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We actually prepared a 10-minute video presentation for you all that I will share now. And then we will revert back for live Q&A. [Operator Instructions] So I will now share my screen.[Presentation]
Welcome to this update on our third quarter 2020 production results. This video presentation is our attempt at adapting to the new ways of communicating with our investor base in this current global situation.Before we get started, I'm required to remind you that we will definitely be making forward-looking statements within the meaning of applicable securities laws. And we do not intend to and we do not assume any obligation to update such forward-looking information other than as required by applicable law. So you are duly cautioned.And before our Chief Financial Officer, Dan Dickson, reviews our quarterly production results, I'd like to begin this presentation by touching on how we can create value for our shareholders in both the short and the long term. And really, there are 4 main value propositions in this regard.So catalyst number one and certainly very important is that 6 quarters ago, we launched a comprehensive company-wide operational turnaround to reduce our costs and improve our free cash flow. We are now nearing the end of this turnaround phase, and we've now posted several quarters of falling costs. Also, the results presented in this third quarter speak volumes to the visibility of this turnaround.Catalyst number two is that we have the best organic growth profile in the silver mining sector. It's one of the easiest ways to differentiate ourselves amongst our peers with the development asset that could provide an additional 10 years of low-cost production in future years.Catalyst number three refers to the success of our own exploration team. So we built this company through the drill bit, and we have a solid track record of turning virgin discoveries into meaningful production.And lastly, Catalyst number four is that because we are a pure precious metals producer with no base metals in the revenue mix, we offer a sector-leading beta to the price of silver in what we feel is an emerging bull market for both gold and more so, silver.
Turning our attention to the third quarter safety performance. I'm pleased to say that since we restarted operations in late May, our employees and contractors have applied the COVID-19 protocols and all precautionary measures extremely well.To date, we've performed well over 500 tests across the company. And even with fewer employees at site, we're offering near capacity. Specifically, we're motivating and encouraging our staff to talk about symptoms, understanding the effects of COVID, the impact of social distancing and sanitizing and wearing masks, with constant reminders through signage, safety talks and formal discussions.I will also point out that the national Mexican infection rate peaked in August and is now solely on a downward trend. On the community front, our team is doing a great job. A new and notable initiative that will be rolled out in Q4 is our recent tablet donation program for students of all ages in rural areas who cannot attend schools due to transportation constraints and don't have access to a computer at home. Company-wide, we're donating over 400 tablets for students within our communities to assist with temporary virtual learning as well as providing sanitation kits and COVID tests to help prevent the spread. With safety at the forefront of everything we do, our operations team delivered a solid quarter, given the global pandemic. Consolidated silver equivalent production continues to improve quarter-over-quarter and was up 66% since Q2 due to the resumption of normal throughput. And there's still room for considerable improvement in Q4.In total, silver production was just shy of 1 million ounces, and gold production exceeded 10,000 ounces for 1.8 million silver equivalent ounces produced. Our production results were led by Guanaceví, which accounted for 56% of quarterly production; then Bolañitos, which delivered 33%; and El Compas, the remaining 11%.While we formally withdrew our guidance in Q2 following the mandated government suspensions, we are originally forecasting to produce 6 million to 7 million ounces this year. To date, we've produced 4.4 million. So it appears we are tracking to achieve the lower end of this forecast, despite the temporary suspension of activities for April and part of May when the government declared a state of national emergency due to COVID-19.During this quarter, we also strengthened our management team with the newly appointed Chief Operating Officer, Mr. Don Gray, who has over 40 years' experience in the mining industry. Most recently, he served as CEO of Continental Gold, where he steered the successful build-out of the Buritica mine in Colombia prior to its sale to the Chinese majors. We are confident that his expertise and knowledge will add value for our shareholders. In the meantime, we have several months to say farewell to Godfrey Walton, one of the founders of Endeavour, for his 17 years of service to the company and wish him well in his more than deserved retirement.So moving into the operation and starting with Guanaceví in Durango; which is currently our largest and most silver-rich mine. It has really evolved back into our cornerstone asset. From an operational standpoint, the mine has made big strides over the past 4 quarters as we expand production from the new high-grade orebodies. The result is a year-over-year increase in equivalent grades and ounces by 44% and 51%, respectively.The seasonal rainfall was a challenge this quarter. The mine averaged close to 1,100 tonnes per day, but the bottleneck was the plant, as the rain really wet our ore, resulting in an average throughput of 900 tonnes per day. On a positive note, the mine has stockpiled over 24,000 tonnes of ore. And as the rains subsides in Q4, we expect to reach the target capacity of 1,200 tonnes per day throughput.Management is evaluating various preventative measures to better manage this next year for next year's rainy season. Guanaceví has been reestablished as an extremely valuable asset for continued exploration success along the prolific Santa Cruz ore-bearing vein structure. We've continually discovered new orebodies along this structure, and the 2020 high-grade drill intercepts on the El Curso concession has continued this trend of consistently extending the life of the mine.Bolañitos is located in Guanajuato and is predominantly a gold mine where more than 3/4 of its production value comes from gold. Bolañitos is still in a transition phase to achieve its targeted results, however performance is improving.Last year, we undertook significant investment into this mine to yield positive results, including purchasing and leasing new mobile equipment, resequencing the mine plan and accelerating mine development. We are still in a development-intensive phase until year-end, but we expect to commence production from a new high-grade orebody called San Miguel in Q4 and develop to the Melladito vein next year. Particularly encouraging this quarter is the increase in tonnes. So we are confident we can complete the turnaround as these new discoveries come onstream.Moving to El Compas, our newest and smallest gold mine in Zacatecas, delivering 10% of our consolidated production. Performance in the third quarter was steady. While throughput was above plan, dilution remains a focus. So we're evaluating different ways to extract high-grade ore with more control. We've also restarted brownfield drilling to identify new potential areas and/or extensions.
In closing, that was a brief summary of our third quarter operational performance. Another big milestone this quarter was the announcement of our final prefeasibility study for the Terronera project, which delivered robust economics. We are proceeding to a full feasibility to further derisk the asset as well as capture some more upside with an expected completion in the summer of next year.We also announced the filing of an at-the-market prospectus supplement up to $60 million that will be used to fund growth initiatives, including projects like Terronera as well as prospective M&A opportunities that may arise.And in closing, we look forward to announcing our financial results on November 5. We do have positive expectations on the news. As a reminder, in this past second quarter, all 3 mines generated free cash flow, despite the mandated shutdowns for more than half the quarter. We currently have no long-term debt on the balance sheet, and we do anticipate increase to our treasury and cash flow this quarter as a result of the operational improvements and efficiencies, and of course, the stronger prices for precious metals.
We hope you enjoyed that video presentation. And now I will begin by starting with the pre-submitted questions over e-mail, and then we will address the questions in the Q&A chat feature. So question number one, and this question will be answered by our Chief Financial Officer, Dan Dickson.Question number one is why are the recovery rates at El Compas lower than the other mines?
Thanks, Galina. It's a composition of material is why our grades -- our recoveries are lower compared to the other mines. At Guanaceví, we average about close to 90% recovery on silver and gold, sometimes dipping into the mid-80s. Similarly, at Bolañitos, we're about 80% to 85% on recoveries. And at El Compas, our recoveries for silver range in the 65%. We're hoping to get that up to about 70%, 73%.And gold recoveries have been about in mid-70s reaching all the way up to 80%, and we feel like we can hit 80% from a recovery standpoint. But it comes down to the composition of material recovery residency times. And it's just a cost benefit of getting how much we want to have it being in residence time compared to what we're going to get out on the back end.
All right. The next question is are the expected Q4 production results considered normalized? And will they be similar for what is expected for 2021 in terms of operational results?
Well, from a Q3 standpoint, I think our tonnes were a little bit low going through the plant at Guanaceví because of the rain. So we can see an increase at Guanaceví here in Q4. And I think Q4 would be normalized for 2021. Bolañitos, our tonnage throughput in Q3 was fine. I would expect similar throughput for Q4 and then into 2021. And El Compas, same thing, we're very steady in Q3. We expect the same throughput in Q4, and that would be a good proxy for 2021 at this point.
The next question is are the lower 3- and 9-month production results for 2020 versus 2019 entirely due to COVID or were there other causes?
Partially due to COVID. Last year, we closed down the El Cubo mine in November of 2019 due to lack of resources that were there. So ultimately, if we pulled out El Cubo's production from 2019, we are well above 2019's production rate at Guanaceví, Bolañitos and at El Compas. Guanaceví, it's a function of tonnes and grades. We've seen tonnes improve significantly compared to 2019. We've seen grades improve significantly to 2019. And that's just a function of bringing on new orebodies, specifically El Curso and Santa Cruz Sur in 2020.At Bolañitos, our throughput last year had an issue. We had to resequence the mine because of arsenic. This year, we haven't had that issue. We've been focusing on mine development significantly in the first half of the year, and we'll expect to continue that here in Q3 and Q4. But ultimately, our throughput is achieving where we expect it to achieve from a Bolañitos standpoint. In El Compas, it's only 10% of our production, but it's steady. It did 260 tonnes per day. We started that mine in March of 2019. So effectively, on a year-to-year comparison, we've probably done the similar amount of throughput based on some amount of working days at that mine. So generally, 2020 has been a better year than 2019 if we exclude El Cubo.
The last pre-submitted question is just with regards to COVID. So does the spread of COVID still represent a big risk to the operations going forward and kind of how these -- if you can predict, how do you see that playing out in 2021?
Yes. I would say there is still a risk. I don't think it's specific to us. But if we ever have an outbreak in our mine, we could be -- we'd have to look at potentially shutting down operations for 2 weeks, so our whole staff can isolate. We have had cases of COVID kind of at our gates. We have significant protocols in place, temperature checks, disinfectants, even individuals get sprayed down as well as sanitization. Masks are required on site. So we hope to prevent that. But to say that we can eliminate that risk to 0 is probably farfetched.So if we ever had an outbreak at any of our operations, I think we'd have to consider a potential shutdown for 2 to 3 weeks, whatever would be probably mandated by the authorities. So you don't want to say the risk is 0, but it's unlikely with what we have in place right now from a protocol standpoint.
Thanks. That's really good color. Okay. So now I'm just going to move over to the questions in the chat feature. So there's a couple of questions here from our analysts. And the first one is with respect to bullion inventories, what percentage would you expect to sell in Q4? Or what is your price guide for deciding to sell silver and gold out of inventory?
Yes. So at the end of this quarter, we held about 415,000 ounces of silver in bullion and close to 2,000, maybe over 2,000 ounces of gold in bullion form. Ultimately, from September 18 to the end of the quarter, we saw silver and gold fall off from a price standpoint. Rather than sell into that market, we figured we'd hold. We do expect to sell most of that here in Q4. On average, if you look back, we've held anywhere between 50,000 ounces of silver to 200,000 ounces of silver, and it's just kind of depending on timing.In this case, where the bullion prices were falling or silver price and gold prices were falling, we weren't comfortable selling at $22. We thought that was a short-term correction. As far as price levels that we expect, I mean, obviously, as of yesterday, we were at $25 per ounce silver, and we haven't sold yet. But now we're back down to $24. I do suspect we'll end the quarter around the 200,000 ounce mark from a silver standpoint, about 1,000 ounces of gold. But it depends on what's happening kind of at the end of December, what our forecasts are, what happens in the middle of the quarter. Our balance sheet is in great shape. So we don't -- we're not forced to sell on a continual basis and be price takers. We can be a bit more selective going forward.I can't tell you a price that we're going to sell silver or gold at in this quarter. There's no magic number that we'll, say, sell on. But obviously, we thought higher than $22, $23.
Okay. And then the next question is gold production came in ahead of our forecast, while silver production was below, likely due to lower grades. What is the outlook for grade improvements at each mine in Q4? And how would you expect to use the ATM? And how are you thinking about the financing mix for Terronera? So that's a multilayered question. We'll just go over one at a time. So the first one is silver grades and then the ATM and Terronera.
Yes. So from a silver grade standpoint, actually Guanaceví did extremely well in the quarter. It's grades -- silver grade -- from a silver grade standpoint, 306 grams per tonne, which ultimately is about -- comes out -- 80% of our production comes from Guanaceví silver. Where we did have lower grades was at Bolañitos and a little bit at El Compas.In Bolañitos, it's a function of -- we expected the San Miguel vein and orebody to come on a little bit sooner than what it has. And partly that was due to the COVID suspension, where we basically had 2 months down at Bolañitos. The grades from San Miguel or the silver grades specifically at San Miguel are higher than where we have at the other areas of the mine. So we do expect silver grade to come up here in Q4 at Bolañitos.At El Compas, it's just variations in the orebody. Our gold grades were slightly lower. I think we were just 3.98 gold, and our silver grades were closer to 54 grams per tonne. And we expect that to be around 70, 75, and hopefully, that returns here in Q4. But again, it's just variations in the orebody. And ultimately, it's Guanaceví that's driving our silver production and those grades are actually really good.As far as the next question, how we expect to use the ATM and how we're thinking about financing the mix at Terronera, well, we did put the $60 million ATM in place. We have not opened it up. We're going to be, again, similar to the price of silver and gold and selling into it, probably be very selective if we do use that ATM. We are talking with banks. And ultimately, it comes down to how much we can finance the Terronera project with debt. And ultimately, with $100 million build-out cost, we'd hope to use about $50 million to $60 million worth of debt.The world has completely changed for us in the last 3 to 4 months with regards to debt. And it just comes down to the economics of Terronera and the prices where we're at today. So it's a very robust project. And ultimately, we feel like we can finance it with very, I would say, attractive cost of capital. And we don't want to do 100% financed through debt, but $60 million seems to be about the right number. And if we can get there, we'll do that. And depending on how that debt comes in place will be how we use that ATM. Now that ATM is in place that we can tap it until May 2022. So there's lots of time there from that standpoint.
All right. And the next question is with regards to Chile. And just in terms of -- has there been any updates on our projects in Chile? Or has that kind of moved lower in terms of priority for us?
Chile is not lower in priorities for us. I think our balance sheet is good. We have very good cash flow. We do -- we haven't built this company on the drill bit. We have 3 phenomenal projects in Chile. And ultimately, we've got the drill rigs moving again here in September, drilling Paloma that we're very excited about. Cerro Marquez, we've got lots to do there, trying to bring some groups in to help us out a little bit there.In Aida, we have all the permits to start in January. So they were delayed a little bit because of COVID. And ultimately, we focused -- originally planned to drill it in the back half of the year. So the COVID just impacted getting people on site and establishing our targets. And now it's full go-ahead on Chile. We have a $2 million budget there. I imagine most of that budget will slide -- some of that budget will slide into 2021. But we're still excited about our Chile projects. And I would say they're still at the same level of priority they were at the beginning of the year.
Okay. So I'm now moving into the Q&A feature on the platform, and we have really good engagement. So a lot of questions are coming in. The next one is with regards to scheduling. So when do you predict that Terronera will begin production if it has the mineralization that we hope for?
Well, we have the mineralization we hope for. We have a reserve and resource on Terronera, and it's very robust, so about 75 million silver equivalent ounces, significant grades. I'd refer to the -- our technical report or previous news release, I think that was July 4, with regards to Terronera. But we are going to a feasibility study on it. We made that decision prior to the run-up of prices here. There are some things that we can get done while we're doing the feasibility study, but the feasibility study for $1.5 million was expected to take about 9 months. So it should be done May, June of next year, so call it, mid-2021.And then it's an 18-month build-out period. We could reduce that 18 months by, for example, building the permanent camp this year or early next year, cutting the hill where we expect the plant to go. So ultimately, we can get that done. Hopefully, 2023 would be the beginning of production from Terronera.
Another question is with regards to tapping our views on the silver space. So is it possible that the recent rise in the price of precious metals is due to supply crunch caused by lack of supply due to mine shutting down due to COVID?
Yes. I mean that's a difficult question. For sure, mines were shut down due to COVID, but there was significant demand in March, April, May, and ultimately, into June that really pushed it up. And obviously, we hit $29 silver mid-day. Whether that's due to a supply crunch, I would say it's more to do with the demand crunch. And there's so much more information out there with regards to gold price, and we always see gold will move. Silver will lag and then eventually catch up and overshoot gold. And we did see it overshoot gold a bit, but it's a monetary aspect thing right now and not so much supply/demand. People are concerned about government debts. People are concerned about currencies. So we're seeing -- ultimately, it's a flow into the metals.The supply crunch, I think there's sufficient supply above ground that you wouldn't have that much shock on such a short-term basis. It obviously has a small factor to it. The base metals, 30% of silver is produced from primary silver mines. The rest comes from as a byproduct out of base metal mines or gold mines. So it's a difficult question to answer. But ultimately, we feel like the price of silver is going up, and it's just a function of what the governments are doing with their own deficits and ultimately debt and how we're going to be able to pay that back.
Yes. And I agree, this is a tricky one. I'll just add. So for sure, there's investment demand coming back into the space for the purposes of safe haven investment. I have seen some forecasts. I know like when we were kind of just starting with the COVID shutdowns back in March, RBC put out some forecasts saying that 2/3 of silver production was on the sidelines as a result of the shutdowns and the 2/3 came from primary silver production and silver production as a byproduct of base metals, keeping in mind that the best addresses for mining base metals is Latin America and a lot of -- there were some pretty serious problems in Latin America with COVID disruptions. So yes, it's definitely a mix of both.And then the next question is are we able to rotate teams to prevent full shutdowns should a member of any one of the teams get COVID? So that's just more a question on risk management.
Yes. We do rotate teams anyway. And ultimately, we don't expect -- if there is a member of one team in engineering department who got COVID and we had to isolate our engineering staff, I don't think that would shut down the mine. It's a question of our miners who are underground. We have 3 shifts in a day. If ultimately 1 or 2 shifts get COVID and you're getting transmission between shifts, that becomes the issue where we have to shut down.Like I say, we have had COVID show up at our mines at the gates, and we have a lot of protocols in place. We do contact-trace. So ultimately, anyone who showed up at the mine with COVID, we would identify who he's been in contact, and we ask them to isolate. We've had instances of that. Not -- it would be a question of we had 20 cases of COVID on one mining team and, again, the next team had to come in for the next shift and there is cases there, then you would have to really consider the shutdown. But ultimately, 1 case in a group will not shut down our mine. I think we asked that individual to isolate, isolate the individuals who have -- we've contact-traced to that individual. And ultimately, it will continue.
So this is actually the last question that I have in the queue. So where do you see the silver price will ultimately go in the next 5 to 10 years, so medium- and long-term and the gold, silver ratio as well?
Well, the gold, silver ratio is probably an easier answer. And the fact -- if you look back since 1984, so that's 20 -- almost 40 years, just short of it, 35 years, the average gold-to-silver ratio is 65:1. It's got as low as 30:1 during the 2011 boom, and ultimately, as high as almost 120:1 earlier this year. And so we've moved rate back. We're sitting around 78, almost 75:1 ratio. I think the 65 is a fair average ratio for the next 5 to 10 years because that's a long outlook. But definitely that tightening. And as these metals become more prevalent with these deficits, you're going to see that ratio contract. So you can see 55, 50:1. Hopefully, we're getting to the 45:1 standpoint.But again, I think eventually, it's all going to correlate back to the mean in that 65:1 over the last 35 years. Where do we ultimately believe the silver price will go in the next 5 to 10 years? Higher. I think it's going to be higher. As far as price, that's difficult for me to say. Again, we follow gold. I think gold is going to break through 2,000 here and get to the 2,500. But ultimately, 5, 10 years from now, I think it's going to be higher to what those numbers are. And then, again, we apply that ratio, the gold-to-silver ratio to kind of estimate where silver will go. So will silver break $50? It probably will. But I've never been a good forecaster. 5, 10 years, all I can say, it's higher. I'm not going to give a price, so to speak.
I'm just going to add to that. There was -- we kind of look at historical bull and bear markets just as a proxy. And so I pulled this data from Bloomberg, and it talked about the length of time between the peak and the trough of the ratio on average in these secular bull markets. And so on average, the time frame between the peak and the trough is about 2.2 years. And what we just saw this past summer was the record ratio of 124:1 or whatever it was. And that was just a few months ago.So I do think that we still are -- I do think we've entered the bull market, but I do think we still have runways to go. We do know that the expansion of the Federal Reserve balance sheet is a multiyear process. So I think that we definitely have runway growth ahead of us.And then that does conclude all of our questions for now. So I will close the call, and I thank everybody for watching. And if you have any further questions at all, Dan and I are always available offline, via e-mail or phone call. So just don't hesitate to reach out. Thank you so much.
Thank you.