Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp. Third Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Galina Meleger, Vice President of Investor Relations. Please go ahead.
Galina Meleger: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and the financial statements are available on our website at edrsilver.com. With us on today’s call is Dan Dickson, Endeavour Silver’s CEO; Christine West, our Chief Financial Officer; and Don Gray, Endeavour’s COO. Following Dan’s formal remarks, we will open the call for questions. And now over to Dan.
Dan Dickson: Thank you, Galina, and welcome, everyone. I’d like to begin by saying that we navigated through a difficult third quarter. Not only were we hit with challenging market conditions that caused a sharp decline in the Silver Miners Index by nearly 20%, our cornerstone mine, Guanaceví had a difficult operating quarter. The impact of lower throughput, significantly lower grades, non-routine expenses related to repairs and maintenance and an increased operating development resulted in escalated costs on a per unit basis in Q3. Costs were further amplified by macro factors such as the ongoing industry-wide inflation pressures and a strong Mexican peso. While the headline for this quarter is our elevated costs, we’ve taken corrective measures to get Guanaceví back on track and not have issues affecting productivity persist.
Of course, nobody likes to experience a lackluster quarter, but it’s an opportunity to learn and improve, such was the case for us as our new VP of Operations is taking steps to sustainably improve Guanaceví’s operating performance. I’m pleased to tell you that we’re seeing a significant improvement in mine productivity this quarter. Of course, during the past quarter, we continued to advance in the Terronera project. Terronera provides a clear path to margin expansion, repositioning the company to attain significant free cash flow once the mine is in production. Let’s discuss this year’s -- or this quarter’s production in more detail. Consolidated Q3 silver equivalent production was down 14% year-over-year to 1.9 million silver equivalent ounces, bringing us to 6.5 million silver equivalent ounces year-to-date.
While this quarter’s results still put us on track to be within this year’s production guidance range, there’s a little room for setback in Q4. Guanaceví’s production shortfall is due to a number of factors. If you recall, we discussed initiating changes to our mine plan and infrastructure to improve working conditions for our employees by providing better ventilation and improving our water management. To address these conditions, we temporarily changed mine sequencing. This meant mining lower silver and gold grade stopes until we sufficiently address the temperatures and the water in blows lower in our mine. Ultimately, these issues could have been better managed to prevent impacts on production. Simultaneously increased sill development during Q3 to open more stopes further impacted Q3’s mine outlook.
Sequencing of sill development will continue to be a focus for Guanaceví to ensure a stable production schedule going forward near term and long term. While the temporary changes have lasted longer than we anticipated, conditions have improved and mine output has increased. With the conditions within the mine, management felt it was an appropriate opportunity for an extended plant shutdown to address areas within the plant requiring more time than our standard maintenance shutdowns. Considerable maintenance work is performed in all areas of the plant, including crushing, grinding, thickeners and the filter press to ensure we maintain consistent throughput going forward and alleviate risks that could result in unplanned downturn. With the plant maintenance completed in early October, both the mine and the plant are operating at or above capacity.
The combination of these events during the third quarter resulted in quarterly silver gold production decreasing by 22% and 13%, respectively. It equates to a production shortfall of nearly 400,000 ounces of silver compared to previous quarters and our annual mine plan. But as I’ve said, we are back on track with Q4 expected to meet plan. The performance of our other mine Bola?itos remained steady. Increased gold production was offset by lower silver production in Q3. The Bola?itos operation seems to continue a strong effort to meet or beat their targets, including mined and process tons. Our safety programs and results have been outstanding at both operations. Moving to our financials. We reported revenue of $49.5 million, with cost of sales of $46.7 million for operating earnings of $2.7 million and mine operating cash flow of $10.6 million.
After exploration, G&A and other investment expenses, we reported a net loss of $2.3 million or a loss -- $0.01 loss per share. This quarter, our cost of sales increased 35% compared to the same period last year. While there are a number of drivers including a strength in Mexican peso, higher labor, power and consumable costs, and increased royalty costs, a significant part the Q3 story was a low production at Guanaceví, impacting costs on a per unit basis. Guanaceví delivered $6.7 million of operating cash flow. However, after capital and exploration expenditures, Guanaceví reported negative mine free cash flow of $1.3 million. It’s been quite some time since Guanaceví has not delivered a positive free cash flow quarter. Year-to-date, Guanaceví has delivered $12.2 million of mine free cash flow, and Bola?itos remained slightly above breakeven.
A bird's eye view of a team in protective gear operating heavy machinery in a silver extraction site.
Regarding operating costs, we’ve seen pressures on several fronts. Our direct cost per ton were up 23%. The increase in operating development, paired with higher energy costs, increased labor due to reshifting the workforce and increase in costs from [indiscernible] ore had the largest effect this quarter. While the Mexican peso weakened in the latter part of Q3, it remained high averaging 17:1 in the third quarter. The peso has recently reversed course, but it’s still 10% above our budgeted assumptions. Again, all these factors translate into higher costs overall. Quarterly cash costs and the all-in sustaining costs are at $17.95 per ounce, and $29.64 per ounce, respectively. On a year-to-date basis, we’ve reported a $13.08 cash cost and $23.41 all-in sustaining costs, which are both above our original guidance provided in January.
Looking to the rest of the year, containing costs will continue to be a focus as we work to improve the efficiencies of our operations. We’re closely reviewing our purchasing practices to see where and how we can make improvements. At this time, while we expect cost metrics to improve, additional maintenance work related to the plant shutdown continued for the first week of Q4 and increased operating development is expected to continue into Q4. Additionally, cost pressures related to macro factors will continue. However, management anticipates that Q4 cost metrics will improve as productivity and production are expected to return to historic levels. As at September 30th, we had cash on hand of $41 million and working capital of $76 million.
During the quarter, we raised gross proceeds of $23 million through the ATM and another allotment of $17 million was raised subsequent to quarter-end to ensure there is sufficient funding for the development of the Terronera project. On October 10th, we executed the $120 million project financing agreement with SocGen and ING Capital to fund the Terronera project. As per requirements under the project loan, the Company will primarily self-fund development through cash on hand before drawing down on the facility. As such, the Company expects to draw down on these funds in 2024. Based on the project spend schedule, anticipate we’ll be fully committed on the project capital costs in the early Q2 2024. Moving to more detailed information on the construction of Terronera.
At the end of Q3, we reached 38% completion, and we expect to be close to crossing the halfway mark by year-end. We spent $95 million to the end of Q3 on direct development. Project commitments totaled $160 million, which is 69% of the $230 million initial CapEx budget. With the execution of the $120 million senior secured debt facility, we are well positioned to satisfy the financing requirements of the budget. During the quarter, we made notable progress in a number of key areas. Not only have we completed construction of our permanent camp and now can fully accommodate our workforce, but we’ve also made significant progress on construction of our process plant, with surface construction now above 42% complete. If you’re interested in seeing photos of the construction progress, I encourage you to visit our website under the Terronera page.
Let me recap some recent developments. Of note, with rainy season upon us during Q3, construction safety measures were modified. The focus was on visibility and project growth maintenance. We are pleased the extensive improvements over the last year helped maintain the site roads, keeping them in good condition and accessible. As a result, equipment access and material deliveries to the site were unaffected during the rainy season. Additionally, visibility control measures were reinforced. On the recruitment side, the workforce continues to grow with on-site personnel having increased over 520 employees and contractors. The total engineering progress is nearly complete. Most equipment has now been purchased and deliveries for all major plant equipment will be completed by year-end.
During Q3, the request for bid proposals for the mill construction contract was nearly complete, which includes structural steel, mechanical, piping, electrical and instrumentation. Mine development remains our critical path. At quarter end, over 1,300 meters have been completed and advance rates are gaining momentum as Portals 2 and 4 passed through the fault zone and ground conditions have improved. During the quarter, Portal 1 reached its design elevation, allowing for mine development events now on forefront, Portal 1, 2, 4, which is incline and decline directions. Plant site earthworks, concrete work and rebar installation are underway. Concrete work and rebar installations continuing the SAG and ball mill grinding areas, coarse ore stockpile and flotation areas.
Concrete work also began for the primary crusher and excavation work started in the tailings thickener area. And lastly, on the community side, we continue to focus on supporting the municipality with projects like upgrades to our roads, our local landfill and communication infrastructure. Looking ahead, our main focuses remain progressing our mine development, advancing concrete work for the mill platform on schedule with electromechanical contractor mobilization in early 2024, which marks the next major phase of the construction for Terronera. And starting excavation on the filtration and LNG power plant areas and the TSL [ph]. That wraps my formal comments for today. Myself, Don Gray and Christine are happy to answer any questions that you may have.