Endeavour Silver - Supplement

Yesterday I published an article on Endeavour Silver (EXK) (link). In this post I would like to publish a short supplement.

First of all, look at the chart below:

Usually, when gold / silver prices go down a mining company delivers lower cash flows from its operations (lower metal prices = lower revenue = lower cash flow from operations). And vice versa.

Until 2014 Endeavour was no exception to this pattern. However, in 2015, despite lower prices of silver, the company was able to deliver higher cash flow.

Why? Because in 2015 Endeavour cut its production costs by 20% and silver prices realized by the company decreased "only" by 15.8%.

Then, in 2016 the situation changed. Endeavour once again was able to cut its costs but the company produced and sold much less silver and gold than in 2015. Hence, lower cash flow from operations (excluding working capital issues). 

Why did the company produce less metals? Here is an excerpt from the 2016 Outlook, page 30:

Well, I am not satisfied with this explanation. What is more, seeing higher prices of silver and gold, Endeavour updated its guidance (higher production) in middle 2016 but the actual production was nevertheless much lower than in 2015.

Now, according to the 2017 Outlook, the company wants to increase its production from 5.4M ounces in 2016 to  5.5 - 6.0M ounces of silver this year. The problem is that the entire growth is going to be attributable to the Guanacevi mine, the smallest but also the best operation in the company's portfolio.

It seems that other mines (Bolanitos and El Cubo) are simply not able to deliver economically viable production in larger quantities.