Monday, July 11, 2016

Endeavour Silver Reports Impressive 2Q 2016 Operating Results

In my last (and first) article on Endeavour Silver I have made the following final statement:

"...the main issue is whether the company's management is going to change its mind and quickly increase production when silver and gold prices continue their current rally. If it does not change its mind I think that other silver miners should be more attractive than Endeavour Silver" 

Of course I do not believe that the company's management reads my blog (why should it?) but today Endeavour announced that it is going to deliver more silver and gold, compared to the last Outlook:

source: Simple Digressions

As the table shows, in 2016 the company wants to deliver between 9.0 and 9.8 ounces of silver equivalent (11.5% more than it was planned at the end of 1Q 2016). 

Well, it is definitely fine that the company's management is flexible when circumstances allow (higher prices of silver and gold). I think this change should support the excellent performance of the company's shares since the start of the ongoing bull market in gold:

Nevertheless, it is not the end of good news. In today's announcement Endeavour also disclosed production data. In my opinion, these figures are sometimes very impressive. 

Let me show potential margins delivered by each of the company's three operating mines:

source: Simple Digressions

Margins are calculated taking the average prices of gold and silver, recorded in 2Q 2016. Direct costs are assumed to stand at 1Q 2016 level.

How to read this chart? First of all, it is easily seen that in 2Q 2016 the El Cubo mine should have delivered outstanding margin (30.2%, compared to just 1.3% in 1Q 2016). I am writing "it should" because the margin delivered by any mine depends on at least three factors I do not know at the moment:

  • gold and silver prices (I assumed the average prices recorded last quarter but the company did not report at which prices it was selling its metals last quarter)
  • direct costs of mining and processing (in my calculations I am assuming that all mines incurred the same costs as in 1Q 2016) 
  • the amount of silver and gold sold (generally, there is always a difference between the amount of metals produced and sold; the company did not report what amounts of gold and silver it sold in 2Q 2016)

However, the fact is that in 2Q 2016 the main operating measures, reported by El Cubo, were much better than those reported in 1Q 2016:

source: Simple Digressions

As the chart shows, in 2Q 2016 El Cubo was processing the ore of much higher quality than that processed in 1Q 2016 (higher grades and recovery ratios). Hence, better potential margins. 

The only negative was the amount of ore processed, which was 17.7% lower than in 1Q 2016. 

Anyway, now it looks like the company's management does not want to put El Cubo on care and maintenance  - quite contrary:  

"Endeavour has also made a decision not to ramp down production to care and maintenance by year-end as previously guided, and various operating plans are under evaluation for production to return to 1,500 tpd with additional mine development"


  • Endeavour Silver has lifted its 2016 Outlook, compared to the previous one
  • in 2Q 2016 all mines delivered decent operating results
  • El Cubo, the lagging mine, delivered outstanding operating results

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