Endeavour Silver Corp. (EDR) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver's Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead.

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 financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; and Elizabeth Senez, our CFO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan.

Thanks, Allison, and welcome, everyone. Endeavour Silver's second quarter performance reflects the strength of our operations with increased production, record metal sales and a meaningful improvement in mine operating cash flow. Terronera's ramp-up and the higher throughput achieved at Kolpa, together with our strong cash position gives us a solid base to continue advancing our growth plans throughout the remainder of the year. In Q2, Endeavour produced nearly 2 million ounces of silver and over 10,000 ounces of gold, totaling 3 million silver equivalent ounces. This represents a 36% increase compared to Q2 2025. We reported revenue of $212 million, an increase of 150% compared to prior year, with mine operating earnings of $74 million, again, higher than the $7 million in Q2 2025 and mine operating cash flow of $100 million before taxes, a 300% increase from Q2 2025. Our all-in sustaining costs net of by-product credits were $37 this quarter, representing a 47% increase from Q2 2025. Profitability has significantly increased our operating costs with increased royalties, purchased material, profit sharing and mining taxes. With increased profitability, we continue to invest in sustaining capital costs, especially compared to prior period. In Q2, Endeavour recognized an adjusted net earnings of $45 million or an adjusted net earnings per share of $0.15. Changes in the metal price have a meaningful impact on our direct cost per tonne. For example, for every $1 increase in silver ounce, cost per tonne rise by about $0.90 at Terronera, $3.80 at Guanacevi and $0.50 at Kolpa due to the higher royalties, mining duties, third-party purchased ore and fairly required profit sharing. Direct operating costs per tonne were 14% higher this quarter compared to Q2 last year as the Mexican peso has appreciated and put pressure on inputs impacting our costs. During the first quarter, Kolpa installed and commissioned a new 3-stage crusher and ball mill, increasing plant capacity to 2,500 tonnes per day. Additional expansion expenditures remain along with capital improvement initiatives, including the expansion of the tailings storage facility to accommodate the increased plant capacity, construction of a new water treatment plant, new power substations required to support current and future operating levels as well as upgrades to the camp combinations aimed at attracting and retaining skilled miners in Peru. Management continues to evaluate the long-term capital needs of Kolpa and has increased the 2026 budget by $18 million to bring projects forward and meet company and Peruvian recommendations. At Terronera, daily throughput remained consistent as the processing plant focused on metal recoveries. Silver grades were in line with plan for the quarter and are expected to increase during the second half of the year as mining operations access our higher-grade areas. Further progress is expected on recoveries as the grinding circuit continues to find efficiencies and to meet the design criteria. With higher-grade areas and other ramp-up efficiency initiatives such as the LNG plant commissioning and the waste dump 2 development, management expects an incremental decrease in Terronera's cost per tonne throughout the second half of the year. Exploration drilling also restarted Terronera, making it the first drill program at the mine since 2020 and aimed at expanding and better defining mineralization along strike and depth within the Terronera vein and defining the limits of mineralization near historical working to support mine design and long-term planning La Luz. For more details, we released initial results on June 18, and you can find them on our website. Guanacevi incurred higher direct cost per tonne this quarter, largely due to higher volume and cost of third-party material purchased, which has become more expensive on a per tonne basis due to the higher prices. The higher metal prices also drove higher royalties, special mining duty payable for the period. The higher prices have allowed the operating team to mine lower-grade zones, ultimately extending mine life, and we do expect higher-grade areas to come in line in the near future, increasing grades from current levels. Drilling continued throughout Q2 at Guanacevi as well, focusing on underground diamond drilling in deeper parts of the Alondra-Porvenir Dos and El Milache areas, and we continue to test Santa Cruz vein and look for additional extensions to the north. As of June 30, 2026, we had a cash position of $236 million, working capital of $214 million, providing a strong and stable foundation to advance our ongoing initiatives. We continue to advance the Pitarrilla feasibility study, which is expected at the end of Q3 with economic information being collected with drafts expected shortly for management. In closing, Endeavour delivered a strong second quarter, supported by higher production, record metal sales, improved mine operating cash flow and strengthened balance sheet. With the Kolpa expansion now achieving higher throughput, Terronera continue to advance through its ramp-up and the advancement of the Pitarrilla feasibility study underway, we are well positioned to build on this momentum through the second half of the year and into next year. Thank you for your continued support and engagement. And with that, I'm happy to open up for questions. Operator, let's please proceed to the Q&A session.

[Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright.

I went back on the Terronera environmental website this morning that you guys have set up terronera.com. Obviously, commissioning at the site began a month ago. And then you did mention an incremental decrease in costs during the second half. So just a couple of questions based on that. Were there any bottlenecks or costs that you didn't anticipate so far during the commissioning or anything else that didn't come in as anticipated?

For our LNG plant, we commissioned it in June. I wouldn't say there was anything particularly unexpected. Just going through permitting, it took a longer time. And -- if you recall, we might have talked about this on past calls or past meetings, but there is an LNG spill in Mexico City in November, December of 2025. And that impacted us having to put together additional emergency response plans for LNG to be transported to our site, which actually right now is coming out of the state of Chihuahua and eventually will come from Guadalajara. We had to do that, and we actually had to increase our permit around storage, again, all related to some of the incidents that have happened around the country. But from a commissioning standpoint, our actual LNG plant went very smoothly, just took longer than expected just because of the permitting.

Yes. Okay. And then to be clear, the LNG plant obviously supplies the land and the buildings -- but then it also says that there is -- that it gives loads of 4 portals of the mine water management system. All those are now connected? Or what's the time line to actually finish this off?

Yes. No, it's a very good question, actually. So our lower platform is what we connected first, and that happened early June. End of June, we connected the upper platform. So effectively, the whole plant was connected by the end of the quarter. And here in August, it's coming up. By August 15, we'll have the mine connected to LNG generation system. So right now, the mine remains on its diesel gensets, and we just had boreholes to go through, and we're actually running the line this week. So hopefully, we're connected before mid-month. But at this point, it's ongoing.

Fair enough. And then just conceptually, I mean, you guys got close to $0.25 billion in cash. I remember when this company didn't have a market cap of that size and probably aging myself here a little bit. Just thinking out loud, I mean, where do you think -- what's the limit or what's the necessary bottom right now in regards to your cash balance? And then building on that, at what point should we even maybe think out loud and maybe see like a special dividend, especially once you're done with all the capital expenditures that are coming towards you over the next couple of quarters?

Yes. I mean we often get that question, Heiko, it's ultimately a resource allocation and what we do with that. And there will be a time that we return money to shareholders either through a dividend, share buyback. I think the growth plans that we have as a company over the next 5 years is still pretty substantial. We obviously have our convertible debt that's long term, and that's about $350 million. And one day will be paid back if our share price is at $12.45 and that gets converted, that gets converted. Ultimately, Pitarrilla and the feasibility study that we have coming out, hopefully here by the end of September and have information publicly for that dictates what we're going to do with that capital. And that feasibility study, we fully expect to be very positive, and we expect to build cost somewhere in $500 million, $600 million range. And we don't have that CapEx number yet. But just management's kind of expectation being around that, that cash flow that we're generating and the cash that we have on our balance sheet, it will ultimately be earmarked for Pitarrilla. Now Pitarrilla, we can have that built by 2030, ultimately now you're a company of scale that can look at dividends or share buybacks, and that's when we start talking about returning capital to shareholders.

The next question comes from Wayne Lam with TD Securities.

Maybe first question, just on the grades at Terronera. Just wanted to get a bit more detail. If we look back to the commercial production announcement last October, you guys had guided to a 6-month period where you're moving through the lower-grade development ore to get to the higher-grade zones. So I just wanted to know kind of what the expectation is now with the commentary that you're going to get into higher grades. Is that something that we should expect a step change immediately into Q3? Or is there still more of a ramp-up? And then just with the mine plan in year 1, having silver grades north of 200 grams per tonne and gold grades at almost 4 gram, should we kind of start to model that into the back half of the year? Or just wondering if there's any additional commentary you can provide us in terms of what we should expect going forward and what you've seen so far through the month of July?

Yes. I'll answer your second question first. That's okay, Wayne. So as far as you're going back to the feasibility study when you have the 4-gram gold that's coming through, and that's related to La Luz in our feasibility study from an IRR standpoint and payback period, your highest grade material starts in day 1. From practicality standpoint, we obviously didn't go with that. Obviously, the price is completely different than what we did our feasibility study, which was at $17 silver. We didn't want to have grade end up in our -- ounces end up in our tailings storage facility and made the decision midyear last year that we'd go after lower-grade material, and that wouldn't happen until about midyear this year. La Luz came out of that plan last year, and now it's kind of earmarked for Q1, Q2 of next year. Ultimately, we spent time drilling that out. We've pushed that resource to depth a little bit. Our one rig that's been on site has been drilling Terronera, and it's going back to La Luz in August to see if we can continue to find the bottom of La Luz. And that's all designed around so we can properly mine design La Luz so we can be most efficient. And we've kind of gone back and forth between longwall and cut and fill. A long way to say that ultimately, that high-grade gold isn't in our plan for 2026. It's in our plan for 2027. So that's why you've seen that gold run around 2 compared to the feasibility study that's running 4. The 200-gram silver is really coming from that Terronera shoot. There's a shoot that goes from southeast to northwest plunging towards the northwest that is our high-grade material. We put out drill results, as I said, in June 18 to kind of push that plunging shoot towards the northwest, and we've actually come into that a little bit sooner. We are starting still development now. We've seen some of our grades come up already in July, but I think it's going to be incremental increases July, August to September. We still do have some grade in the low-grade zones. We have some mineral that we're mining that's outside of our resource that if we don't take it, we're not going to get it. So that's going to slightly impact it, but we should see an increase in silver grade in the second half of the year and ultimately in Q3. Specific timing on July, August, September, it's going to give or take 3, 4 weeks. It's a very small time period. But ultimately, I would expect to see higher-grade silver grades in Q3 than we saw in Q2, which has always been the plan.

Okay. That's pretty good detail. Maybe just shifting to costs. Just wondering on the AISC performance through H1, which you had noted some of the pressures that you've been seeing. But just curious with the performance through the first half of the year and with the silver price kind of pushing some of those factors higher, how are you thinking about your AISC guidance? And how should we be thinking about the improved efficiencies and the decline in sustaining capital spend into H2? Like just wondering if that guidance is still realistic given the performance to date.

Yes. It's a very difficult thing to the amount of variables that go into your all-in sustaining costs. When we put out our guidance, we used $38 silver price or $36 silver price and ultimately build everything off that. And that actually steps back to when we start our process for planning in basically Q3 of 2025 and silver is sitting around that. And obviously, a huge change that happened. We also provide all those sensitivities in that guidance. And so it's difficult for whatever price you guys are using or different analysts have different prices, obviously. Right now, with the increased sustaining CapEx that we have at Kolpa, it's offset by the by-product credits that we're getting from lead, zinc, silver, some of the efficiencies we're getting. So there's a lot going on. We haven't changed our guidance on that all-in sustaining cost. And clearly, where we're sitting is much higher than our guidance, and that's going to continue because of the higher prices.

Okay. Great. And then maybe just lastly on the hedging strategy. Can you give us a bit of detail on the go-forward hedging program on the Mexican peso? And then just with the higher cost at Guanacevi, I know you have the hedging in place currently from the build. But is there any thought to hedging silver price a bit further out to protect the margins at Guanacevi?

I'll take that one. So on the foreign exchange hedging, all of the foreign exchange hedges that we put in [indiscernible] have been unwound. But yes, we are doing foreign exchange hedging for the operating costs that are denominated in peso for Guanacevi, and that also reflects on Terronera as well. With the stronger peso, we've not put any in the last 3 months. But that book is sitting pretty healthy for us. And our plan generally is to hedge the peso a small amount to tolerate any significant shifts in the price of the peso as it moves around. On the metal hedging, as you know, all the silver collars unwound in June and were paid out July 2. And then the gold hedges stream out to the end of June of next year. So we've got another year of gold hedges to pay out. And at this time, we have no plans to do any further metal hedging.

The next question comes from Cosmos Chiu with CIBC.

Maybe again, a question on the all-in sustaining cost. Dan, as you said, it's quite complex in terms of forecasting and guiding to all-in sustaining costs. And we talked about the different variables in terms of commodity price assumptions. But how about inflation? Could you remind us what kind of inflationary assumptions you have made? Are they kind of -- the realized inflation is this kind of what you had expected? Or is it higher? And how should we factor that in as we look at all-in sustaining cost?

Yes. Thanks, Cosmos. It's a good question. And ultimately, the inflation that we looked at obviously different to a lot of things. Our labor, we had a planned 5% increase in labor, and I think that was where we settled maybe a little bit higher by point. Our initial plan when we go through our budgeting process, I think last year, we had about 3% inflation. Obviously, everything is different with what's happened in the Strait of Hormuz and the impact on diesel prices and not necessarily specific to us because we're captured a little bit in Mexico, where PEMEX controls that a little bit. But obviously, those prices impact our supplies and that gets passed down the chain. We're seeing a little bit more of that in the second quarter than obviously we saw in the first quarter. How long that continues? Is that long-term inflation, short-term inflation? I don't think we need to get into that here. But ultimately, we expect it.

Okay. As I look at the individual all-in sustaining costs and the one that's much higher than what you had expected is Guanacevi, I think in large part due to a higher cost of purchasing third-party ore. Is that -- could you maybe talk about that strategy? Like how much -- the third-party ore, how much is that actually adding to your all-in sustaining cost because your all-in sustaining cost is over $50 an ounce, and that's almost touching...

Yes. There's 2 parts to that. Ultimately, our all-in sustaining costs at Guanacevi are higher because we're also seeing on a per tonne basis, and I'll come back to the per tonne basis based off it, but our grades have been lower than planned at Guanacevi. Grades lower than planned, mean on a per ounce basis, the cost goes up on a per ounce basis, right? We're getting 8 ounces instead of 10 ounces out of that tonne. And that's pretty straightforward. And ultimately, we're going into lower-grade areas anywhere in El Curso back into Porvenir Dos. And then ultimately, we're actually moving towards Malache where grades will come up. The idea of going after those lower-grade ounces is because we have a 2-year mine life right now at Guanacevi and obviously, that extends mine life. The idea of the purchased ore in that area, there's a number of different family run operations in Guanacevi. It's a quilt system. We control a large part of the claims at Guanacevi, but there's a lot of family claims and a couple of small miners and mills in that area as well. Around this is also Frisco, which we obviously have the NSR, that's 16% NSR. With higher prices, we pay higher royalties. That goes into our all-in sustaining costs. The special mining duty, the profits that we're making at Guanacevi go into our all-in sustaining costs, of course, all that. And so it's a little bit of everything at Guanacevi is why our all-in sustaining costs are higher than what we've guided, lower grades, higher prices that drive profit sharing purchased ore. The purchased ore in this quarter, I think it was 21%, maybe even a bit higher than that, but it has been increasing to about 11,000, 12,000 tonnes came through in the quarter. And that's just, again, a function of the higher prices, meaning more family operations can open up areas and they're making more profit and they're delivering more material. That material when you're buying it at $50 increases. So our cost per tonne on an all-in basis, so we call it our direct costs, which includes royalties and purchased ore is $400. $130 of that $400 is purchased ore, right? So over 25% of our cost is related to purchased ore. Now we make about a 30% to 33% margin on that purchased ore. So if we buy it for $100, we make $30, and it extends our mine life. One of the things like the Guanacevi plant was originally built by the Mexican government in 1981 or 1982. Under that plant when it got sold, 10% of that plant needs to be available for family operations to toll their ore. So some of it's in our control, some of it's out of our control, but ultimately, us taking more allows us to continue to extend mine life, gives Luis and his exploration team time to continue to find resources as we move along. And hopefully, we're at Guanacevi another 3, 5, 10 years.

Okay. Yes, I wasn't aware of that -- or maybe I forgot about the 30% profitability. So you're actually making money off of it. And I wasn't -- I guess it's beyond profitability as well. It sounds like you need to -- it's part of the agreement that you might have in place in terms of giving access to some of these families.

Yes. We have to give access, but it also has to be profitable. So there are gating items in that agreement that protect us as well. But ultimately -- and there's a number of things [indiscernible] relations, et cetera, et cetera. There's a lot of qualitative aspects of buying that purchased ore. And we do a lot of work around it to make sure those claims are legit claims, et cetera, et cetera. But it is a profitable segment for us and extends our mine life.

Great. And then maybe one last question, Dan, talking about sort of an expected cost. I see that your CapEx has increased now from $157 million for the year to $181 million -- $181 million. At Kolpa, it's going to be $18 million additional CapEx. So would you categorize that as sort of unexpected cost? Or is there really a benefit to a -- future benefit to whereby it might equate to over 2,500 tonnes per day or lower cost later on in terms of per tonne. Could you maybe talk about that?

Yes. No, that's very fair. So in that $18 million, there's about $5 million of overruns from putting that ball mill in place, recommendations from Peruvian authorities on what we have to increase for power consumption and substations and then lifts required on the current tailings facility. Similarly, we've been running certain days at 2,600 all the way up to 2,800 tonnes per day. But obviously, we don't have facility capabilities to continually run that for the next 2 or 3 years. By increasing the power substations, water -- putting in a water treatment plant and our tailings filter systems, we're going from conventional tailings to dry stack tailings. We're trying to push that forward. That $18 million that we've added in is project expenditures we expect to happen this year, but it could end up getting pushed into next year. We don't start that work now. We'll be racing come 2030 to get it all finished, so we can continue to fill our tailings dam with ore. So as far as your question of what's expected, what's unexpected, some of it was unexpected, as I say, overruns, which is about $5 million of the $18 million and then $13 million is us bringing things forward from 2027. There's another -- inside that, there's $3 million for accommodations, the new camp. And that's, again, we're losing or having high turnover in Peru because of all the informal miners have been popping up with high prices. So we're building that out sooner than what we had planned to attract and retain talent. So it's something that we took -- didn't take very lightly when we started looking at it, but also we see a lot of potential through our exploration programs that we've done there that, hey, this is a long-term investment. It's not something -- we're going to be there well past the 8 years that we thought we had in our effectively model when we purchased it. We're going to be there 15, 20, 25 years, and we're going to make these investments now.

The next question comes from Alex Terentiew with National Bank.

A lot of good questions asked already. Maybe just a few follow-ups to dig into some of those. So starting with Kolpa, the additional spending here, this mine, I guess, since you guys bought it, has been performing operationally, I think, pretty well. You got your expansion up and production has been looking pretty good. But I think the offset has been there's been a bit more spending, at least than I anticipated. So I'm just trying to get a sense of the spending this year, I mean, how does that -- should I -- how should I think about longer-term spending here? Is this kind of catch-up spending that maybe you kind of didn't anticipate? Or is sustaining going to be a little bit higher on this project or this mine forward? Just trying to get a sense of longer-term expectations here.

Yes. No, that's a very fair question. I'd say it's more focused on onetime expenditures with regards to expansion going from effectively 2,000 tonnes per day to 2,500 tonnes per day. And when our management team that we inherited came through with the program, there's definitely things they miss from a conceptual standpoint that start peeling back the onion we'll hold on this. There's not enough capacity from a power standpoint here, "Hey, we're going to run out of tailings dam in 2029, 2030 if we don't start moving on this." So as we've taken control and now we've been in control for just over a year, there's things that we have recommendations on and things that they ultimately missed. But most of that is actually onetime expenditures for the long-term viability of Kolpa, effectively putting the tailings storage filter presses in, going from red stack to dry stack. That's a onetime thing, new accommodations, onetime item, new power substations, a new water treatment plant to bring their standards up. Some of these things that we -- from an acquisition standpoint, we felt like we could live with for a while, but at these prices with these cash flows, it gives us the ability to make that investment down. It's something we don't have to worry about in year 3, year 4, or year 5 to push that out. And again, I'd point back to a lot of the work that Luis' team is doing and ultimately our Kolpa exploration team and what we're seeing. And I think our enthusiasm to get these investment projects done points to what we think the resource is ultimately going to be.