Thursday, May 5, 2016

Endeavour Silver Reports Decent 1Q 2016 Results

In my first post on Endeavour Silver I was trying to project a few 1Q 2016 financial metrics. Let me cite an excerpt from this post:

"If my assumptions are correct, in 1Q 2016 the company should incur operating loss of $4,100 thousand (in 4Q 2015 the company lost $4,143 thousand). 
Note that despite lower production, 1Q 2016 financial results should be similar to 4Q 2015 results - it is a result of higher gold and silver prices in 1Q 2016"

Well, I was wrong because the company's results surpassed my expectations - in 1Q 2016 Endeavour delivered an operating profit of $3,051 thousand. Where was I wrong?

There are two factors standing behind my error:

A. silver and gold price
I assumed that the company was selling its metals at the average prices, quoted at global exchanges: $1,184 per ounce of gold and $14.9 per ounce of silver.

However, Endeavour Silver got better prices: $1,219 per ounce of gold and $15.18 per ounce of silver. Well, I could not know these figures; to know them I would have to be an insider (I am not).

B. production cost, defined as: direct production costs + royalties + share-based compensation + depreciation and amortization + exploration + administrative expenses

I took a conservative assumption that these costs should stand at the 4Q 2015 level ($16.4 per ounce of silver equivalent). 
Fortunately, the company was able to cut these costs to just $14.1 per ounce of silver equivalent (which is a very good thing).

Summarizing, if I knew these three figures (gold and silver prices and production costs) I would say that, according to my model, the company could make $2,276 thousand in operating profit (more or less in line with the actual result).
Well, as for the realized metals prices there is no way to know them (as I noted above - unless you are insider). As for costs - I promise to try harder to construct a more reliable model to assess these costs.

Unfortunately, the 2016 outlook remains unchanged - production should be lower than in 2015. 

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