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Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. 2018 Q2 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Galina Meleger, Director of Investor Relations. Please go ahead.
Thank you, Savee. Good morning, everyone, and welcome to the Endeavour Silver Corp. 2018 Second Quarter Financial Results Conference Call. With me on the line today, we have the company's Chief Financial Officer, Dan Dickson; and our Chief Operating Officer, Godfrey Walton. Our Chief Executive Officer, Bradford Cooke, will not be joining today's earning call as he is traveling. However, he is always reachable by e-mail if you have any further questions after the call today.Before we get started, I'm required to remind you that certain statements on this call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in 2018 and future years, including revenue and cost figures, silver and gold production, grades and recoveries and the timing and expenditures required to develop new silver mines in mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information other than as required by applicable law.On behalf of Endeavour Silver, I would like to thank you for joining our call today, and I'll now turn it over to our CFO, Dan Dickson.
Thanks very much, Galina, and welcome everybody to our Q2 financial results call. I'd like to start with a brief overview of the results released this morning, some updates on our ongoing projects, and then we will open it up to Q&A.We did release our production numbers in early July and believe we are in position to attain our production guidance for 2018. For the 6 months ended June 30, we produced a total 4.7 million silver equivalent ounces and expect production to improve in the second half of the year as El Compas achieves commercial production and Guanaceví's performance improves. On a quarter-over-quarter basis, silver production was up 19% to 1.36 million ounces and gold production was up 5% to 13,674 ounces. Guanaceví has continued to lag management's expectations, but we are starting to see incremental improvement. The productivity optimization program, that was launched in January, is now complete, and we are optimistic that we will see benefits of that programs in the second half of 2018. We've developed over a kilometer toward the Milache ore body, which will help increase mine output and lower costs on a per unit basis. El Cubo and Bolañitos both continued to perform as planned or better.Direct production costs per tonne in Q2 increased 3% compared to the same period last year. The higher production costs per tonne were driven mainly by Guanaceví's performance but also offset by the improvement at El Cubo. The improved metrics at El Cubo resulted in a 9% decrease in consolidated cash cost per ounce, falling to $7.61 per ounce. Similarly all-in sustaining costs decreased 16% to $17.28 compared to Q2 2017.The drop is related to the lower costs on a per ounce basis and lower capital expenditures, offset by higher G&A costs out of the corporate office here in Vancouver.Revenue for the quarter increased 19% to $38.8 million from sales of 1.26 million ounces of silver and 13,800 ounces of gold, averaging $17.16 per silver ounce and $1,270 per gold ounce. On a year-to-date basis, our revenue now totals $79.1 million.After quarterly cost of sales of $34.2 million, mine operating earnings amounted to $4.6 million from our operations in Mexico. The 26% increase in our cost sales was primarily due to increased depreciation and depletion at the Guanaceví operation. If we were to exclude depreciation and depletion of $7.9 million, our share-based payments and our inventory write-downs, mine operating cash flow before taxes was $14.9 million in the second quarter, which represents a 69% increase from the same period last year.For Q2, overall, we reported a net loss of $5.7 million or $0.04 a share, which was primarily driven by higher depreciation and depletion and a foreign exchange loss due to the depreciation in the Mexican peso. Discussions of tariffs and the uncertainty of the Mexican federal elections drove the Mexican peso to fall against the U.S. dollar at the end of Q2, driving a $3 million foreign exchange loss on our outstanding taxes owed. Since quarter end, the peso has reversed that trend and recovered most of that devaluation in the second quarter.As of June 30, working capital totaled $58.9 million compared to the $66.2 million we had at year-end. The $7.3 million decrease is a result of us investing $23 million into our property, plants and equipment, offset by our cash generated from operations, which included $6 million of expenditures into our exploration assets. At quarter end, our cash position totaled $31.1 million compared to $36.6 million at the end of Q1, which represents a $5 million decrease in Q2.The use of cash was for fueling future growth. Specifically, we completed the construction of the El Compas mine, we continued to develop at Guanaceví to provide more working stopes, including developing the Milache ore body expected to come online this year. And we increased our exploration expenditures as we have seen very encouraging results across our portfolio of assets.As for El Compas, our newest mine, the mine of stockpiling ore -- the mine is stockpiling ore with ore grades reconciling to expected projections. The commission of the plant was initiated in Q2 using low-grade ore. As normal course with startups, plant circuits are being modified, configured and fine-tuned to resolve normal startup issues. The plant-to-date has been commissioned with low-grade ore, and we will shortly feed planned ore grades from our stockpiles, with the expectation of achieving commercial production in Q3.Total construction costs at El Compas have come in line with our guidance. Total cost was expected to be about $11.3 million, and we're right there. Other highlights from our exploration and development groups included, we've completed our trade-off studies at the Terronera Project, and we're currently finalizing our updated PFS, with expectations of publishing in August. We've maintained good dialogue with the governing bodies over our last 2 permits, with expectations of obtaining those permits here in the near future. We continue to report positive drill results from our infill drill program at the Terronera, and we continue to see strong results since our publishing of our last results. And we reported positive metallurgy and drill results from our Parral exploration property up north. So after that brief overview, operator, I'd like to open it up for Q&As.
[Operator Instructions] Our first question comes from Heiko Ihle with H.C. Wainwright & Co.
Can you hear me?
Yes, we can hear you, yes. Go ahead, Heiko.
Perfect, okay. There's a chart on Page 22 of the MD&A and that really popped out at me. Your silver recovers at Guanaceví were excellent during the quarter. In fact, it was the best quarter -- better than any quarter in 2017 and the best since Q4 2016. Is there any fundamental change? And I mean, in quarter-over-quarter terms, you have 290 basis points, which is, obviously, huge. I guess, if this doesn't make a trend, but is there something we can maybe read into for the rest of the year?
Just so we're understanding you clearly, Heiko, it's Dan here. You're coming in a little bit crackly. You're asking about recoveries at Guanaceví quarter-on-quarter?
Correct. The recoveries were really good during the quarter. I mean, you're up 290 basis points Q-over-Q. Does that make for a trend for the rest of the year?
Heiko, this is Godfrey. Thanks for the question. The recoveries have been a lot better at Guanaceví. And that is because we've got better residence time in the leach tanks. So as our production -- as we stopped filling that plant, will come back down to the projected recoveries that we've forecast at the beginning of the year. So it's a function of lower production at the present time.
Got it. Okay, fair enough. So don't read anything into it, so to speak. Okay. And then I kept going, and I went to the IVA tax refunds part of the MD&A. And it said there that you received $4.2 million since June 30. And is there an expectation to receive the other $17.5 million? I mean it's -- adding it all up, it's $21.7 million minus the $4.2 million, so there's still $17.5 million due. Is there anything to expect? Or should we expect this would just be a continued battle with the government?
Yes, it's a very good point, Heiko. At the end of the quarter, we had $24.5 million sitting with the government related to our value-added taxes. And after the quarter, we received $4.2 million. We have actually had very positive dialogue to get that $4.2 million. We have expectations that some more will come in, in August. Unfortunately, the people that we've been dealing with have been on vacation in the last 3 weeks. And we have another meeting with the [ Hacienda ] actually next week -- late next week to talk about another $4 million to come in. And then, we have -- we do have expectations that we should see that dethawing and start coming in. To be able to collect the full $21 million, I think, is very optimistic. If we can get that balance from $24 million down to $10 million, I think we'd be doing very well. And then, of course, you will always have a lag of 3 months basically, is what we'd like to see, 3 months kind of outstanding with the government. Cubo has got some IVA that's outstanding for beyond 2 years. So we have seen positive movement from the government, specifically collecting that $4 million, and we do see some more. But like I say, it will -- typically we'll hold out around $10 million to $12 million is where it likely will be from a balance standpoint.
[Operator Instructions] Our next question comes from Chris Thompson with PI Financial.
Can you hear me?
We can hear you well, Chris.
A couple of quick questions here. We'll start off with Guanaceví. Obviously, we're anticipating steady improvements towards the back half of this year. Just looking at the unit operating costs, what should we be modeling, I guess, once Milache and Santa Cruz are in production here?
Yes, I think it's a very fair question, Chris. We've modeled coming into the year just over $100 per tonne, and we've seen these high costs per tonne over the last 2 years as our production on a per unit basis has been down. I mean, the plant, historically our capacity at Guanaceví being up 1,200 tonnes per day, we saw a cost per tonne as low as $78. I think the $78 is past us now. If we can get up, and the key is getting up to capacity of 1,200 tonnes per day, we can see that come back into the 90s. What we have this quarter where we had, with inventories, we had a write-down on that, which flowed through our cost per tonne. We had optimization programs that we are paying through -- flow through cost per tonnes. We had year-end bonuses that got kind of bumped up and union wages and increases kind of flow through Q2 and all that was finalized. There is a lot of extraordinary costs that are flowing through Q2 to get to that $139 of cost per tonne. I think that is very unrealistic. We saw the same thing happen at Cubo 4 or 5 years ago, where we had these massive spikes in our cost per tonne that just weren't reflective of what was going to be happening going forward, and I think we've seen that now at Guanaceví basically for the last 4 to 5 quarters. We expect that to end. And like I say, the key is getting the tonnes up to the 1,200 tonnes per day, which will drive that. So in the second quarter, we are around 800 tonnes per day going through. As you can see on an absolute cost basis, we're running the same amount of labor at our operations, effectively same amount of contractors. The bottleneck has been the amount of working stopes that we're seeing in Santa Cruz and getting to Milache, which will be able to kind of dethaw our production abilities. And in July, we started with long haulings. We expect production to start coming up here in Q3. That should drive that down.
Great. That's great intel. Just moving on to the other assets quickly. Bolañitos, just trying to get a sense of the grade profile we can expect towards the back half of this year? Maybe after that, as far as gold grades, are we -- any chance of getting over the 2-gram mark here?
Chris, this is Godfrey. We are finding there's a lot more zoning in the -- particularly at the Plateros area, where we get high gold off of the bottom of the -- or at the bottom of the zone and higher silver at the top. And it's just a matter of getting that development so that we can blend it properly. But I -- to be honest, I don't think we're going to hit over 2 grams gold for the balance of this year.
All right. Okay, that's good. Just quickly, similar sort of equation, I guess, for El Cubo, but now it's over to silver grades. We see nice quarter-on-quarter increase in silver grades. Grades, I guess, that you guys reported in the Q2, are those sustainable? Any chance of an improvement beyond that?
I think they're sustainable, Chris, but I don't see them getting higher than what we've had for Q2.
All right. Perfect. And then finally, the ATM. Can you comment on the progress there to date?
Yes. We launched that ATM June 13. We worked through with BMO, our agent on that matter. We sold 2.3 million ounce -- or $2.3 million worth of stock in Q2 to kind of just see how the process works. We had a couple of hot days right after we launched. Effectively in Q3, we haven't been in the market because we've been in blackout period. With today's share performance, I don't foresee us being in the market anytime soon. It's some optionality there for us. If we see some movement up in our share price or have some more exploration results like we're getting, we might tap into that to be able to increase our expenditures on exploration next year. Obviously, partly of that's going to be advancing Terronera, which was what we disclosed on that. Touched on that, I think the key stuff for us is waiting for these last 2 permits which, like I say, is going to be in the near term here. Our infill drill program for the year is fully funded. Obviously, we're having very good progress with that, but I don't see any additional costs or funds needed for 2018 with regards to Terronera. It'll just be getting this feasibility study finished, getting the permits done and going to the board with our construction decision.
[Operator Instructions] There are no questions at this time.
Okay, operator. Well, thank you. I thank everybody for joining our -- the Endeavour's Q2 financial results call. Again, if you have any questions, we're always here, happy to help. Mr. Cooke is traveling today, but if you have e-mails that you want to pass or questions you want to pass on to Galina, we will be happy to get back to you as quickly as possible.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.