total financial liabilities | $ | 18,285 | $ | 18,285 | $ | 20 ,822 | $ | 20 ,822 |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 28 |
Fair value measurements
Fair value hierarchy:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by no or little market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
Assets and liabilities measured at fair value on a recurring basis include:
Other investments
The Company holds marketable securities classified as Level 1
in the fair value hierarchy. The fair values of these other investments are
determined based on a market approach reflecting the closing price of each
particular security at the reporting date. The closing price is a quoted market
price obtained from the stock exchange that is the principal active market for
the particular security, being the market with the greatest volume and level of
activity for the assets. Changes in fair value on available for sale marketable
securities are recognized in income or loss.
Trade receivables
The trade receivables consist of receivables from provisional
silver and gold sales from the Bolañitos and El Cubo mine. The fair value of
receivables arising from concentrate sales contracts that contain provisional
pricing mechanisms is determined using the appropriate quoted closing price on
the measurement date from the exchange that is the principal active market for
the particular metal. As such, these receivables, which meet the definition of
an embedded derivative, are classified within Level 2 of the fair value
hierarchy.
Deferred share units
The Company has a Deferred Share Unit (DSU) plan whereby
deferred share units may be granted to independent directors of the Company in
lieu of compensation in cash or stock options. The DSUs vest immediately and are
redeemable for cash based on the market value of the units at the time of a
directors retirement. The DSUs are classified as Level 1 in the fair value
hierarchy. The liability is determined based on a market approach reflecting the
closing price of the Companys common shares at the reporting date. Changes in
fair value are recognized in general and administrative salaries, wages and
benefits.
Share appreciation rights
As part of the Companys bonus program, the Company grants
share appreciation rights (SARs) to its employees in Mexico and Chile. The
SARs are subject to vesting conditions and, when exercised, constitute a cash
bonus based on the value of the appreciation of the Companys common shares
between the SARS grant date and the exercise date.
The SARs are classified as Level 2 in the fair value hierarchy. The liability is valued using a Black-scholes option pricing model. Changes in fair value are recognized in salaries, wages and benefits.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 29 |
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the risk
management process. The types of risk exposure and the way in which such
exposure is managed is provided as follows:
Credit Risk
The Company is exposed to credit risk on
its bank accounts, investments and accounts receivable. Credit risk exposure on
bank accounts and short-term investments is limited through maintaining the
Companys balances with high-credit quality financial institutions, maintaining
investment policies, assessing institutional exposure and continual discussion
with external advisors. Value added tax receivables are generated on the
purchase of supplies and services to produce silver, which are refundable from
the Mexican government. Trade receivables are generated on the sale of
concentrate inventory to reputable metal traders.
Liquidity Risk
The Company ensures that there is
sufficient capital in order to meet short-term business requirements. The
Companys policy is to invest cash at floating rates of interest, while cash
reserves are to be maintained in cash equivalents in order to maintain liquidity
after taking into account the Companys holdings of cash equivalents, money
market investments, marketable securities, receivables and available cash under
the Credit Facility. The Company believes that these sources, operating cash
flow and its policies will be sufficient to cover expected short-term cash
requirements and commitments.
The Companys Mexican subsidiaries pay value added tax,IVA, on the purchase and sale of goods and services. The net amount paid is recoverable but is subject to review and assessment by the tax authorities. The Company regularly files the required IVA returns and all supporting documentation with the tax authorities, however, the Company has been advised that certain IVA amounts receivable from the tax authorities are being withheld pending completion of the authorities audit of certain of the Companys third-party suppliers. Under Mexican law the Company has legal rights to those IVA refunds and the results of the third party audits should have no impact on refunds. A smaller portion of IVA refund requests are from time to time improperly denied based on the alleged lack of compliance of certain formal requirements and information returns by the Companys third-party suppliers. The Company takes necessary legal action on the delayed refunds as well as any improperly denied refunds.
Management believes that delays and denials with respect to IVA refunds for El Cubo and Guanaceví are improper. At March 31, 2018, El Cubo holds $12.1 million and Guanaceví holds $8.7 million in IVA receivables which the Company and its advisors deem to be recoverable from tax authorities. The Company is in regular contact with the tax authorities in respect of its IVA filings and believes that the full amount of its IVA receivables will ultimately be received; however the timing of recovery of these amounts and the nature and extent of any adjustments to the Companys IVA receivables remains uncertain.
Market Risk
The significant market risk exposures to
which the Company is exposed are foreign currency risk, interest rate risk, and
commodity price risk.
Foreign Currency Risk The Companys operations in Mexico and Canada make it subject to foreign currency fluctuations. Certain of the Companys operating expenses are incurred in Mexican pesos and Canadian dollars; therefore, the fluctuation of the U.S. dollar in relation to these currencies will consequently have an impact upon the profitability of the Company and may also affect the value of the Companys assets and the amount of shareholders equity. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks.
Interest Rate Risk In respect of financial assets, the Companys policy is to invest cash at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to maintain liquidity. Fluctuations in interest rates impact the value of cash equivalents.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 30 |
Commodity Price Risk Gold and silver prices have historically fluctuated significantly and are affected by numerous factors outside of the Companys control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities and certain other factors. The Company has not engaged in any hedging activities, other than short-term metal derivative transactions less than 90 days, to reduce its exposure to commodity price risk. At March 31, 2018, there are 173,326 oz of silver and 4,113 oz of gold, which do not have a final settlement price and the estimated revenues have been recognized at current market prices. As at March 31, 2018, with other variables unchanged, a 10% decrease in the market value of silver and gold would result in a reduction of revenue of $0.8 million.
Outstanding Share Data
As of May 2, 2018, the Company had the following securities issued and outstanding:
| 127,488,410 common shares | |
| 5,792,800 common shares issuable under stock options with a weighted average exercise price of CAD$4.00 per share expiring between November 8, 2017 and May 4, 2022. |
The Company considers the items included in the consolidated statement of shareholders equity as capital. The Companys objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares through private placements, prospectus offerings, convertible debentures, asset acquisitions or return capital to shareholders. The Company is not subject to externally imposed capital requirements.
Changes in Accounting Policies and Critical Accounting Estimates
Accounting standards adopted during the period:
Amendments to IFRS 2, Share-based Payment (IFRS 2)
On June 20, 2016, the IASB issued amendments to IFRS 2 clarifying how to
account for certain types of share-based payment transactions. The amendments
provide requirements on the accounting for: the effects of vesting and
non-vesting conditions on the measurement of cash-settled share-based payments;
share-based transactions with a net settlement feature for withholding tax
obligations; and a modification to the terms and conditions of a share-based
payment that changes the classification of a transaction from cash-settled to
equity settled.
The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective, or early, application is permitted if information is available without the use of hindsight. The Company has adopted the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, 2018 on a prospective basis with no material impact on the consolidated financial statements.
The Company has Performance Share Units (PSU) with a net settlement feature, which permits cash settlement for withholding tax obligations. The expense for the PSUs has previously been bifurcated with the cash settlement portion of the expense recognized as a liability until settlement, and the remaining expense allocated to Contributed Surplus. Upon adoption of the amendments to IFRS 2, the PSU liability at January 1, 2018, the liability classified portion of $38 was reallocated to Contributed Surplus.
IFRS 9 Financial Instruments (IFRS 9)
In November
2009, the IASB issued IFRS 9 as the first step in its project to replace IAS 39,
Financial Instruments: Recognition and Measurement
. On July 24, 2014 the
IASB issued the complete IFRS 9. IFRS 9 retains but simplifies the mixed
measurement model and establishes two primary measurement categories for
financial assets: amortized cost and fair value. The basis of classification
depends on an entitys business model and the contractual cash flows of the
financial asset.
Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 31 |
IFRS 9 amends some of the requirements of IFRS 7, Financial Instruments: Disclosures , including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on the measurement of financial liabilities and de-recognition of financial instruments. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 with early adoption permitted, and must be applied retrospectively with some exemptions permitted.
As a result of the adoption of IFRS 9, we have changed our accounting policy for financial instruments retrospectively.
The change did not result in a change in carrying value of any of our financial instruments on transition date. IFRS 9 introduced a single expected credit loss impairment model, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model did not have a significant impact on the Companys financial statements.
The Companys financial instruments are accounted for as follows under IFRS 9 as compared to the Companys previous policy in accordance with IAS 39.
January 1, 2018 | ||
IAS 39 | IFRS 9 | |
Assets | ||
Cash and cash equivalents | Amortized cost | Amortized cost |
Restricted cash | Amortized cost | Amortized cost |
Trade and other receivables (other than derivatives) | Amortized cost | Amortized cost |
Trade receivables (derivative component) | Fair value through profit or loss | Fair value through profit or loss |
Marketable securities | Fair value through other comprehensive income | Fair value through profit or loss |
Liabilities | ||
Accounts payable and accrued liabilities | Amortized cost | Amortized cost |
Under IFRS 9, the Companys equity marketable securities are designated as financial assets at fair value through profit or loss. For equity instruments not held for trading, we may make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. We did not make any such election.
IFRS 9 does not require restatement of comparative periods. Accordingly, the Company has reflected the retrospective impact of the adoption of IFRS 9 due to the change in accounting policy for marketable securities as an adjustment to opening components of equity as at January 1, 2018.
The fair value of marketable securities is $168 under both IAS 39 and IFRS 9 as at January 1, 2018, the date of initial application of IFRS 9, and is presented in Other Investments in the consolidated balance sheet. On adoption, the unrealized gain in fair value of $127, previously recognized in accumulated other comprehensive income has been reallocated to retained earnings.
As a result of the adoption of IFRS 9, the Companys accounting policy for financial instruments has been updated as follows:
Financial Instruments
The Company recognizes financial assets and financial liabilities on the date the Company becomes party to the contractual provisions of the instruments. A financial asset is derecognized either when the Company has transferred substantially all the risks and rewards of ownership of the financial assets or when cash flows expire. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired.
We classify and measure financial assets (excluding derivatives) on initial recognition as described below:
|
Cash and equivalents and restricted cash include cash and term deposits with original maturities of less than 90 days are classified as financial assets at fair value through profit and loss and are measured at fair value. Unrealized gains and losses related to changes in fair value are reported in income; |
|
| Trade and other receivables are classified as and measured at amortized cost using the effective interest method, less impairment allowance, in any; | |
|
Investments in equity instruments are designated at financial assets through profit or loss and are recorded at fair value on settlement date, net of transaction costs. Subsequent to initial recognition, changes in fair value are recognized in income. |
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 32 |
Derivative financial instruments, including embedded derivatives in trade receivables measured at amortized cost, are recorded in the consolidated balance sheets at fair value. Subsequent to initial recognition, changes in estimated fair value at each reporting date are recognized through profit or loss.
A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements and since we do not have any financial liabilities designated at fair value through profit or loss, the adoption of IFRS 9 did not impact our accounting policies for financial liabilities.
IFRS 15,
Revenue from Contracts with Customers (IFRS
15)
On May 28, 2014, the IASB issued IFRS 15. The new standard is
effective for annual periods beginning on or after January 1, 2018 with early
adoption permitted. IFRS 15 will replace IAS 11
Construction Contracts
,
IAS 18
Revenue
, IFRIC 13
Customer Loyalty Programmes
, IFRIC 15
Agreements for the Construction of Real Estate
, IFRIC 18
Transfer of
Assets from Customers
and SIC 31
Revenue Barter Transactions Involving
Advertising Services
.
The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have also been introduced, which may affect the amount and/or timing of revenue recognized.
On April 12, 2016 the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers , which is effective at the same time as IFRS 15. The clarifications to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application of the standard to licenses of intellectual property.
The Company adopted IFRS 15 and the clarifications effective January 1, 2018 with no material impact on the consolidated financial statements.
Dore sales
IFRS 15 requires that revenue from contracts with customers be
recognized upon the transfer of control over goods or services to the customer.
The recognition of revenue upon transfer of control to the customer is
consistent with our revenue recognition policy as set out in Note 3(l) of the
2017 Annual Financial Statements, as the condition is generally satisfied when
title transfers to the customer. As such, upon adoption, this requirement under
IFRS 15 resulted in no impact to our financial statements as the timing of
revenue recognition on our dore sales is unchanged.
Concentrate sales
We assessed all of our existing concentrate sales agreements
and determined that there is no change in the timing of revenue recognition, as
control transfers to the smelting companies at the time of delivery, consistent
with our current accounting policy as set out in Note 3(l) of the 2017 Annual
Financial Statements.
Changes in IFRS not yet adopted:
New standards and amendments have been proposed; however, they
do not impact the condensed consolidated interim financial statements and are
not anticipated to impact the Companys annual consolidated financial
statements. The nature and impact of each new standard and amendment applicable
to the Company are described below:
IFRS 16, Leases (IFRS 16)
On January 13, 2016, the
IASB published a new standard, IFRS 16, Leases, eliminating the current dual
accounting model for lessees, which distinguishes between on-balance sheet
finance leases and off-balance sheet operating leases. Under the new standard, a
lease becomes an on-balance sheet liability that attracts interest, together
with a new right-of-use asset. In addition, lessees will recognize a
front-loaded pattern of expense for most leases, even when cash rentals are
constant. IFRS 16 is effective for annual periods beginning on or after January
1, 2019, with earlier adoption permitted. The Company has begun a preliminary
assessment however, the Company is not able at this time to estimate reasonably
the impact that the amendments will have on the financial statements.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 33 |
Critical Accounting Estimates
The preparation of financial statements requires the Company to
make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management judgment
relate to the determination of mineralized reserves, plant and equipment lives,
estimating the fair values of financial instruments and derivatives, impairment
of non-current assets, reclamation and rehabilitation provisions, recognition of
deferred tax assets, and assumptions used in determining the fair value of
share-based compensation.
See Critical Accounting Estimates in the Companys annual MD&A for the year ended December 31, 2017 for a detailed discussion of the areas in which critical accounting estimates are made.
Controls and Procedures
Changes in Internal Control over Financial Reporting
Management, including the CEO and CFO, have evaluated the Companys
internal controls over financial reporting to determine whether any changes
occurred during the period that have materially affected, or are reasonably
likely to materially affect, the Companys internal controls over financial
reporting.
During the three months ended March 31, 2018 there have been no changes in internal control over financial reporting that that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
ENDEAVOUR SILVER CORP. | MANAGEMENTS DISCUSSION & ANALYSIS | PAGE 34 |
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Bradford Cooke, Chief Executive Officer of Endeavour Silver Corp., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Endeavour Silver Corp. (the issuer) for the interim period ended March 31, 2018. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. |
Responsibility: The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. |
5.1 |
Control framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Internal Control Integrated Framework (2013) (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
5.2 |
ICFR material weakness relating to design: N/A |
5.3 |
Limitation on scope of design: N/A |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on January 1, 2018 and ended on March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: May 3, 2018 |
Bradford Cooke |
Bradford Cooke |
Chief Executive Officer |
2
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Dan Dickson, Chief Financial Officer of Endeavour Silver Corp., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Endeavour Silver Corp. (the issuer) for the interim period ended March 31, 2018. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. |
Responsibility: The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. |
5.1 |
Control framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Internal Control Integrated Framework (2013) (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
5.2 |
ICFR material weakness relating to design: N/A |
5.3 |
Limitation on scope of design: N/A |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on January 1, 2018 and ended on March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: May 3, 2018 |
Dan Dickson |
Dan Dickson |
Chief Financial Officer |
2