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0001062993-09-001046.txt : 20090331
0001062993-09-001046.hdr.sgml : 20090331
20090331150204
ACCESSION NUMBER: 0001062993-09-001046
CONFORMED SUBMISSION TYPE: 40-F
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20081231
FILED AS OF DATE: 20090331
DATE AS OF CHANGE: 20090331
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENDEAVOUR SILVER CORP
CENTRAL INDEX KEY: 0001277866
STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040]
IRS NUMBER: 000000000
STATE OF INCORPORATION: A1
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 40-F
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-33153
FILM NUMBER: 09718210
BUSINESS ADDRESS:
STREET 1: SUITE 301
STREET 2: 700 WEST PENDER STREET
CITY: VANCOUVER
STATE: A1
ZIP: V6C 1G8
BUSINESS PHONE: 604-685-9775
MAIL ADDRESS:
STREET 1: SUITE 301
STREET 2: 700 WEST PENDER STREET
CITY: VANCOUVER
STATE: A1
ZIP: V6C 1G8
FORMER COMPANY:
FORMER CONFORMED NAME: ENDEAVOUR GOLD CORP
DATE OF NAME CHANGE: 20040128
40-F
1
form40f.htm
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
Filed by sedaredgar.com - Endeavour Silver Corp. - Form 40-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
[ ] REGISTRATION STATEMENT PURSUANT
TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
Commission file number: 001-33153
ENDEAVOUR SILVER
CORP.
(Exact Name of Registrant as Specified in its Charter)
British Columbia |
1040 |
N/A |
(Province or other jurisdiction of incorporation
or organization) |
(Primary Standard Industrial |
(I.R.S. Employer Identification No.) |
|
Classification Code) |
|
#301-700 West Pender Street
Vancouver, British Columbia,
Canada V6C 1G8
(604) 685-9775
(Address and Telephone Number
of Registrants Principal Executive Offices)
Dorsey & Whitney LLP |
Copies to: |
Republic Plaza Building, Suite 4700 |
Kenneth G. Sam |
370 Seventeenth Street |
Dorsey & Whitney LLP |
Denver, Colorado 80202 |
Republic Plaza Building, Suite 4700 |
(303) 629-3400 |
370 Seventeenth Street |
(Name, address (including zip code) and telephone number
(including area |
Denver, Colorado 80202 |
code) of agent for service in the United States) |
(303) 629-3445 |
Securities registered or to be registered pursuant to Section
12(b) of the Act:
Title of Each Class: |
Name of Each Exchange On Which Registered:
|
|
|
Common Shares, no par value |
NYSE Amex |
Securities registered or to be registered pursuant to Section
12(g) of the Act: N/A
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: N/A
For annual reports, indicate by check mark the information filed
with this form:
[X] Annual Information
Form
[X] Audited Annual Financial Statements
Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as of the close of the period
covered by the annual report: As at December 31, 2008, 49,080,478
common shares of the Registrant were issued and outstanding.
Indicate by check mark whether the Registrant by filing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes"
[X] is
marked, indicate the filing number assigned to the Registrant in connection with
such Rule. [ ] Yes [X] No
1
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been
subject to
such filing requirements for the past 90 days.[X] Yes
[ ] No
2
EXPLANATORY NOTE
Endeavour Silver Corp. (the Company or the Registrant) is a
Canadian issuer eligible to file its annual report pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended (the Exchange Act), on Form 40-F
pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The
Company is a foreign private issuer as defined in Rule 3b-4 under the Exchange
Act. Equity securities of the Company are accordingly exempt from Sections
14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule
3a12-3.
FORWARD-LOOKING STATEMENTS
This annual report on Form 40-F and the exhibits attached
hereto contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
concern the Companys anticipated results and developments in the Companys
operations in future periods, planned exploration and development of its
properties, plans related to its business and other matters that may occur in
the future. These statements relate to analyses and other information that are
based on forecasts of future results, estimates of amounts not yet determinable
and assumptions of management.
Statements concerning reserves and mineral resource estimates
may also be deemed to constitute forward-looking statements to the extent that
they involve estimates of the mineralization that will be encountered if the
property is developed, and in the case of mineral reserves, such statements
reflect the conclusion based on certain assumptions that the mineral deposit can
be economically exploited. Any statements that express or involve discussions
with respect to predictions, expectations, beliefs, plans, projections,
objectives, assumptions or future events or performance (often, but not always,
using words or phrases such as expects or does not expect, is expected,
anticipates or does not anticipate, plans, estimates or intends, or
stating that certain actions, events or results may, could, would, might
or will (or the negative and grammatical variations of any of these terms and
similar expressions) be taken, occur or be achieved,) are not statements of
historical fact and may be forward-looking statements. Forward-looking
statements are subject to a variety of known and unknown risks, uncertainties
and other factors which could cause actual events or results to differ from
those expressed or implied by the forward-looking statements, including, without
limitation:
- risks related to precious and base metal price fluctuations;
- risks related to fluctuations in the currency markets (particularly the
Mexican peso, Canadian dollar and United States dollar);
- risks related to the inherently dangerous activity of mining, including
conditions or events beyond our control; and operating or technical
difficulties in mineral exploration, development and mining activities
- uncertainty in our ability to fund the development of our mineral
properties or the completion of further exploration programs;
- uncertainty as to actual capital costs, operating costs, production and
economic returns, and uncertainty that our development activities will result
in profitable mining operations;
- risks related to our reserves and mineral resource figures being estimates
based on interpretations and assumptions which may result in less mineral
production under actual conditions than is currently estimated; and to
diminishing quantities or grades of mineral reserves as properties are mined;
- risks related to governmental regulations and obtaining necessary licenses
and permits;
- risks related to our business being subject to environmental laws and
regulations which
3
may increase our costs of doing business and
restrict our operations;
- risks related to our mineral properties being subject to prior
unregistered agreements, transfers, or claims and other defects in title;
- risks related to inadequate insurance or inability to obtain insurance;
- risks related to our ability to successfully integrate acquisitions;
- uncertainty in our ability to obtain necessary financing;
- risks related to increased competition that could adversely affect our
ability to attract necessary capital funding or acquire suitable producing
properties for mineral exploration in the future;
- risks related to differences between U.S. and Canadian practices for
reporting resources and reserves;
- risks related to many of our primary properties being located in Mexico,
including political, economic, and regulatory instability; and
- risks related to our officers and directors becoming associated with other
natural resource companies which may give rise to conflicts of interests.
This list is not exhaustive of the factors that may affect our
forward-looking statements. Some of the important risks and uncertainties that
could affect forward-looking statements are described further in the exhibits
attached to this annual report. Should one or more of these risks and
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in the forward-looking
statements. The Companys forward-looking statements are based on beliefs,
expectations and opinions of management on the date the statements are made and
the Company does not assume any obligation to update forward-looking statements
if circumstances or managements beliefs, expectations or opinions change,
except as required by law. For the reasons set forth above, investors should not
place undue reliance on forward-looking statements.
NOTE TO UNITED STATES READERS-
DIFFERENCES IN
UNITED STATES AND CANADIAN REPORTING PRACTICES
The Company is permitted, under the multi-jurisdictional
disclosure system adopted by the United States Securities and Exchange
Commission (the SEC), to prepare this annual report in accordance with
Canadian disclosure requirements, which differ from those of the United States.
The Company prepares its financial statements, which are filed as Exhibit
2 to this annual report on Form 40-F, in accordance with Canadian generally
accepted accounting practices (GAAP), and they are subject to Canadian
auditing and auditor independence standards. They are not comparable to
financial statements of United States companies. Significant measurement
differences between Canadian GAAP and United States GAAP are described in Note
20 of the audited consolidated financial statements of the Company.
RESOURCE AND RESERVE ESTIMATES
The Companys Annual Information Form (AIF) filed as
Exhibit 1 to this annual report on Form 40-F has been prepared in
accordance with the requirements of the securities laws in effect in Canada,
which differ from the requirements of United States securities laws. The terms
mineral reserve, proven mineral reserve and probable mineral reserve are
Canadian mining terms as defined in accordance with Canadian National Instrument
43-101 Standards of Disclosure for Mineral Projects (NI 43-101) and the
Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) - CIM
Definition Standards on Mineral Resources and Mineral Reserves, adopted by
the CIM Council, as amended. These definitions differ from the definitions in
SEC Industry Guide 7 under the United States Securities Act of 1993, as amended
(the Securities Act). Under SEC Industry Guide 7 standards, a final or
bankable feasibility study is required to report reserves, the three-year
historical average price is used in any reserve or cash flow analysis to
designate reserves and the primary environmental analysis or report must be
filed with the appropriate governmental authority.
4
In addition, the terms mineral resource, measured mineral
resource, indicated mineral resource and inferred mineral resource are
defined in and required to be disclosed by NI 43-101; however, these terms are
not defined terms under SEC Industry Guide 7 and are normally not permitted to
be used in reports and registration statements filed with the SEC. Investors are
cautioned not to assume that any part or all of mineral deposits in these
categories will ever be converted into reserves. Inferred mineral resources
have a great amount of uncertainty as to their existence, and great uncertainty
as to their economic and legal feasibility. It cannot be assumed that all or any
part of an inferred mineral resource will ever be upgraded to a higher category.
Under Canadian rules, estimates of inferred mineral resources may not form the
basis of feasibility or pre-feasibility studies, except in rare cases. Investors
are cautioned not to assume that all or any part of an inferred mineral resource
exists or is economically or legally mineable. Disclosure of contained ounces
in a resource is permitted disclosure under Canadian regulations; however, the
SEC normally only permits issuers to report mineralization that does not
constitute reserves by SEC Industry Guide 7 standards as in place tonnage and
grade without reference to unit measures.
Accordingly, information contained in this annual report and
the documents incorporated by reference herein contain descriptions of our
mineral deposits that may not be comparable to similar information made public
by U.S. companies subject to the reporting and disclosure requirements under the
United States federal securities laws and the rules and regulations thereunder.
CURRENCY
Unless otherwise indicated, all dollar amounts in this annual
report on Form 40-F are in United States dollars. The exchange rate of Canadian
dollars into United States dollars, on December 31, 2008, based upon the noon
buying rate in New York City for cable transfers payable in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York, was
U.S.$1.00 = Cdn.$1.2240.
ANNUAL INFORMATION FORM
The Companys AIF for the fiscal year ended December 31, 2008
is filed as Exhibit 1 and incorporated by reference in this annual report
on Form 40-F.
AUDITED ANNUAL FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company
for the years ended December 31, 2008, 2007 and 2006, including the report of
the independent auditor with respect thereto, are filed as Exhibit 2 and
incorporated by reference in this annual report on Form 40-F. For a
reconciliation of material measurement differences between Canadian and United
States GAAP, see Note 20 to the Companys audited consolidated financial
statements.
MANAGEMENTS DISCUSSION AND ANALYSIS
The Companys managements discussion and analysis (MD&A)
is filed as Exhibit 3 and incorporated by reference in this annual report
on Form 40-F.
TAX MATTERS
Purchasing, holding, or disposing of securities of the
Registrant may have tax consequences under the laws of the United States and
Canada that are not described in this annual report on Form 40-F.
CONTROLS AND PROCEDURES
5
Disclosure Controls and Procedures
At the end of the period covered by this annual report for the
fiscal year ended December 31, 2008, an evaluation was carried out under the
supervision of, and the with the participation of, the Companys management,
including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
of the effectiveness of the design and operation of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act).
Based upon that evaluation, the Companys CEO and CFO have concluded that the
disclosure controls and procedures were effective to give reasonable assurance
that the information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is (i) recorded, processed, summarized
and reported, within the time periods specified in the SECs rules and forms,
and (ii) accumulated and communicated to management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
Managements Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rules
13a-15(f) under the Exchange Act. A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles
A companys internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements. It should be noted that a control
system, no matter how well conceived or operated, can only provide reasonable
assurance, not absolute assurance, that the objectives of the control system are
met. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies and procedures may
deteriorate.
Management, including the CEO and CFO, assessed the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set
forth in the Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on its
assessment, management has concluded that, as of December 31, 2008, the
Companys internal control over financial reporting was effective and no
material weaknesses in the Companys internal control over financial reporting
were discovered.
The Company is required to provide an auditors attestation
report on its internal control over financial reporting for the fiscal year
ended December 31, 2008. In this annual report, the Companys independent
registered public accounting firm, KPMG LLP (KPMG), has provided its opinion
as to the effectiveness of the Companys internal control over financial
reporting as of December 31, 2008. KPMG has also audited the Companys financial
statements included in this annual report on Form 40-F and issued a report
thereon.
6
Auditors Attestation Report
KPMGs attestation report on the Companys internal control
over financial reporting is included in the audit report filed in Exhibit
2 and is incorporated by reference in this annual report on Form 40-F.
Changes in Internal Control over Financial Reporting
Management, including the CEO and CFO, has evaluated the
Companys internal control over financial reporting to determine whether any
changes occurred during the period covered by this annual report that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. During the year ended
December 31, 2008, management implemented the following initiatives to remediate
the material weaknesses in internal control over financial reporting identified
as at December 31, 2007.
Control Environment
In 2007, the Companys control environment did not sufficiently
promote effective internal control over financial reporting throughout the
organization. Specifically, the Company did not define nor communicate authority
limits for entering into or approving contracts, making capital expenditures, or
approving invoices for purchases, or develop policies and procedures to address
the risk of management override. This applied to both the Canadian head office
and Mexican operations. Further, the Company did not define nor communicate
guidelines regarding investments in marketable securities. None of these control
deficiencies by themselves directly resulted in a misstatement to the financial
statements, however, deficiencies in the control environment were pervasive in
nature and this material weakness was a contributing factor in other material
weaknesses described below.
Information & Communication
In 2007, the Company did not maintain adequate controls to
facilitate the flow of information used in financial reporting throughout the
organization. Specifically, the Company did not effectively communicate
employees duties over financial reporting. In addition, the Company did not
have effective controls over the translation of all contracts and communication
of them to appropriate personnel for consideration of financial reporting
implications, in particular commitments and contingencies and mineral property
acquisition costs. These control deficiencies did not result in adjustments to
the financial statements, however, they were pervasive in nature and created a
reasonable possibility that a material misstatement of the financial statements
would not be prevented or detected in a timely basis. Remediation of Control
Environment and Information & Communication Weaknesses
- During January 2008, management developed and communicated an authority
limit policy, a capital expenditure policy, an investment policy and strengthened
invoice approval controls.
- During March 2008, management developed policies and procedures to appropriately
segregate duties to reduce the risk of management override by implementing
management access restrictions in the Companys accounting systems.
- During April 2008, management implemented more robust weekly and monthly
internal reporting, along with more frequent management meetings and Company
communications to ensure appropriate flow of communication through out the
organization.
- During March 2008, the Company implemented controls so that all Spanish
language contracts will have certified English translations, which will be
maintained in the corporate office, that are reviewed by either the Chief
Executive Officer or Chief Operating Officer and either the Chief Financial
Officer or Controller.
7
Foreign Exchange
In 2007, the Companys controls over foreign currency
translation were not designed effectively. Specifically, a cash account was not
translated into the reporting currency and the Companys foreign exchange
account reconciliation control was insufficiently precise to detect the error.
This resulted in a material adjustment to cash and foreign exchange gain and
created a reasonable possibility that a material misstatement of the financial
statements would not be prevented or detected in a timely basis.
Remediation of Foreign Exchange Weakness
- In April 2008, management designed and implemented a more robust foreign
exchange translation review process, including multiple levels of review,
embedded self checks within the process and improved reasonability
assessments.
Income Tax Accounting
In 2007, the Company did not maintain effective controls over
accounting for Mexican income taxes. Specifically, the Company did not have
personnel with adequate expertise in accounting for Mexican taxes. This
deficiency resulted in material adjustments to current and future income tax
expense and recovery and current and future income taxes payable. This
deficiency resulted in a reasonable possibility that a material misstatement of
the financial statements would not be prevented or detected in a timely basis.
Remediation of Income Tax Accounting Weakness
- In May 2008, management engaged the services of international tax
consultants from one of the big four accounting firms to assist with the
review of monthly and annual Mexican tax returns, assist with transfer pricing
and international tax planning and preparation of the year end future income
tax provision information.
- Management hired an employee with adequate knowledge and skills to
effectively prepare and manage the Companys Mexican tax position.
- Management reviewed and discussed with advisors its annual tax return and
future income tax provision calculation processes.
Except for the changes discussed above, there have been no
changes that occurred during the period covered by this annual report that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
CORPORATE GOVERNANCE
The Companys Board of Directors (the Board of Directors) is
responsible for the Companys Corporate Governance policies and has separately
designated standing Compensation, Nominating and Audit Committees. The Board of
Directors has determined that all the members of the Compensation, Nominating,
and Audit Committees are independent, based on the criteria for independence and
unrelatedness prescribed section 803 of the NYSE Amex Company Guide.
8
Compensation Committee
Compensation of the Companys CEO and all other officers is
recommended to the Board of Directors for determination by the Compensation
Committee. The Compensation Committee develops, reviews and monitors director
and executive compensation and policies. The Compensation Committee is also
responsible for annually reviewing the adequacy of compensation for directors
and others and the composition of compensation packages. The Companys CEO
cannot be present during the Committees deliberations or vote. The Compensation
Committee is composed of three independent directors: Geoffrey Handley, Leonard
Harris and Mario Szotlender. The Companys Compensation Committee Charter is
available on the Companys website at www.edrsilver.com.
Nominating Committee
Nominees for the election to the Board of Directors are
recommended by the Nominating Committee. The Nominating Committee is charged
with the responsibility of, among other things, establishing the criteria for
the selection of new directors, identifying qualified individuals to be
presented to the Board of Directors and/or the Companys shareholders,
monitoring the orientation and continued education of the Companys directors,
reviewing the Board of Directors committee structure and making recommendations
for committee member service. The Company has adopted a formal written board
resolution addressing the nomination process and such related matters as may be
required under federal securities laws. The Nominating Committee is composed of
three independent directors: Geoffrey Handley, Leonard Harris, and Mario
Szotlender. The Nominating Committee Charter is available on the Companys
website at www.edrsilver.com.
AUDIT COMMITTEE
The Companys Board of Directors has a separately designated
standing Audit Committee established in accordance with section 3(a)(58)(A) of
the Exchange Act. The Companys Audit Committee is comprised of:
- Geoffrey Handley
- Rex McLennan
- Mario Szotlender
In the opinion of the Companys Board of Directors, all members
of the Audit Committee are independent (as determined under Rule 10A-3 of the
Exchange Act and section 803 of the NYSE Amex Company Guide) and are financially
literate. The Audit Committee meets the composition requirements set forth by
section 803 of NYSE Amex Company Guide.
The members of the Audit Committee do not have fixed terms and
are appointed and replaced from time to time by resolution of the Board of
Directors.
The Audit Committee meets with the President, the CEO, the CFO
and the Companys independent auditors to review and inquire into matters
affecting financial reporting, the system of internal accounting and financial
controls, as well as audit procedures and audit plans. The Audit Committee also
recommends to the Board of Directors which independent registered public
auditing firm should be appointed by the Company. In addition, the Audit
Committee reviews and recommends to the Board of Directors for approval the
annual financial statements, the MD&A, and undertakes other activities
required by exchanges on which the Companys securities are listed and by
regulatory authorities to which the Company is held responsible. The Companys
Audit Committee Charter is available on the Companys website at
www.edrsilver.com.
9
Audit Committee Financial Expert
The Companys Board of Directors has determined that Rex
McLennan qualifies as a financial expert (as defined in Item 407 of Regulation
S-K under the Exchange Act) and is independent (as determined under Exchange Act
Rule 10A-3 and section 803 of the NYSE Amex Company Guide).
PRINCIPAL ACCOUNTING FEES AND SERVICES INDEPENDENT
AUDITORS
The following table shows the aggregate fees billed to the
Company by KPMG LLP and its affiliates, Chartered Accountants, the Companys
independent registered public auditing firm, in each of the last two years.
|
2008
|
2007
|
Assurance Fees (1) |
$440,150 |
$597,000 |
Tax Fees (2) |
$30,448 |
$16,420 |
All other fees (3) |
$0
|
$0
|
Total* |
$470,598 |
$613,420 |
* All amounts are expressed in Canadian dollars
(1) |
The aggregate fees billed in each of the last two fiscal
years for assurance and related services by the Companys external auditor
that are reasonably related to the performance of the audit or review of
the Companys financial statements. |
(2) |
The aggregate fees billed in each of the last two fiscal
years for professional services rendered by the companys external auditor
for tax compliance and tax advice. |
(3) |
The aggregate fees billed in each of the last two fiscal
years for products and services provided by the Companys external
auditor, other than the services reported under clauses 1and 2
above. |
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY INDEPENDENT
AUDITORS
The Audit Committee pre-approves all audit services to be
provided to the Company by its independent auditors. Non-audit services that are
prohibited to be provided to the Company by its independent auditors may not be
pre-approved. In addition, prior to the granting of any pre-approval, the Audit
Committee must be satisfied that the performance of the services in question
will not compromise the independence of the independent auditors. All non-audit
services performed by the Companys auditor for the fiscal year ended December
31, 2008 were pre-approved by the Audit Committee of the Company. No non-audit
services were approved pursuant to the de minimis exemption to the
pre-approval requirement.
OFF-BALANCE SHEET TRANSACTIONS
The Company does not have any off-balance sheet financing
arrangements or relationships with unconsolidated special purpose entities.
CODE OF ETHICS
10
The Company has adopted a Code of Business Conduct and Ethics
(the Code) that applies to all the Companys directors, executive officers and
employees, which is available on the Companys website at www.edrsilver.com.
During the fiscal year ended December 31, 2008, the Company did
not substantively amend, waive or implicitly waive any provision of the Code
with respect to any of the directors, executive officers or employees subject to
it.
CONTRACTUAL OBLIGATIONS
The following table lists as of December 31, 2008 information
with respect to the Companys known contractual obligations.
Payments
due by period (in thousands of dollars) |
Contractual Obligations |
Total |
Less
than 1 year |
1
3 years |
3
5 years |
More
than 5 years |
Operating Lease |
$ 651 |
$217 |
$434 |
- |
- |
Other Long-Term Liabilities |
$1,445 |
|
- |
$534
|
$911
|
Total |
$2,096 |
$217 |
$434 |
$534 |
$911 |
NOTICES PURSUANT TO REGULATION BTR
There were no notices required by Rule 104 of Regulation BTR
that the Registrant sent during the year ended December 31, 2008 concerning any
equity security subject to a blackout period under Rule 101 of Regulation BTR.
NYSE AMEX CORPORATE GOVERNANCE
The Companys common shares are listed on the NYSE Amex.
Section 110 of the NYSE Amex Company Guide permits the NYSE Amex to consider the
laws, customs and practices of foreign issuers in relaxing certain NYSE Amex
listing criteria, and to grant exemptions from NYSE Amex listing criteria based
on these considerations. A company seeking relief under these provisions is
required to provide written certification from independent local counsel that
the non-complying practice is not prohibited by home country law. A description
of the significant ways in which the Companys governance practices differ from
those followed by domestic companies pursuant to NYSE Amex standards is as
follows:
Shareholder Meeting Quorum
Requirement: The NYSE Amex minimum quorum requirement for a shareholder
meeting is one-third of the outstanding shares of common stock. In addition, a
company listed on the NYSE Amex is required to state its quorum requirement in
its bylaws. The Companys quorum requirement is set forth in its Memorandum and
Articles. A quorum for a meeting of members of the Company is two persons who
are, or who represent by proxy, shareholders who, in the aggregate, hold at
least 5% of the shares entitled to be voted at the meeting.
Proxy Delivery Requirement: The
NYSE Amex requires the solicitation of proxies and delivery of proxy statements
for all shareholder meetings, and requires that these proxies shall be solicited
pursuant to a proxy statement that conforms to SEC proxy rules. The Company
is a foreign private issuer as defined in Rule 3b-4 under the Exchange
Act, and the equity securities of the Company are accordingly exempt from the
proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange
Act. The Company solicits proxies in accordance with applicable rules and regulations
in Canada.
11
Shareholder Approval
Requirement: The Company will follow Toronto Stock Exchange rules for
shareholder approval of new issuances of its common shares. Following Toronto
Stock Exchange rules, shareholder approval is required for certain issuances of
shares that: (i) materially affect control of the Company; or (ii) provide
consideration to insiders in aggregate of 10% or greater of the market
capitalization of the listed issuer and have not been negotiated at arms
length. Shareholder approval is also required, pursuant to Toronto Stock
Exchange rules, in the case of private placements: (x) for an aggregate number
of listed securities issuable greater than 25% of the number of securities of
the listed issuer which are outstanding, on a non-diluted basis, prior to the
date of closing of the transaction if the price per security is less than the
market price; or (y) that during any six month period are to insiders for listed
securities or options, rights or other entitlements to listed securities greater
than 10% of the number of securities of the listed issuer which are outstanding,
on a non-diluted basis, prior to the date of the closing of the first private
placement to an insider during the six month period.
The foregoing are consistent with the laws, customs and
practices in Canada.
In addition, the Company may from time-to-time seek relief from
NYSE Amex corporate governance requirements on specific transactions under
Section 110 of the NYSE Amex Company Guide by providing written certification
from independent local counsel that the non-complying practice is not prohibited
by our home country law, in which case, the Company shall make the disclosure of
such transactions available on its website at www.edrsilver.com. Information
contained on the Companys website is not part of this annual report.
UNDERTAKING
The
Company undertakes to make available, in person or by telephone, representatives
to respond to inquiries made by the Commission staff, and to furnish promptly,
when requested to do so by the Commission staff, information relating to: the
securities registered pursuant to Form 40-F; the securities in relation to which
the obligation to file an annual report on Form 40-F arises; or transactions in
said securities.
CONSENT TO SERVICE OF PROCESS
The
Company filed an Appointment of Agent for Service of Process and Undertaking on
Form F-X with the SEC on November 14, 2006, with respect to the class of
securities in relation to which the obligation to file this annual report on
Form 40-F arises.
EXHIBIT INDEX
The
following exhibits have been filed as part of this annual report:
12
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007 |
|
|
|
Consolidated
Statement of Operations and Comprehensive Income for the year ended December
31, 2008, year ended December 31, 2007 and year ended December 31, 2006
|
|
|
|
Consolidated
Statement of Shareholders Equity and Deficit for the year ended
December 31, 2008, the year ended December 31, 2007 and the year ended
December 31, 2006 |
|
|
|
Consolidated
Statements of Cash Flow for the year ended December 31, 2008, the year
ended December 31, 2007 and the year ended December 31, 2006 |
|
|
|
Notes
to Consolidated Financial Statements (which includes a reconciliation
with United States GAAP as Note 20) |
13
SIGNATURES
Pursuant
to the requirements of the Exchange Act, the Registrant certifies that it meets
all of the requirements for filing on Form 40-F and has duly caused this annual
report to be signed on its behalf by the undersigned, thereto duly authorized.
ENDEAVOUR SILVER CORP.
By: /s/ Bradford
Cooke
Name: Bradford Cooke
Title: Chairman
and Chief Executive Officer
Date: March 31, 2009
14
EX-99.1
2
exhibit99-1.htm
ANNUAL INFORMATION FORM
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 1
ANNUAL INFORMATION FORM
(AIF)
of
ENDEAVOUR SILVER CORP.
(the Company or Endeavour)
Suite #301 - 700 West Pender Street
Vancouver, British
Columbia, Canada, V6C 1G8
Phone: (604) 685-9775
Fax: (604) 685-9744
Dated: March 31, 2009
TABLE OF CONTENTS
ITEM 1:
PRELIMINARY NOTES
1.1 Incorporation
of Financial Statements, Information Circular and Other Documents
Specifically incorporated by reference and forming part of this
Annual Information Form (AIF) are the Consolidated Financial Statements for
Endeavour Silver Corp. (the Company or Endeavour which includes its
subsidiaries) for the year ended December 31, 2008, for the year ended December
31, 2007 and for the year ended December 31, 2006, together with the Management
Discussion and Analysis accompanying such financial statements.
All financial information in this AIF is prepared in accordance
with Canadian generally accepted accounting principles (Canadian GAAP). All
amounts are stated in US dollars unless otherwise indicated.
The information provided in the AIF is supplemented by
disclosure contained in the documents listed below which are incorporated by
reference into this AIF. These documents must be read together with the AIF in
order to provide full, true and plain disclosure of all material facts relating
to Endeavour. The documents listed below are not contained within, nor attached
to this document. The documents may be accessed by the reader at the following
locations:
Type of Document
|
Effective Date /
Period Ended
|
Date Filed / Posted
|
Document name which may be viewed at
the SEDAR website at www.sedar.com (or alternative location for
non-SEDAR documents) |
NI 43-101 Technical Report on the Resource
and Reserve Estimates for the Guanacevi Project, Durango State, Mexico |
March 18, 2009
|
March 31, 2009
|
Technical Report (43-101)
English Qualification Certificate(s) and Consent(s) |
NI 43-101 Technical Report for the Guanajuato
Mines Project, Durango State, Mexico |
March 18, 2009
|
March 31, 2009
|
Technical Report (43-101)
English Qualification Certificate(s) and Consent(s)
|
1.2 Date of
Information
All information in this AIF is as of March 31, 2009 unless
otherwise indicated.
1.3
Forward-Looking Statements
This Annual Information Form contains forward-looking
statements within the meaning of application Canadian securities legislation.
Such forward-looking statements concern the Companys anticipated results and
developments in the Companys operations in future periods, planned exploration
and development of its properties, plans related to its business and other
matters that may occur in the future. These statements relate to analyses and
other information that are based on expectations of future performance,
including silver and gold production and planned work programs.
Statements concerning reserves and mineral resource estimates
may also be deemed to constitute forward-looking statements to the extent that
they involve estimates of the mineralization that will be encountered if the
property is developed and, in the case of mineral reserves, such statements
reflect the conclusion based on certain assumptions that the mineral deposit can
be economically exploited.
1
Endeavour Silver Corp.
Forward-looking statements are subject to a variety of known
and unknown risks, uncertainties and other factors which could cause actual
events or results to differ from those expressed or implied by the
forward-looking statements, including, without limitation:
- risks related to precious and base metal price fluctuations;
- risks related to fluctuations in the currency markets (particularly the
Mexican peso, Canadian dollar and United States dollar);
- risks related to the inherently dangerous activity of mining, including
conditions or events beyond our control, and operating or technical
difficulties in mineral exploration, development and mining activities;
- uncertainty in our ability to fund the development of our mineral
properties or the completion of further exploration programs;
- uncertainty as to actual capital costs, operating costs, production and
economic returns, and uncertainty that our development activities will result
in profitable mining operations;
- risks related to our reserves and mineral resource figures being estimates
based on interpretations and assumptions which may result in less mineral
production under actual conditions than is currently estimated and to
diminishing quantities or grades of mineral reserves as properties are mined;
- risks related to governmental regulations and obtaining necessary licenses
and permits;
- risks related to our business being subject to environmental laws and
regulations which may increase our costs of doing business and restrict our
operations;
- risks related to our mineral properties being subject to prior
unregistered agreements, transfers, or claims and other defects in title;
- risks relating to inadequate insurance or inability to obtain insurance;
- risks related to our ability to successfully integrate acquisitions;
- uncertainty in our ability to obtain necessary financing;
- risks related to increased competition that could adversely affect our
ability to attract necessary capital funding or acquire suitable producing
properties for mineral exploration in the future;
- risks related to many of our primary properties being located in Mexico,
including political, economic, and regulatory instability; and
- risks related to our officers and directors becoming associated with other
natural resource companies which may give rise to conflicts of interests.
This list is not exhaustive of the factors that may affect our
forward-looking statements. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Companys forward-looking statements are based on beliefs, expectations and
opinions of management on the date the statements are made and the Company does
not assume any obligation to update forward-looking statements if circumstances
or managements beliefs, expectations or opinions change, except as required by
law. For the reasons set forth above, investors should not place undue reliance
on forward-looking statements
1.4 Currency
and Exchange Rates
All dollar amounts in this AIF are expressed in U.S. dollars
unless otherwise indicated. References to CDN$ are to Canadian dollars.
1.5
Classification of Mineral Reserves and Resources
In this AIF, the definitions of proven and probable mineral reserves,
and measured, indicated and inferred resources are those used by the Canadian
provincial securities regulatory authorities and conform to the definitions
utilized by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)
in the CIM Standards on Mineral Resources and Reserves Definitions
and Guidelines adopted on August 20, 2000 and amended December 11, 2005.
2
Endeavour Silver Corp.
1.6
Cautionary Note to U.S. Investors concerning Estimates of Measured
Indicated and Inferred Resources
In this AIF, the terms measured and indicated resources are
used. The Company advises U.S. investors that while such terms are recognized
and permitted under Canadian securities rules, the U.S. Securities and Exchange
Commission does not recognize them. U.S. investors are cautioned not to
assume that any part or all of the mineral deposits in these categories will
ever be converted to proven or probable reserves.
This AIF also uses the term inferred resources. The Company
advises U.S. investors that while such term is recognized and permitted under
Canadian securities rules, the U.S. Securities and Exchange Commission does not
recognize it. Inferred resources have a great amount of uncertainty as to
their existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an inferred mineral
resource will ever be upgraded to a higher category. Under Canadian securities
rules, estimates of inferred resources may not form part of the basis of
feasibility or other economic studies. U.S. investors are cautioned not to
assume that any part or all of an inferred resource exists, or is economically
or legally mineable.
ITEM 2: CORPORATE
STRUCTURE
2.1 Name, Address
and Incorporation
The Company was incorporated under the laws of the Province of
British Columbia on March 11, 1981 under the name, Levelland Energy &
Resources Ltd. Effective August 27, 2002 the Company changed its name to
Endeavour Gold Corp., consolidated its share capital on the basis of four old
common shares for one new common share and increased its share capital to
100,000,000 common shares without par value. Then on September 13, 2004, the
Company changed its name to Endeavour Silver Corp., transitioned from the
Company Act (British Columbia) to the British Columbia Business Corporations Act
and increased its authorized share capital to unlimited common shares without
par value.
The Companys principal business office is located at:
Suite 301 - 700 West Pender Street
Vancouver, British Columbia
Canada, V6C 1G8
and its registered and records office is located at:
19th Floor, 885 West Georgia
Street
Vancouver, British Columbia
Canada, V6C 3H4
3
Endeavour Silver Corp.
2.2 Subsidiaries
The Company conducts its business in Mexico through subsidiary
companies. The following table lists the subsidiaries, place incorporated and %
ownership held.
Name of Company |
Incorporated |
% held |
|
|
|
Endeavour Gold Corporation, S.A. de C.V. |
Mexico |
100 |
Minera Plata Adelante, S.A. de C.V. |
Mexico |
100 |
Minera Santa Cruz y Garibaldi, S.A. de C.V. |
Mexico |
100 |
Refinadora Plata Guanacevi, S.A. de C.V. |
Mexico |
100 |
Metallurgica Guanacevi, S.A. de C.V. |
Mexico |
100 |
Mina Bolanitos S.A de C.V. |
Mexico |
100 |
Guanacevi Mining Service, S.A. de C.V. |
Mexico |
100 |
Recursos Humanos Guanacevi, S.A. de C.V. |
Mexico |
100 |
ITEM 3: GENERAL
DEVELOPMENT OF THE BUSINESS
3.1 Three Year
History
Overview
The Company is a Canadian mineral company engaged in the
evaluation, acquisition, exploration, development and exploitation of precious
metal properties in Mexico.
Guanacevi Mines Project
In May 2004, Endeavour signed formal option agreements to
acquire up to a 100% interest in the producing Santa Cruz silver-gold mine,
certain other mining concessions and the Guanacevi mineral processing plant
(collectively, the Guanacevi Mines Project) in Durango, Mexico. The terms of
the agreements gave Endeavour the option to acquire an initial 51% interest in
these operating assets by paying a total of approximately US$4 million to the
vendors and incurring $1 million in mine exploration and development within one
year. This was completed on January 28, 2006. The balance of the 49% interest
could be purchased through the payment of a further $3 million by instalments up
to January 2008. The purchase of the remaining 49% of the mill facility was
completed in July 2006 and the purchase of the remaining 49% of the mining
assets was scheduled for completion on January 28, 2008.
Under the option interest agreement, the scheduled January 28,
2007 payment of $638,000 was made with 176,201 shares of the Company in lieu of
cash. The Company was able to acquire the remaining shares of Minera Santa Cruz
y Garibaldi S.A. de C.V. (Minera Santa Cruz), which owned 49% of the Santa
Cruz silver-gold mine, for the final option interest agreement payment of
$638,000 in January 2008, however the Company negotiated an early buy out of the
minority shareholders. In May 2007, the Company issued 1,350,000 shares of the
Company with a fair market value of $5.04 to acquire the remaining 49% of
outstanding shares in Minera Santa Cruz. The settlement price reflects the
minority shareholders earnings to date, the 2008 option payment and the
projected 2007 earnings.
The Company elected to accelerate the buy out in order to
streamline the mining operations and facilitate additional capital investments
for the mine development program.
Guanajuato Mines Project (formerly referred to as Bolanitos
Mines Project)
On February 27, 2007 the Company announced that it has
acquired the exploitation contracts to the producing Unidad Bolanitos silver
(gold) mines located in the northern parts of the Guanajuato and La
4
Endeavour Silver Corp.
Luz silver districts in the state of Guanajuato, Mexico. The
Company signed a binding initial agreement to purchase the Unidad Bolanitos
exploitation rights from Minas de la Luz SA de CV ("MdlL") for $3.4 million,
comprised of $2.4 million in cash and $1.0 million in common shares of the
Company. On April 30, 2007 the Company completed the acquisition by paying $2.4
million in cash and issuing 224,215 common shares priced at $4.46 per share.
In April 2007 the Company entered into an agreement with two
subsidiaries of Industrial Penoles S.A. de C.V. (Penoles) to purchase all of
the Guanajuato property and plant assets for 800,000 commons shares of the
Company and a share purchase warrant that gives Penoles the right to purchase an
additional 250,000 common shares at CAN$5.50 per share within a two year period.
The acquisition was completed on May 30, 2007 and the Company has a 100%
interest in the Guanajuato Mines project, free and clear of any royalties.
The Guanacevi Mines Project and the Guanajuato Mines Project
have been the primary focus of business activity for the last year with the
Guanacevi Mines Project the primary focus for the preceding 2 years - see Item
4.4 for further details.
Endeavours main short-term goal at Guanajuato is to invest in
mine exploration and development in order to access more historic reserve blocks
and increase mine production up to the 500 tpd plant capacity. The Companys
longer term goal is to invest in exploration, find new higher grade ore bodies
and, if successful, evaluate the potential for a plant expansion.
Three Year History
2009 to March 31
During the first quarter of 2009, management has focused on
providing the Company with additional financing and expanding the development of
the Guanacevi and Guanajuato mines projects.
On February 26, 2009, the Company completed CDN$14 million in
private placement financing of five year 10% subordinated unsecured,
convertible, redeemable debentures. The 10% per annum interest is payable
quarterly in arrears. At any time after the closing date and prior to maturity
date each debenture may be converted by the holder at a conversion price of
CDN$1.90 into one unit of the Company, consisting of approximately 526 of the
Companys common shares without par value and approximately 263 common share
purchase warrants. Each share purchase warrant will entitle the holder to
purchase on common share prior to the maturity date at an exercise price of
CDN$2.05. At any time after 18 months following the closing date and prior to
the maturity date, each debenture can be redeemed by the Company for cash, so
long as the volume weighted average price of the common shares on the Toronto
Stock Exchange (TSX) for a period of 30 consecutive trading days prior to the
date of the redemption notice is equal to or greater than CDN$2.85, and by
paying a 7% redemption fee to the holder. The Company signed a Trust Indenture
agreement with Computershare Trust Company of Canada providing for the issuance
of the debentures.
The net proceeds will be used to acquire mining equipment,
develop underground access to mineralized zones and upgrade certain plant
circuits at the Companys Guanacevi and Guanajuato Mines in Mexico, and for
general corporate purposes.
On March 31, 2009 the Company released updated NI 43-101
Reserve and Resource estimates as at December 31, 2008 for its active silver
mining and exploration projects in Mexico, the Guanacevi Mines Project and the
Guanajuato Mines Project.
5
Endeavour Silver Corp.
2008
During 2008, the Company continued its focus on increasing
production, increasing proven and probable reserves, and upgrading
facilities.
March 3, 2008 the Company released updated NI 43-101 Reserve
and Resource estimates as at December 31, 2007 for its three active silver
mining and exploration projects in Mexico, the Guanacevi Mines Project, the
Guanajuato Mines Project and the Parral Exploration Project, showing
significantly higher reserves and resources than at December 31, 2006 based on
the acquisition of the Guanajuato Mines Project and the results of drilling and
development undertaken during 2007.
At the Guanacevi Mines Project the Company experienced a 3%
reduction in silver production. The main factors in the slight reduction in were
lower ore grades, re-assignment of some mine personnel from production to
development and some down-time at the plant for repairs and various capital
projects. Some of the completed upgrade projects in 2008 were; mine development
of 5,048 metres, a ventilation shaft, pump station modification, leach circuit
expansion, electrical substation expansion, floatation circuit rehabilitation,
tailings dam phase 2 expansion, new silver refinery, new warehouse, new security
building and a new assay lab. During the year new zones were defined in San
Pedro which will require further drilling to develop resources.
At the Guanajuato Mines Project the Company experienced a 113%
increase in silver production. In 2008, the average silver grade has increased
due to a focus on mining higher grade material and reducing dilution in the
stopes and the average silver recovery rate has increased due to an optimization
of the plant. At the beginning of the year, the mines were operating at minimal
levels to upgrade the safety standards on the shafts and surrounding work areas.
During this rehabilitation time mine output was limited to old exposed workings.
The mines came back on stream in June and have increased mine production output
monthly since that time. Some of the completed upgrade projects in 2008 were;
mine development of 2,197 metres, shaft safety upgrades, mine equipment
rehabilitation, crushing circuit rehabilitation, new concentrate load-out, new
assay lab, new mechanics shop, tailings dam phase 2 expansion and drill
road/pad replanting of 2,000 trees. During the year there were three new
discoveries at Guanajuato; the 3785 zone, the San Jose vein and the Lucero vein.
During 2008 the Company continued to strengthen the management
team through the appointment of Dan Dickson, CA, the Companys former
Controller, as interim CFO effective March 31, 2008 and the appointment of
Richard Downes as Mine Manager of the Guanacevi Mines Project.
During the year the Company raised approximately $2.1 million
through the issuance of Special Warrants.
2007
During 2007, the Company focused primarily on increasing
production, increasing proven and probable reserves, acquiring additional mining
assets and upgrading facilities.
On April 17, 2007 the Company released the 43-101 Technical
Report Audit of the Resources and Reserve Estimates for the Guanacevi Project,
Durango, Mexico showing significantly higher reserves and resources at the
Guanacevi Mines Project based on the results of drilling and development
undertaken during 2006.
At the Guanacevi Mines Project, silver production increased 41%
over 2006 primarily due to the increase in the plant throughput as the new ball
mill was on stream and allowed a higher daily processing rate. Other improvement
completed during the year were upgrading the performance of the CCD leach,
Merrill Crowe precipitation and refinery circuits. Other capital projects
completed during the year were the lined tailings pond, underground pump
station, expansion of the plant electrical substation, widening of the
6
Endeavour Silver Corp.
Santa Cruz Mine level #6 to access the Alex Breccia zone and a
new mine camp and kitchen. The Company also expanded the mineralization at the
Porvenir mine and discovered three new mineralized zones (Alex Breccia, La
Prieta and El Pelayo).
The Company acquired the remaining 49% interest in the
Guanacevi Mines properties by entering into an agreement to acquire the
remaining 49% of the shares of Minera Santa Cruz SA de CV, through the issuance
of 1.35 million common shares with an estimated value of $6.8 million. The
Company expanded the property holdings at Guanacevi by 74% through the
acquisition of options to purchase the El Milache and San Pedro properties.
On November 27, 2007 the company acquired an option to purchase
the El Milache properties which are located along the trend of the Santa Cruz
silver vein approximately 2 kilometers northwest of the Porvenir Mine, part of
Endeavours Guanacevi Mines Project in Durango, Mexico. The Company can acquire
a 100% interest by paying $50,000 (paid) and issuing 30,000 (issued) shares upon
signing the agreement and paying $50,000 after 18 months.
On December 12, 2007 the Company acquired an option to purchase
the San Pedro properties which are located about 6 kilometers northwest of the
Companys operating Porvenir Mine, in the Guanacevi silver mining district,
Durango State, Mexico. Endeavour can earn a 100% interest by issuing 120,000
common shares and issuing 60,000 warrants to purchase 60,000 shares at $4.69
within a 1 year period and a further 570,776 shares within a 24 month period. On
signing, 120,000 common shares and 60,000 warrants were issued to the vendor.
The vendor will retain a 1% net smelter royalty on mineral production.
During the year the Company expanded its mining assets
considerably through the acquisition of the Guanajuato Mines Project through the
following transactions:
-
On February 27, 2007 Endeavour signed a binding agreement of intent to
purchase Unidad Bolanitos exploitation contracts over producing silver/gold
mines and plant in the Guanajuato and La Luz silver district, Guanajuato
State, Mexico for US$3.4 million cash and US$1.0 million of common stock of
the Company.
-
On April 30, 2007 the Company closed the acquisition of the Unidad
Bolanitos exploitation contracts for $2.4 million and 224,215 common shares,
which were valued at $4.46 per share.
-
On May 1, 2007 the Company entered into an agreement with two subsidiary
companies of Penoles to purchase all of the Guanajuato property and plant
assets for 800,000 common shares of the Company and a share purchase warrant
that gives Penoles the right to purchase an additional 250,000 common shares
at CA$5.50 per share for a two year period.
-
On May 30, 2007 the Company closed the acquisition of a 100% interest in
the Guanajuato Mines Project (formerly referred to as Bolanitos) property and
plant assets, free and clear of any royalties, for 800,000 common shares of
the Company, which were valued at $4.84 per share, and a share purchase
warrant that gives Penoles the right to purchase an additional 250,000 common
shares at CA$5.50 per share for a two year period.
Upon acquisition of the Guanajuato Mines Project, the Company
commenced mine exploration and underground rehabilitation programs to access and
sample historic block reserves. By the end of the year the Company had completed
phase 1 tailings pond expansion, Cebada level 315 cleanup, Cebada level 51
cleanup and Ascuncion mine dewatering.
The Company also focused on strengthening its management team
through the year and David Howe, M.Sc. Mining Geology was appointed as Vice
President, Mexico Operations, Fernand Rondeau was appointed Mine Manager of
the Guanajuato Mines Project, Nelson Pena was appointed Senior Engineer Mine
Planning, Miguel Lampson was appointed Chief Mine Geologist of the Guanajuato
Mines Project and Francisco Gameros was appointed Financial Controller of Endeavours
Mexican operations Mr. Barry Devlin, M.Sc.,P.Geo. joined the Company as the
new Vice President, Exploration .
7
Endeavour Silver Corp.
On January 29, 2007 the Companys common shares commenced
trading on the NYSE Alternext U.S., formerly known as the American Stock
Exchange, under the symbol EXK and on June 14, 2007 Endeavour expanded and
strengthened the Board of Directors with the appointment of Rex McLennan.
During the year the Company raised approximately $10 million
through the exercise of warrants and options of the Company.
2006
During January 2006 the Company completed the acquisition of
51% of the Guanacevi Mines Project mining assets and processing plant through
payments totaling $1 million and then in July 2006 acquired the remaining 49% of
the processing plant for $2.2 million comprised of cash and units of the
Company.
During the year ended December 31, 2006, the Company focused on
boosting ore production from the Porvenir Mine, within the Guanacevi Mines
Project, and silver production at the Guanacevi plant. Silver mining grade
increased 17%, recoveries increased 7% and silver production increased by 43% as
compared to 2005. The mill was expanded from an average process rate of 420 ton
per day to 800 tons per day at the end of 2006 through the installation of a
larger ball mill.
Other mine, mill and development projects during the year
included; drove 6,800 metres of underground ramps, sills and raises, purchased 6
new scoops and ordered two new jumbo drills, built 2 new underground electrical
substations, refurbished the mine offices, built a new electrical substation at
the mill and upgraded the plant laboratory.
The Company also acquired exploration properties during 2006.
On August 10, 2006 Endeavour acquired options to purchase La Aurora and El
Cometa properties in the Parral district, Chihuahua State, Mexico for $913,000
cash payable over 3 years and on October 24, 2006 Endeavour purchased the Arroyo
Seco property in the south east Michoacan State, Mexico from Servicio Geológico
Mexicano (The Mexican Geological Survey) for $229,000 payable over 2 years plus
1% NSR production royalty.
On February 7, 2006, the shares of the Company were listed for
trading on the Toronto Stock Exchange under the symbol EDR. Previously its
shares were listed on the TSX Venture Exchange and on May 9, 2006 Endeavour
expanded and strengthened the Board of Directors through the appointment of
Geoff Handley.
During the year the Company raised approximately CDN$32 million
through private placements and warrant exercises of the Company.
3.2 Significant
Acquisitions
No significant acquisitions for which disclosure is required
under Part 8 of National Instrument 51-102 were completed by the Company during
its most recently completed financial year.
8
Endeavour Silver Corp.
ITEM 4:
DESCRIPTION OF THE BUSINESS
4.1 General
Description
The Business of the Company
The Companys principal business activities are the evaluation,
acquisition, exploration, development and exploitation of mineral properties.
The Company produces silver-gold from its underground mines at Guanacevi and
Guanajuato in Mexico.
Previously the Company focused its activities principally in
Canada, but by the end of fiscal 2004 it had relinquished its remaining Canadian
property and was active in seeking properties of merit in Mexico. This
culminated in the Company entering into formal option agreements to acquire up
to a 100% interest in the producing Santa Cruz silver-gold mine, certain other
mining concessions and the Guanacevi mineral processing plant (collectively, the
Guanacevi Mines Project) in Durango, Mexico. The acquisitions of the
silver-gold mine and the processing plant has allowed the Company to become a
primary silver producer, as well as to transform the Company from a mineral
exploration company to an operating mining company.
Number of Employees
The Company has approximately 675 full and part-time employees.
4.2 Risk Factors
The Companys ability to generate revenues and profits from its
mineral properties, or any other mineral property it may acquire, is dependent
upon a number of factors, including, without limitation, the following risk
factors.
Precious and Base Metal Price Fluctuations
The profitability of the precious and base metal operations in which
the Company has an interest will be significantly affected by changes in the
market prices of precious and base metals. Prices for precious and base metals
fluctuate on a daily basis, have historically been subject to wide fluctuations
and are affected by numerous factors beyond the control of the Company such as
the level of interest rates, the rate of inflation, central bank transactions,
world supply of the precious and base metals, foreign currency exchange rates,
international investments, monetary systems, speculative activities,
international economic conditions and political developments. The exact effect
of these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving adequate returns on invested
capital or the investments retaining their respective values. Declining market
prices for these metals could materially adversely affect the Companys
operations and profitability.
Passive Foreign Investment Company Consequences
The Company has not made a determination as to whether it is
considered a passive foreign investment company (a PFIC) as such term is
defined in the U.S. Internal Revenue Code of 1986, as amended (the Code), for
U.S. federal income tax purposes for the current tax year and any prior tax
years. A non-U.S. corporation generally will be considered a PFIC for any
taxable year if either (1) at least 75% of its gross income is passive income or
(2) at least 50% of the value of its assets (based on an average of the
quarterly values of the assets during a taxable year) is attributable to assets
that produce or are held for the production of passive income.
In general, if the Company is or becomes a PFIC, any gain
recognized on the sale of securities and any excess distributions (as
specifically defined in the Code) paid on the securities must be ratably
allocated to each day in a U.S. taxpayers holding period for the securities.
The amount of any such gain or excess distribution allocated to prior years of
such U.S. taxpayers holding period for the securities generally will
9
Endeavour Silver Corp.
be subject to U.S. federal income tax at the highest tax
applicable to ordinary income in each such prior year, and the U.S. taxpayer
will be required to pay interest on the resulting tax liability for each such
prior year, calculated as if such tax liability had been due in each such prior
year.
Fluctuations in the price of consumed commodities
Prices and availability of commodities consumed or used in
connection with exploration, development and mining, such as natural gas,
diesel, oil, electricity, cyanide and other reagents fluctuate affecting the
costs of production at our operations. These fluctuations can be unpredictable,
can occur over short periods of time and may have a materially adverse impact on
our operating costs or the timing and costs of various projects. Our general
policy is not to hedge our exposure to changes in prices of the commodities we
use in our business.
Competitive Conditions
Significant
competition exists for natural resource acquisition opportunities. As a result
of this competition, some of which is with large, well established mining
companies with substantial capabilities and significant financial and technical
resources, the Company may be unable to either compete for or acquire rights to
exploit additional attractive mining properties on terms it considers
acceptable. Accordingly, there can be no assurance that the Company will be able
to acquire any interest in additional projects that would yield reserves or
results for commercial mining operations.
Operating Hazards and Risks
Mining operations
generally involve a high degree of risk, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. These risks
include, but are not limited to, the following; environmental hazards,
industrial accidents, third party accidents, unusual or unexpected geological
structures or formations, fires, power outages, labour disruptions, floods,
explosions, cave-ins, land-slides, acts of God, periodic interruptions due to
inclement or hazardous weather conditions, earthquakes, war, rebellion,
revolution, delays in transportation, inaccessibility to property, restrictions
of courts and/or government authorities, other restrictive matters beyond the
reasonable control of the Company, and the inability to obtain suitable or
adequate machinery, equipment or labour and other risks involved in the
operation of mines.
Operations in which the Company has a direct or indirect
interest will be subject to all the hazards and risks normally incidental to
exploration, development and production of precious and base metals, any of
which could result in work stoppages, delayed production and resultant losses,
increased production costs, asset write downs, damage to or destruction of mines
and other producing facilities, damage to life and property, environmental
damage and possible legal liability for any or all damages. The Company may
become subject to liability for pollution, cave-ins or hazards against which it
cannot insure or against which it may elect not to insure. Any compensation for
such liabilities may have a material, adverse effect on the Companys financial
position.
Our property, business interruption and liability insurance may
not provide sufficient coverage for losses related to these or other hazards.
Insurance against certain risks, including certain liabilities for environmental
pollution, may not be available to us or to other companies within the industry
at reasonable terms or at all. In addition, our insurance coverage may not
continue to be available at economically feasible premiums, or at all. Any such
event could have a material adverse affect on our business.
Exploration and Development
There is no
assurance given by the Company that its exploration and development programs and
properties will result in the discovery, development or production of a
commercially viable ore body or yield new reserves to replace or expand current
reserves.
The business of exploration for minerals and mining involves
a high degree of risk. Few properties that are explored are ultimately developed
into producing mines. At this time, apart from the mineral reserves on the Companys
Guanacevi Mines Project and Guanajuato Mines Project, none of the Companys
properties have any defined ore-bodies with proven reserves.
10
Endeavour Silver Corp.
The economics of developing silver, gold and other mineral
properties are affected by many factors including capital and operating costs,
variations of the tonnage and grade of ore mined, fluctuating mineral markets,
and such other factors as government regulations, including regulations relating
to royalties, allowable production, importing and exporting of minerals and
environmental protection. Depending on the prices of silver, gold or other
minerals produced, the Company may determine that it is impractical to commence
or continue commercial production. Substantial expenditures are required to
discover an ore-body, to establish reserves, to identify the appropriate
metallurgical processes to extract metal from ore, and to develop the mining and
processing facilities and infrastructure. The marketability of any minerals
acquired or discovered may be affected by numerous factors which are beyond the
Companys control and which cannot be accurately foreseen or predicted, such as
market fluctuations, conditions for precious and base metals, the proximity and
capacity of milling and smelting facilities, and such other factors as
government regulations, including regulations relating to royalties, allowable
production, importing and exporting minerals and environmental protection. In
order to commence exploitation of certain properties presently held under
exploration concessions, it is necessary for the Company to apply for an
exploitation concession. There can be no guarantee that such a concession will
be granted. Unsuccessful exploration or development programs could have a
material adverse impact on the Companys operations and profitability.
Calculation of Reserves and Resources and Precious Metal
Recoveries
There is a degree of uncertainty attributable to the
calculation and estimates of reserves and resources and their corresponding
metal grades to be mined and recovered. Until reserves or resources are actually
mined and processed, the quantities of mineralization and metal grades must be
considered as estimates only. Any material change in the quantity of mineral
reserves, mineral resources, grades and recoveries may affect the economic
viability of the Companys properties.
Government Regulation
The Companys
operations, exploration and development activities are subject to extensive
foreign federal, state and local laws and regulations governing such matters as
environmental protection, management and use of toxic substances and explosives,
management of natural resources, health, exploration and development of mines,
production and post-closure reclamation, safety and labour, mining law reform,
price controls import and export laws, taxation, maintenance of claims, tenure,
government royalties and expropriation of property. There is no assurance that
future changes in such regulation, if any, will not adversely affect the
Companys operations. The activities of the Company require licenses and permits
from various governmental authorities.
The costs associated with compliance with these laws and
regulations are substantial and possible future laws and regulations, changes to
existing laws and regulations and more stringent enforcement of current laws and
regulations by governmental authorities, could cause additional expenses,
capital expenditures, restrictions on or suspensions of the Companys operations
and delays in the development of its properties. Moreover, these laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety practices of the Companys past and current
operations, or possibly even those actions of parties from whom the Company
acquired its mines or properties, and could lead to the imposition of
substantial fines, penalties or other civil or criminal sanctions. The Company
retains competent and well trained individuals and consultants in jurisdictions
in which it does business, however, even with the application of considerable
skill the Company may inadvertently fail to comply with certain laws. Such
events can lead to financial restatements, fines, penalties, and other material
negative impacts on the Company.
11
Endeavour Silver Corp.
Obtaining and Renewing of Government Permits
In the ordinary course of business, the Company is required to
obtain and renew government permits for the operation and expansion of existing
operations or for the development, construction and commencement of new
operations. Obtaining or renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions and possibly
involving public hearings and costly undertakings on the Companys part. The
duration and success of the Companys efforts to obtain and renew permits are
contingent upon many variables not within its control including the
interpretation of applicable requirements implemented by the permitting
authority. The Company may not be able to obtain or renew permits that are
necessary to its operations, or the cost to obtain or renew permits may exceed
what the Company believes it can recover from a given property once in
production. Any unexpected delays or costs associated with the permitting
process could delay the development or impede the operation of a mine, which
could adversely impact the Companys operations and profitability.
Environmental Factors
All phases of the
Companys operations are subject to environmental regulation in the various
jurisdictions in which it operates. Environmental legislation is evolving in a
manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. There is no assurance that any future
changes in environmental regulation, will not adversely affect the Companys
operations. The costs of compliance with changes in government regulations have
the potential to reduce the profitability of future operations. Environmental
hazards that may have been caused by previous or existing owners or operators
may exist on the Companys mineral properties, but are unknown to the Company at
the present.
Title to Assets
Although the Company has or
will receive title opinions for any properties in which it has a material
interest, there is no guarantee that title to such properties will not be
challenged or impugned. The Company has not conducted surveys of the claims in
which it holds direct or indirect interests and, therefore, the precise area and
location of such claims may be in doubt. The Companys claims may be subject to
prior unregistered agreements or transfers or native land claims and title may
be affected by unidentified or unknown defects. The Company has conducted as
thorough an investigation as possible on the title of properties that it has
acquired or will be acquiring to be certain that there are no other claims or
agreements that could affect its title to the concessions or claims. If title to
the Companys properties is disputed it may result in the Company paying
substantial costs to settle the dispute or clear title and could result in the
loss of the property, which events may affect the economic viability of the
Company.
Uncertainty of Funding
The Company has
limited financial resources, and the mineral claims in which the Company has an
interest or an option to acquire an interest require financial expenditures to
be made by the Company. There can be no assurance that adequate funding will be
available to the Company so as to exercise its option or to maintain its
interests once those options have been exercised. Further exploration work and
development of the properties in which the Company has an interest or option to
acquire depend upon the Companys ability to obtain financing through joint
venturing of projects, debt financing or equity financing or other means.
Failure to obtain financing on a timely basis could cause the Company to forfeit
all or parts of its interests in mineral properties or reduce or terminate its
operations.
Agreements with Other Parties
The Company has
entered into agreements with other parties relating to the exploration,
development and production of its properties.
12
Endeavour Silver Corp.
The Company may, in the future, be unable to meet its share of
costs incurred under agreements to which it is a party, and the Company may have
its interest in the properties subject to such agreements reduced as a result.
Furthermore, if other parties to such agreements do not meet their share of such
costs, the Company may be unable to finance the costs required to complete
recommended programs.
Employee Recruitment, Retention and Human Error
Recruiting and retaining qualified personnel is critical to the
Companys success. The Company is dependent on the services of key executives
including the Companys President and Chief Executive Officer and other highly
skilled and experienced executives and personnel focused on managing the
Companys interests. The number of persons skilled in acquisition, exploration,
development and operation of mining properties are limited and competition for
such persons is intense. As the Companys business activity grows, the Company
will require additional key financial, administrative and mining personnel as
well as additional operations staff. We could experience increases in our
recruiting and training costs and decreases in our operating efficiency,
productivity and profit margins. If we are not able to attract, hire and retain
qualified personnel, the efficiency of our operations could be impaired, which
could have an adverse impact on the Companys future cash flows, earnings,
results of operations and financial condition.
Potential Conflicts of Interest
The directors
and officers of the Company may serve as directors and/or officers of other
public and private companies, and may devote a portion of their time to manage
other business interests. This may result in certain conflicts of interest. To
the extent that such other companies may participate in ventures in which the
Company is also participating, such directors and officers of the Company may
have a conflict of interest in negotiating and reaching an agreement with
respect to the extent of each companys participation. The laws of British
Columbia, Canada, require the directors and officers to act honestly, in good
faith, and in the best interests of the Company and its shareholders. However,
in conflict of interest situations, directors and officers of the Company may
owe the same duty to another company and will need to balance the competing
obligations and liabilities of their actions.
There is no assurance that the needs of the Company will
receive priority in all cases. From time to time, several companies may
participate together in the acquisition, exploration and development of natural
resource properties, thereby allowing these companies to: (i) participate in
larger properties and programs; (ii) acquire an interest in a greater number of
properties and programs; and (iii) reduce their financial exposure to any one
property or program. A particular company may assign, at its cost, all or a
portion of its interests in a particular program to another affiliated company
due to the financial position of the company making the assignment. In
determining whether or not the Company will participate in a particular program
and the interest therein to be acquired by it, it is expected that the directors
and officers of the Company will primarily consider the degree of risk to which
the Company may be exposed and its financial position at that time.
Foreign Countries and Regulatory Requirements
The Companys mining and exploration properties are located in
Mexico, and mineral exploration and mining activities may be affected in varying
degrees by political stability and government regulations relating to the mining
industry. Any changes in regulations or shifts in political attitudes may vary
from country to country and are beyond the control of the Company and may
adversely affect its business. Operations may be affected in varying degrees by
government regulations with respect to restrictions on production, price
controls, export controls, income and other taxes and duties, expropriation of
property, environmental legislation and mine safety. These uncertainties may
make it more difficult for the Company to obtain any required production
financing for its mineral properties.
Foreign Operations
The majority of the Companys current operations are conducted
by its subsidiaries in, and all of the Companys current production and
revenue is derived from its operations in, Mexico. As the Companys business
is carried on in a foreign country, it is exposed to a number of risks and uncertainties
including; labour unrest, high rates of inflation, changes to tax regimes, extreme
fluctuations in currency exchange rates and difficulty obtaining key equipment
and components for equipment.
13
Endeavour Silver Corp.
Third Party Reliance
The Companys rights to
acquire interests in certain mineral properties have been granted by third
parties who themselves may hold only an option to acquire such properties. As a
result, the Company may have no direct contractual relationship with the
underlying property holder.
Absolute Assurance on Financial Statements
We
prepare our financial reports in accordance with accounting policies and methods
prescribed by Canadian generally accepted accounting principles. In the
preparation of financial reports, management may need to rely upon assumptions,
make estimates or use their best judgment in determining the financial condition
of the Company. Significant accounting details are described in more detail in
the notes to our annual consolidated financial statements for the year ended
December 31, 2008. In order to have a reasonable level of assurance that
financial transactions are properly authorized, assets are safeguarded against
unauthorized or improper use and transactions are properly recorded and
reported, we have implemented and continue to analyze our internal control
systems for financial reporting. Although we believe our financial reporting and
financial statements are prepared with reasonable safeguards to ensure
reliability, we cannot provide absolute assurance in that regard.
General economic conditions
The recent
unprecedented events in global financial markets have had a profound effect on
the global economy. Many industries, including the gold and silver mining
industry, are affected by these market conditions. Some of the key effects of
the current financial market turmoil include contraction in credit markets
resulting in a widening of credit risk, devaluations and high volatility in
global equity, commodity, foreign exchange and precious metal markets, and a
lack of market liquidity. A continued or worsened slowdown in the financial
markets or other economic conditions, including but not limited to, consumer
spending, employment rates, business conditions, inflation, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect the
Companys growth and profitability. Specifically:
-
the global credit/liquidity crisis could affect the cost and availability
of financing and our overall liquidity;
-
the volatility of gold and silver prices affects our revenues, profits and
cash flow;
-
volatile energy prices, commodity and consumables prices and currency
exchange rates affect our production costs; and
-
the devaluation and volatility of global stock markets affects the
valuation of our equity securities.
These factors could have a material adverse effect on the
Companys financial condition and results of operations.
Recent market events and conditions
In 2007
and into 2008, the U.S. credit markets began to experience serious disruption
due to a deterioration in residential property values, defaults and
delinquencies in the residential mortgage market (particularly, sub-prime and
non-prime mortgages) and a decline in the credit quality of mortgage backed
securities. These problems led to a slow-down in residential housing market
transactions, declining housing prices, delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence. These conditions continued
and worsened in 2008, causing a loss of confidence in the broader U.S. and
global credit and financial markets and resulting in the collapse of, and
government intervention in, major banks, financial institutions and insurers and
creating a climate of greater volatility, less
14
Endeavour Silver Corp.
liquidity, widening of credit spreads, a lack of price
transparency, increased credit losses and tighter credit conditions. In
addition, general economic indicators have deteriorated, including declining
consumer sentiment, increased unemployment and declining economic growth and
uncertainty about corporate earnings.
These unprecedented disruptions in the current credit and
financial markets have had a significant material adverse effect on a number of
financial institutions and have limited access to capital and credit for many
companies. These disruptions could, among other things, make it more difficult
for the Company to obtain, or increase its cost of obtaining, capital and
financing for its operations. The Companys access to additional capital may not
be available on terms acceptable to it or at all.
Substantial Volatility of Share Price
In
recent years, the securities markets in the United States and Canada have
experienced a high level of price and volume volatility, and the market price of
securities of many mineral exploration companies have experienced wide
fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. The price
of the Companys common shares is also likely to be significantly affected by
short-term changes in mineral prices or in the Companys financial condition or
results of operations as reflected in its quarterly financial reports. Other
factors unrelated to the Companys performance that may have an effect on the
price of its common shares include the following: the extent of analytical
coverage available to investors concerning the Companys business may be limited
if investment banks with research capabilities do not follow the Companys
securities; lessening in trading volume and general market interest in the
Companys securities may affect an investors ability to trade significant
numbers of the Companys common shares; the size of the Companys public float
may limit the ability of some institutions to invest in the Companys
securities; and a substantial decline in the price of the Companys common
shares that persists for a significant period of time could cause the Companys
securities to be delisted from the Toronto Stock Exchange and NYSE Amex, further
reducing market liquidity.
Differences in U.S. and Canadian reporting of reserves
and resources
The Companys reserve and resource estimates are not
directly comparable to those made in filings subject to SEC reporting and
disclosure requirements, as the Company generally reports reserves and resources
in accordance with Canadian practices. These practices are different from those
used to report reserve and resource estimates in reports and other materials
filed with the SEC. It is Canadian practice to report measured, indicated and
inferred resources, which are not permitted in disclosure filed with the SEC by
United States issuers. In the United States, mineralization may not be
classified as a "reserve" unless the determination has been made that the
mineralization could be economically and legally produced or extracted at the
time the reserve determination is made. United States investors are cautioned
not to assume that all or any part of measured or indicated resources will ever
be converted into reserves.
Further, "inferred resources" have a great amount of
uncertainty as to their existence and as to whether they can be mined legally or
economically. Disclosure of "contained ounces" is permitted disclosure under
Canadian regulations; however, the SEC permits issuers to report "resources"
only as in-place tonnage and grade without reference to unit of metal measures.
Accordingly, information concerning descriptions of
mineralization, reserves and resources contained in this MD&A, or in the
documents incorporated herein by reference, may not be comparable to information
made public by United States companies subject to the reporting and disclosure
requirements of the SEC.
Adequacy of internal control over financial reporting as
per the requirements of the U.S. Sarbanes-Oxley Act
The Company
documented and tested during its most recent fiscal year, its internal control
procedures in order to satisfy the requirements of Section 404 of the U.S.
Sarbanes-Oxley Act ("SOX"). SOX requires an annual assessment by management of
the effectiveness of the Companys internal control over financial reporting and
an attestation report by the Companys independent auditors addressing this
15
Endeavour Silver Corp.
assessment. The Company may fail to achieve and maintain the
adequacy of its internal control over financial reporting as such standards are
modified, supplemented, or amended from time to time, and the Company may not be
able to ensure that it can conclude on an ongoing basis that it has effective
internal control over financial reporting in accordance with Section 404 of SOX.
The Companys failure to satisfy the requirements of Section 404 of SOX on an
ongoing, timely basis could result in the loss of investor confidence in the
reliability of its financial statements, which in turn could harm the Companys
business and negatively affect the trading price of its common shares or market
value of its other securities. In addition, any failure to implement required
new or improved controls, or difficulties encountered in their implementation,
could harm the Companys operating results or cause it to fail to meet its
reporting obligations. Future acquisitions of companies may provide the Company
with challenges in implementing the required processes, procedures and controls
in its acquired operations. Acquired companies may not have disclosure controls
and procedures or internal control over financial reporting that are as thorough
or effective as those required by securities laws currently applicable to the
Company.
No evaluation can provide complete assurance that the Companys
internal control over financial reporting will detect or uncover all failures of
persons within the Company to disclose material information required to be
reported. The effectiveness of the Companys control and procedures could also
be limited by simple errors or faulty judgments. In addition, as the Company
continues to expand, the challenges involved in implementing appropriate
internal control over financial reporting will increase and will require that
the Company continue to improve its internal control over financial reporting.
Although the Company intends to devote substantial time and incur substantial
costs, as necessary, to ensure ongoing compliance, the Company cannot be certain
that it will be successful in complying with Section 404 of SOX.
Potential dilution of present and prospective
shareholdings
In order to finance future operations and development
efforts, the Company may raise funds through the issue of common shares or the
issue of securities convertible into common shares. The Company cannot predict
the size of future issues of common shares or the issue of securities
convertible into common shares or the effect, if any, that future issues and
sales of the Companys common shares will have on the market price of its common
shares. Any transaction involving the issue of previously authorized but
unissued shares, or securities convertible into shares, would result in
dilution, possibly substantial, to present and prospective holders of shares.
Lack of Dividends
No dividends on the
Companys common shares have been paid to date. The Company currently plans to
retain all future earnings and other cash resources, if any, for the future
operation and development of its business. Payment of any future dividends, if
any, will be at the discretion of the Board of Directors after taking into
account many factors, including the Companys operating results, financial
condition, and current and anticipated cash needs.
Future Sales of Common Shares by Existing Shareholders
Sales of a large number of the Companys common shares in the public
markets, or the potential for such sales, could decrease the trading price of
the common shares and could impair the Companys ability to raise capital
through future sales of common shares.
Claims Under U.S. Securities Laws
The enforcement by investors of civil liabilities under the federal
securities laws of the United States may be affected adversely by the fact that
the Company is incorporated under the laws of British Columbia, Canada, that
the independent registered chartered accountants who have audited the Companys
financial statements and some or all of the Companys directors and officers
may be residents of Canada or elsewhere, and that all or a substantial portion
of the Companys assets and said persons are located outside the United
States. As a result, it may be difficult for holders of the Companys common
shares to effect service of process within the United States upon people who
are not residents of the United States or to realize in the United States upon
judgments of courts of the United States predicated upon civil liabilities under
the federal securities laws of the United States
16
Endeavour Silver Corp.
4.3 Asset-Backed
Securities Outstanding
The Company has not issued any asset-backed securities.
4.4 Mineral
Projects
To satisfy the reporting requirements of National Instrument
51-102F2 with respect to the Companys mineral projects, the Company has opted,
as allowed by the Instrument, to reproduce the summaries from the technical
reports on the respective material properties.
Guanacevi Mines Project, Durango State,
Mexico
The Santa Cruz Mine and Guanacevi Plant, plus related mineral
properties (including some properties in the area acquired subsequent to the
initial agreements) being, together the Guanacevi Mines Project, are the subject
to the following most recent technical report presumed by management to be
compliant with National Instrument 43-101 (NI 43-101):
Audit of the Resource and Reserve Estimates for the
Guanacevi Project, Durango State, Mexico dated March 18, 2009. The
Qualified Persons who completed the audit of the reserves and resources are
Robert J. Leader, P.Eng., William Lewis, P.Geo., and Dibya Kanti Mukhopadhyay,
MAusIMM, of Micon International. The report was filed on Sedar on March 31,
2009.
The following summary is extracted from a technical report
titled Audit of the Resource and Reserve Estimates for the Guanacevi
Project, Durango State, Mexico prepared by William J. Lewis, BSc., P.Geo.,
Charley Murahwi, M.Sc., P.Geo, MAusIMM, Robert J. Leader, P. Eng. and Dibya
Kanti Mukhopadhyay, MAusIMM of Micon International Limited and dated March 18.
The complete report can be viewed on SEDAR at www.sedar.com. The detailed
disclosure contained in the abovementioned report is incorporated by reference
into this AIF.
Endeavour Silver Corp. (Endeavour Silver) has retained Micon
International Limited (Micon) to conduct an audit of the updated resource and
reserve estimate for its Guanaceví Mines project, located near the town of
Guanaceví in the northwest part of the State of Durango in Mexico. This
Technical Report constitutes an audit of the December 31, 2008 mineral resource
and reserve estimate conducted on the property by Endeavour Silver. The audit
was performed to ensure that the mineral resources and reserves comply with the
Canadian Institute of Mining, Metallurgy and Petroleum (CIM) standards and
definitions referred to in Canadian National Instrument 43-101 (NI 43-101).
An earlier resource and reserve estimate was the subject of
an April, 2008 NI 43-101 Technical Report conducted in-house by Endeavour
Silver. The Micon audit incorporates the exploration data gathered since the
publication of the April, 2008 report. The April, 2008 Endeavour Silver
Technical Report was posted on the System for Electronic Document Analysis and
Retrieval (SEDAR). SEDAR is the filing system developed for the Canadian
Securities Administrators (CSA).
Property Description
The Guanaceví Mines project is located within the Municipality
of Guanaceví in the State of Durango, Mexico near its northern border with
the state of Chihuahua. The property is accessed by travelling from the city
of Durango located 320 kilometres southeast. Durango has a modern airport with
daily flights to and from Mexico City and portions of the United States. The
Guanaceví Mines project is located on the edge of the Sierra Madre, a series
of rugged mountains with higher points reaching 3,300 metres above sea level.
The Guanaceví Mines project is located at approximately 105°58'20"W
longitude and 25°54'47"N latitude.
17
Endeavour Silver Corp.
The Guanaceví mining district covers an area measuring
approximately 5 km northeast -southwest by 10 km northwest - southeast and contains
more than 50 silver/gold mines. Although only three of the mines are presently
operating, there is considerable mining experience available in the area.
Ownership
Endeavour Silver holds the Guanaceví Mines project through
its 100% owned Mexican subsidiary Endeavour Gold Corporation S.A. de C.V.
(Endeavour Gold). Endeavour Gold holds the project through its two 100% owned
subsidiaries Minera Plata Adelante S.A. de C.V. (Minera Plata Adelante) and
Refinadora Plata Guanaceví S.A. de C.V. (Refinadora Plata Guanaceví). At
present, the project is comprised of 36 mineral concessions. The mineral
concessions are not all contiguous and vary in size, for a total property area
of 998 ha. The annual 2009 concession tax for the Guanaceví properties is
approximately 175,732 Mexican pesos, which is equal to about US$11,539 at an
exchange rate of 15.23 pesos to US$1.00 dollar.
Since Micon Technical Report was published on SEDAR in 2007,
the most significant material change to the various agreements are as
follows.
Under the option interest agreement, the scheduled January
28, 2007 payment of $638,000 was made with 176,201 shares of Endeavour Silver in
lieu of cash. Endeavour Silver was able to acquire the remaining shares of
Minera Santa Cruz y Garibaldi S.A. de C.V. (Minera Santa Cruz), which owned 49%
of the Santa Cruz silver-gold mine, for the final option interest agreement
payment of $638,000 in January, 2008; however, Endeavour Silver negotiated an
early buy-out of the minority shareholders. In May, 2007, Endeavour Silver
issued 1,350,000 shares of the Company with a fair market value of US$5.04 per
share to acquire the remaining 49% of outstanding shares in Minera Santa Cruz.
The settlement price reflects the minority shareholders earnings to date, the
2008 option payment and the projected 2007 earnings.
During 2007, Endeavour Silver also made two new
acquisitions, Milache and San Pedro, both located in the San Pedro sub-district
of the Guanaceví mining district. In addition to the concessions already held
(San Pedro Uno and La Sultana), Endeavour now controls approximately 456
hectares in the San Pedro area. In February, 2009, Endeavour Silver acquired the
Porvenir Cuatro and La Brisa concessions totalling approximately 55 hectares.
The Porvenir Cuatro and La Brisa agreement is an option to earn 100% of these
properties over two years for a total consideration of US$700,000. The first
payment is US$100,000 cash on signing and US$200,000 in shares based on the 10
day average price before the signing date of Febraury 9, 2009. The subsequent
payments are 12 months from signing with US$240,000 as shares again based on the
average price 10 days prior to February 9, 2010. The final payment is due on or
before February 9, 2011 and consists of a payment of US$160,000 either as cash
or shares.
Endeavour Silver can acquire a 100% interest in the El
Milache properties by paying US$50,000 and issuing 30,000 shares upon signing
the option-to-purchase agreement and paying US$50,000 after 18 months. Endeavour
Silver can earn a 100% interest in the San Pedro properties by issuing 120,000
common shares and issuing 60,000 warrants to purchase 60,000 shares at $4.69
within a 1 year period and a further 570,776 shares within a 24 month period. On
signing, 120,000 common shares and 60,000 warrants were issued to the vendor.
The vendor will retain a 1% net smelter royalty on mineral production.
18
Endeavour Silver Corp.
Geology and Mineralization
The Guanaceví mineral deposits occur as an epithermal low
sulphidation, quartz-carbonate, fracture-filling, vein hosted by a structure
that trends approximately N45°W and dips 55° southwest. The fault and vein
comprise a structural system referred to locally as the Santa Cruz vein
structure or Santa Cruz vein fault. The Santa Cruz vein itself has been traced
for 5 kilometres along the trend and averages approximately 3.0 m in width.
High-grade mineralization in the system is not continuous, but occurs in steeply
northwest-raking shoots up to 200 m in strike-length. A second vein is located
sub-parallel and subjacent (located in the footwall) to the Santa Cruz vein but
is less continuous. The footwall vein is economically significant in the
Porvenir Dos zone and in the northern portion of deep North Porvenir.
The Santa Cruz vein is a silver-rich structure with lesser
amounts of gold, lead and zinc. Based on historic production, mineralization has
averaged 500 grams per tonne (g/t) silver and 1 g/t gold over 3 m true width.
The minerals encountered are argentite-acanthite with limited gold, galena,
sphalerite, pyrite and manganese oxides. Gangue minerals noted are barite,
rhodonite, rhodochrosite, calcite, fluorite and quartz. The mineralization down
to Level 6 in the Santa Cruz mine is mainly oxidized with a transition zone of
oxides to sulphides occurring between Levels 6 to 8, although sulphide ore was
mined above Level 6. Mineralization exhibits evidence of episodic hydrothermal
events which generated finely banded textures. High-grade mineralization in the
district is commonly associated with multiple phases of banding and brecciation.
In the Porvenir Dos area and in the deeper portion of North Porvenir, a
footwall-hosted vein is associated with the Santa Cruz vein structure. In both
areas, this footwall vein is either within Guanaceví Formation footwall rocks or
is at the structural contact between the Guanaceví Formation and Lower Volcanic
Sequence andesite. It is banded to brecciated quartz plus carbonate and contains
local scatterings (< 1%) of sulphides (pyrite>sphalerite
>galena>chalcopyrite) and rare pods (< 50 cm) of sulphides.
Exploration
Exploration data for the Guanaceví Mines project are kept on
file at both the project geological/engineering and exploration offices. The
data are also on file at Endeavours exploration administration office,
currently located in the city of Durango in the state of Durango. The data
handling system includes a Microsoft Excel database, ACAD drafting software and
Mapteks Vulcan deposit modeling software.
During 2008, Endeavour completed 18,483 m in 89 surface and
underground drill holes at the Guanaceví Mines project. A total of 10,437
samples were also collected and submitted for assay. The exploration efforts are
beginning to yeild fruit as evidenced by the significant increase in the mineral
resource base.
Reserve and Resource Estimation
An earlier Resource and Reserve estimate was the subject of
an April 16, 2007 NI 43-101 Technical Report conducted by Micon. An updated
Reserve and Resource estimation was prepared by Endeavour staff using updated
data and 3-D modeling techniques utilizing the Vulcan software and this was the
subject of an April 15, 2008 Technical Report prepared by Endeavour Silver staff
This present repor incorporates data gathered since the publication of the
Endeavour Silver 2008 Technical Report and discusses any changes in the
estimation methodologies.
In-situ, diluted, recoverable Proven and Probable Reserves
are summarized in Table 1.1. For Proven Reserves, tonnage and grades are based
on the channel sample data only. Probable Reserves are estimated using both
channel samples and drill hole intercepts included in the current mine plan.
Dilution was estimated using parameters for wall rock dilution as well as additional
mining and mucking dilution. Dilution grades are assumed to be the same for
wall rock and additional mining dilution. Ore losses were estimated using parameters
similar to those outlined in the Micon Technical Report dated April 16, 2007.
The Proven and Probable Reserves represent only those portions of the deposits
for which Endeavour has a mine plan in place at the Porvenir mine. The tonnages
in Table 1.1 include a combination of both dilution and ore losses and can be
considered as estimates of the extractable or recoverable Reserves.
19
Endeavour Silver Corp.
At a cut-off grade of 270 g/t silver, the total remaining
Proven and Probable mineral Reserve is 535,000 tonnes at a grade of 353 g/t
silver and 0.49 g/t gold containing an estimated 6,070,500 oz of silver and
8,400 oz of gold.
Table 0.1
Proven and Probable Reserves
for the Guanaceví Mines Project as of December 31, 2008 (Cut-off Grade 270 g/t
Silver)
Reserves |
Diluted
Recoverable Tonnes & Grade |
Tonnes
|
Silver
(g/t) |
Gold
(g/t) |
Ounces
Ag |
Ounces
Au |
Proven |
|
|
|
|
|
Porvenir Mine |
57,000 |
361
|
0.49
|
661,300 |
900
|
Total Proven |
57,000 |
361 |
0.49 |
661,300 |
900 |
Probable |
|
|
|
|
|
Porvenir Mine |
478,000 |
352
|
0.49
|
5,409,200 |
7,500 |
Total Probable |
478,000 |
352 |
0.49 |
5,409,200 |
7,500 |
Total Proven + Probable |
535,000 |
353 |
0.49 |
6,070,500 |
8,400 |
Endeavour Silver also updated Indicated and Inferred
Resource estimates as of December 31, 2008 (Table 1.2) . These Resources are in
addition to the Reserves reported in Table 1.1.
Table 0.2
Indicated and Inferred
Resources for the Guanaceví Mines Project as of December 31, 2008
Resource
of Povenir (200 g/t Cut-off) |
|
Category |
Tonnes |
Au
(g/t) |
Ag
(g/t) |
Cu(%) |
Pb(%) |
Zn
(%) |
|
Indicated |
530,000 |
0.55
|
302
|
|
|
|
|
Inferred |
415,000 |
0.61
|
378
|
|
|
|
Resource
of Exploration Areas (100 g/t Cut-off) |
Category |
Area
|
Tonnes |
Au
(g/t) |
Ag
(g/t) |
Cu(%) |
Pb(%) |
Zn
(%) |
Indicated |
Porvenir Dos |
272,707 |
0.66
|
325
|
|
|
|
Santa Cruz |
461,105 |
0.55
|
305
|
|
|
|
MCH-VER-Blanca |
19,781 |
0.45
|
259
|
|
|
|
Total
|
753,593 |
0.59 |
312 |
|
|
|
Inferred |
Porvenir Dos |
88,396 |
0.39
|
251
|
|
|
|
Santa Cruz |
99,847 |
0.55
|
278
|
|
|
|
MCH-VER-Blanca |
74,910 |
0.41
|
251
|
|
|
|
Total
|
263,153 |
0.46 |
261 |
|
|
|
Resource
of Exploration Areas (100 g/t Cut-off) |
Category |
Area
|
Tonnes |
Au
(g/t) |
Ag
(g/t) |
Cu(%) |
Pb(%) |
Zn
(%) |
Indicated |
Santa Cruz |
96,656 |
0.54
|
252
|
0.06
|
1.79
|
2.70
|
Alex
Breccia |
329,923 |
0.34
|
235
|
0.04
|
0.91
|
1.70
|
Total
|
426,579 |
0.39 |
239 |
0.05 |
1.11 |
1.93 |
|
|
|
|
|
|
|
|
Inferred |
Santa Cruz |
44,695 |
0.43
|
164
|
0.09
|
0.87
|
1.32
|
Alex
Breccia |
352,104 |
0.34
|
176
|
0.05
|
0.86
|
1.56
|
Noche Buena |
488,476 |
0.15
|
165
|
0.02
|
0.60
|
1.08
|
Total
|
885,275 |
0.24 |
169 |
0.03 |
0.71 |
1.29 |
|
|
|
|
|
|
|
|
Additional
Resource of Alex Breccia and Santa Cruz (50 g/t Cut-off and >3.5% Pb
+Zn) |
Category |
Area
|
Tonnes |
Au
(g/t) |
Ag
(g/t) |
Cu(%) |
Pb(%) |
Zn
(%) |
Indicated |
Alex
Breccia |
17,370 |
0.26
|
71
|
0.09
|
2.66
|
3.90
|
Santa Cruz |
31,889 |
0.26
|
78
|
0.06
|
1.39
|
2.59
|
Buena Fe |
35,807 |
0.08
|
52
|
0
|
2.58
|
4.38
|
Total
|
85,000 |
0.18 |
66 |
0.07 |
2.20 |
3.60 |
Inferred |
Alex
Breccia |
47,644 |
0.23
|
75
|
0.07
|
2.28
|
3.32
|
Santa Cruz |
52,601 |
0.28
|
74
|
0.05
|
1.40
|
2.27
|
Buena Fe |
159,574 |
0.09
|
71
|
0
|
2.21
|
3.79
|
Total
|
260,000 |
0.16 |
72 |
0.06 |
3.40 |
2.10 |
20
Endeavour Silver Corp.
Development and Operations
For the year ending December 31, 2008, silver production was
1,852,969 oz compared to 1,907,795 oz in 2007, a decrease of 3%, with gold
production of 3,845 oz compared to 3,957 oz in 2007, also a decrease of 3%.
Plant throughput for 2008 was 255,656 tonnes at an average grade of 318 g/t
silver and 0.58 g/t gold as compared to 226,295 tonnes at an average grade of
375 g/t silver and 0.70 g/t gold during 2007. In 2008, recoveries averaged 70.9%
and 80.7% for silver and gold, respectively. Production in 2008 is summarized in
Table 1.3.
Table 0.3
Production for the Guanaceví
Mines Project (2008)
Year |
Tonnes |
Silver
(g/t) |
Gold
(g/t) |
Oz
Silver recovered |
Oz Gold
recovered |
Recovery Ag |
Recovery
Au |
2008 |
255,656 |
318
|
0.58
|
1,852,969 |
3,845 |
70.9
|
80.7
|
Endeavour Silver is planning a program of surface and
underground exploration drilling and development to discover and upgrade
Reserves and Resources; the nature of narrow vein mining requires continuous
development of new Reserves and Resources.
The Guanaceví Mines project produces doré silver bars.
However, potentially economic base metals in new deposits currently under
development (Alex Breccia and Santa Cruz) may be recovered from Endeavour
Silvers re-commissioned flotation circuit. In 2009, Endeavour will be
finalizing its reactivation of the flotation circuits.
Conclusions and Recommendations
The Guanaceví Mines project is an operating silver (gold)
mine with good potential for the discovery of additional resources and reserves
as development and exploration at the mine continue. Endeavour Silvers
sustained exploration efforts in the last 3 to 5 years are being rewarded as
evidenced by the growth of its mineral resource inventory.
Endeavour Silvers properties in the Guanaceví district,
including recently acquired properties and potential new acquisitions, are
highly prospective for further resources which may be converted into reserves
with additional exploration and development. Given the amount of historic mining
in the district, the extent of the mineralization within known mining areas, and
the lack of modern exploration programs covering the properties in the past, the
properties have the potential to host additional zones of silver and gold
mineralization, similar in character and grade to those exploited in the past,
outside the present Resource and Reserve base.
As part of its ongoing exploration at the Guanaceví Mines
project, Endeavour is budgeted to spend US$1,296,000 on exploration in an effort
to continue to expand the resource base through both exploration drilling and
development on the property and within the mine during 2009. Micon believes that
Endeavour Silvers 2009 exploration budget is both appropriate and warrented.
Micon has audited and accepted the current resource and
reserve estimate for the project and makes the following additional
recommendations:
|
1) |
Micon recommends that Endeavour Silver continues
to develop and refine a reconciliation plan for the Guanaceví Mines
project. The ability to be able to reconcile the ore mined and milled
on a stope-by-stope basis to the original estimates for the stope will
be a critical factor in future resource and reserve estimations. The reconciliations
will form the basis of reviewing dilution estimates, mining loss and gain
estimates, and will assist in reviewing the classification categories
of the resources. |
21
Endeavour Silver Corp.
|
2) |
Micon recommends that Endeavour Silver continues
to pursue the necessary paperwork for its on-site laboratory to join a
proficiency program of round robin testing such as the one run by CanMet.
This would assist the on-site laboratory in assessing its performance
for one or more analytical methods independently of internal quality control.
Coupled with this program a total of between 5% and 10% of the samples
submitted to the on-site assay laboratory should be sent out to a secondary
accredited laboratory. |
|
|
|
|
3) |
In order to minimize contamination between samples,
Micon recommends that Endeavour Silver increase the usage of blanks among
its control samples. It is further recommended that the blanks must look
like the rest of the samples and not be in powder form. If the blanks
are already crushed and pulverized, they will escape the critical test
at the crushing stage. |
|
|
|
|
4) |
In pursuit of the multi-metal precious and base metal
resources at Alex Breccia and Santa Cruz, Micon recommends that Endeavour
Silver conducts detailed metallurgical test work to determine how optimum
metal recoveries can be achieved and the economics of running such an
operation. It is further recommended that this program takes precedence
over further exploration programs to expand the multi-metal resource.
Endeavour Silver has conducted in-house metallurgical testing at its facility
in Guanaceví for optimizing the circuit for Alex Breccia. |
|
|
|
|
5) |
Micon recommends that, as further data are generated
from mining, more detailed examination of the block modeling parameters
should be undertaken to develop better estimation protocols. This would
not only help in future exploration but would also help in infill drilling. |
|
|
|
|
6) |
Micon recommends that Endeavour Silver incorporate
routine mineralogical investigations into its exploration programs to
assist in the interpretation of mineralization patterns and to explain
variations in recoveries at the mill site. |
Guanajuato Mines Project, Guanajuato State,
Mexico
The Guanajuato Mines Project is subject to the following most
recent technical report presumed by management to be compliant with National
Instrument 43-101 (NI 43-101):
Audit of the Resource and Reserve Estimates For the Guanajuato
Mines Project Guanajuato State Mexico dated March 18, 2009. The Qualified
Person reporting for the reserves is Robert J. Leader, P. Eng and the Qualified
Persons reporting for the resources are William J. Lewis, BSc., P.Geo. and
Charley Murahwi, M.Sc., P.Geo, MAusIMM. All Qualified Persoms are employees of
Micon International Limited. The full report was filed on Sedar on March 31,
2009.
The following summary is extracted from the technical report
titled Audit of the Resource and Reserve Estimates For the Guanajuato Mines
Project Guanajuato State Mexico prepared by William J. Lewis, BSc., P.Geo.,
Charley Murahwi, M.Sc., P.Geo, MAusIMM, Robert J. Leader, P. Eng. and Alan San
Martin, Ing. of Micon International Limited and dated March 18, 2009. The
complete report can be viewed on SEDAR at www.sedar.com. The detailed disclosure
contained in the abovementioned report is incorporated by reference into this
AIF.
Endeavour Silver Corp. (Endeavour Silver) has retained Micon
International Limited (Micon) to conduct an audit of the updated resource and
reserve estimate for its Guanajuato Mines project, located near the city of
Guanajuato in the State of Guanajuato in Mexico. This Technical Report
constitutes an audit of the December 31, 2008 mineral resource and reserve
estimate conducted on the property by Endeavour Silver. The audit was performed
to ensure that the resources and reserves comply with the Canadian
22
Endeavour Silver Corp.
Institute of Mining, Metallurgy and Petroleum (CIM)
standards and definitions referred to in Canadian National Instrument 43-101 (NI
43-101).
An earlier resource and reserve estimate was the subject of
a March, 2008, NI 43-101 Technical Report prepared by SRK Consulting (SRK). The
Micon audit incorporates the exploration data gathered since the publication of
the March 2008 report. The March 2008 SRK Technical Report was electronically
posted on the System for Electronic Document Analysis and Retrieval (SEDAR).
SEDAR is the filing system developed for the Canadian Securities Administrators
(CSA).
Endeavour Silver advises that it holds the Guanajuato Mines
project through its 100% owned Mexican subsidiary Mina Bolañitos S.A. de C.V.
In 2007, Endeavour Silver acquired the Guanajuato Mines
project from Industrias Peñoles S.A. de C.V. (Peñoles), the owner at the time,
and Minas de la Luz, S.A. de C.V. (Minas de la Luz), the operator at the time.
The acquisition included the Mina Cebada, Mina Bolañitos, Mina Golondrinas and
Mina Asuncion (as well as a few other currently closed mines). Minas de la Luz
continued as the operator of the mines until June, 2007, when Endeavour assumed
control. The Mina Asuncion is very close to the Mina Bolañitos and has recently
been connected underground.
The Guanajuato Mines project consists of 13 properties which
are not all contiguous and vary in size for a total of 2,071 hectares (ha). The
project included three operating silver (gold) mines (Bolañitos, Golondrinas and
Cebada), several past-producing silver (gold) mines, and the 500 t/d Bolañitos
processing plant.
The exploitation lease was held by Minas de la Luz and
purchased by Endeavour Silver in conjunction with the asset purchase from
Peñoles. Endeavour Silver previously reported that some licensing issues were
inherited with the properties. However, these have now been resolved although
the transfer of the water license and the explosive permit to Endeavour Silvers
Mina Bolanitos S.A. de C.V. is still in process.
The annual 2009 concession tax payment for the Guanajuato
Mines property is approximately 462,903 Mexican pesos (pesos), which is equal to
about US$30,400 at an exchange rate of 15.23 pesos to US$1.00 dollar. All
concessions are subject to a bi-annual fee (i.e., twice per year) and the filing
of reports in May of each year covering the work accomplished on the property
between January and December of the preceding year. It should be noted that as
of December 21, 2005 (by means of an amendment made on April 28, 2005 to the
Mexican mining law) there is only one type of mineral concession in Mexico.
In addition to the mineral rights, Endeavour Silver has
agreements with various private ranch owners that provide access for exploration
and exploitation purposes.
The Guanajuato Mines project consists of three operating
mines in two areas. Mina Cebada is located about 5 km north of the city of
Guanajuato. The Bolañitos mine and the processing plant are situated
approximately 5 km west of Cebada, and both properties are readily accessed by
paved and well maintained gravel roads. The Golondrinas mine is 3.5 km to the
southwest of Cebada. The Bolañitos and Golondrinas mines are located near the
town of La Luz, about 12 km to the northeast of Guanajuato.
The State of Guanajuato is situated within the Central
Plateau of Mexico in the Sierra de Guanajuato at elevations ranging from 2,000
to 2,600 m. From Guanajuato, the properties are accessible via a gravel road,
with about a 15 minute drive to Mina Cebada and a 35 minute drive to the
Bolañitos or Golondrinas mines. The gravel road is heavily eroded by the intense
thunderstorms which occur in the area and it receives sporadic maintenance by a
grader. Therefore the road is highly washboarded which keeps driving speeds to
generally less than 50 km/h.
23
Endeavour Silver Corp.
Most of the supplies and labour required for the exploration
programs and mining operations are purchased in either the city of Guanajuato or
Leon. The area has a rich tradition of mining and there is an ample supply of
skilled personnel sufficient for both the underground mining operations and the
surface facilities. Power supply to the Guanajuato Mines project is provided by
the national grid (Comisión Federal de Electricidad).
The Guanajuato mining district is located at the southern
end of what used to be the Chichimeca empire which was colonized by Nuño de
Guzmán in 1540.
It is not known if the indigenous peoples or the Spanish
colonists first began mining in the Guanajuato district but mining extends back
to at least 1548 when the silver veins began to be exploited by the Spanish. The
Guanajuato was one of the premier mining districts of Nueva España (New Spain).
Although the Spanish began mining as early as 1548 and
worked the mines until 1700, it was not until after the latter date that they
commenced to work them strongly, continuing to do so until 1810 with the start
of the War of Independence.
During the war many of the mines were abandoned and either
filled with water or caved in, and so they remained until 1824. In 1824 a number
of English capitalists took the rehabilitation of the principal mines in hand
and worked them for approximately 10 years. However, during this period they
sustained great losses that were principally due to the lack of railroads which
necessitated the transportation of all heavy machinery to the mines on the backs
of mules. In some cases it took a couple of years to transport the equipment
from England to the mine in Mexico.
Mining in Mexico became more prevalent again from the 1880s
until the early 1900s when many of the mining districts were in decline due to
low prices. The Civil War in 1910 for the most part paralyzed mining in Mexico
and in many districts it did not recover until late in the
20th century.
It is impossible to state with even approximate accuracy
what the production of precious metals was in the early days. When the Spanish
arrived in Mexico there were no Aztec records and although accurate records were
kept up until 1810, smuggling prevailed to such an extent, owing to the heavy
tax on silver, as to render it impossible to arrive at exact figures.
The Mining District of Guanajuato is located on the south
and eastern flank of the Sierra Madre Occidental geological province, a
north-northwesterly trending linear volcanic belt of Tertiary age. It is
approximately 1,200 km long and 200 to 300 km in width. The project area is
located in the southern portion of the Sierra de Guanajuato, an anticlinal
structure about 100 km long and 20 km wide. The Guanajuato district is located
on the northeast side of this structure where the typical primary bedding
textures dip 10° to 20° to the north-northeast.
The stratigraphy of the Guanajuato mining district can be
divided into a Mesozoic basement and overlying Cenozoic units. The lower
Mesozoic lithological units are the Esperanza and La Luz formations which are
composed of rocks of marine origin, weakly to moderately metamorphosed and
intensely deformed by shortening. These rocks are unconformably overlain by the
Tertiary Conglomerado Rojo de Guanajuato, and the Loseros, Bufa, Calderones,
Cedros and Chichíndaro formations. The Tertiary rocks consist of continental
sediments and sedimentary rocks, which generally occupy lower topographical
zones, and subaerial volcanic rocks, which are principally exposed in the ranges
and higher plateaus. The rocks of the Cenozoic cover have experienced only
extensional deformation and in some places are gently tilted. Tertiary-aged
rocks correspond to a period of tectonism accompanied by volcanism and intrusive
magmatic activity.
24
Endeavour Silver Corp.
Randall et al (1994) originally proposed a caldera structure
for the Guanajuato mining district, sighting the presence of a megabreccia in
the Calderones Formation and the distribution of the Oligocene volcanic
formations described above. The hypothesis states that the caldera collapse
occurred in at least two stages and the collapse was a trap-door type. The
presence of a peripheral three-quarter ring of rhyolite domes intruding along
bounding faults, the location of the Oligocene volcanic formations ponded within
this ring, megabreccia and topographic rim, all contribute evidence to support
this hypothesis.
Subsequent normal faulting combined with hydrothermal
activity around 27 Ma resulted in many of the silver-gold deposits found in the
district. There are four principal orientations of normal faults: northwest,
north-south, east-west and northeast but the economic mineralization is
generally related to the north and northwesterly trending structures. Within the
Guanajuato mining district there are three major mineralized fault systems, the
La Luz, Sierra and the Veta Madre systems. Veta Madre is a north-northwest
trending fault system and the largest at 25 km long.
Mining of the epithermal silver-gold veins has occurred for
more than 450 years and is estimated to have produced more than 130 tonnes of
gold and 30,000 tonnes of silver.
Most of the production has been extracted from three
principal vein systems on normal faults, the La Luz, Veta Madre and La Sierra
which are illustrated in Figures 7.3 and 7.4. Economic concentrations of
precious metals are present in isolated packets (known as bonanzas, or spikes)
distributed vertically and laterally between non-mineralized segments of the
veins. There is a vertical mineralogical zonation within these veins. The
upper-levels are acanthite + adularia + pyrite + electrum + calcite + quartz and
the lower-levels are chalcopyrite + galena + sphalerite + adularia + quartz +
acanthite. The Veta Madre has been the most productive vein and it is by far the
most continuous, having been traced on the surface for approximately 20 km. The
vein dips from 35° to 55º to the southwest and it has measured displacements of
around 1,200 m near the Las Torres mine and 1,700 m near La Valenciana mine.
Most of the other productive veins in the district strike parallel to the Veta
Madre.
In addition to the epithermal veins near Guanajuato, small
deposits of stratabound massive sulphides have been reported in the Mesozoic
volcano-sedimentary association (Los Mexicanos). Similarly, there is gold
mineralization in the Comanja granite, and in its contact aureole small tungsten
deposits have been found. In the Tertiary volcanic rocks, principally in the
topaz rhyolites, there are small tin prospects.
With the Guanajuato Mines project, Endeavour Silver has
acquired a silver mining operation located in the State of Guanajuato, Mexico
with a high potential for the discovery of additional resources and reserves as
development and exploration at the mines continue. In addition since Endeavour
Silver has taken over the day-to-day operation of the mine there are a number of
areas which will see increased productivity and efficiency measures which may
lead to increased cost savings in the future.
Micon has conducted an audit of the Endeavour Silver
resource and reserve estimate for the period ending December 31, 2008.
The probable mineral reserves are those indicated mineral
resource blocks which are currently economic and for which Endeavour Silver
has a mine plan in place. The indicated mineral resources are those blocks which
have had some of the historical mine sampling superseded by Endeavour Silvers
2007 check channel samples and the 2008 channel sampling program which, in conjunction
with confidence gained from the historical reconciliations, provide a reasonable
level of confidence in the sample grades and resultant block estimates where
channel sampling has identified economically mineable mineralization.
25
Endeavour Silver Corp.
Endeavour Silver caps the channel samples statistically based
on the cumulative probability of approximately 95%. Endeavour Silver has capped
each area or vein separately and has not used an average for its entire project
which preserves the individual mineralogical nature of each area or vein during
the resource and reserve estimate.
A minimum horizontal width of 1.50 m was used for
compositing channel and drill hole sample grades.
The cut-off grade applied to resource blocks was 200 g/t
AgEq. The cut-off grade applied to reserve blocks was 230 g/t AgEq.
Silver-equivalencies are calculated using long-term prices of US$12 per ounce
for silver and US$900 per ounce for gold.
For the December 31, 2008 resource and reserve report, two
different methodologies have been employed for the estimation for the Guanajuato
Mines project. Endeavour Silver is still using a classic polygonal method to
estimate the majority of the mineral resources and all mineral reserves. All
resources for the 3785 (Robbins #5) zone discovered in the Cebada mine at the
end of 2007 are now being estimated using block model methods using Vulcan
computer software. Endeavour Silver is in a transition period in regard to the
resource and reserve estimates and since taking over the Guanajuato operations
in 2007 has been implementing a number of changes.
A varying amount of dilution, ranging between 6% and 33%,
has been applied to convert the mineral resources to mineral reserves. Dilution
for individual blocks depends mainly on the deposit width and the size of
equipment that will be used.
In 2008, a recovery factor ranging from 92% to 97% was also
included in the estimation process to generate the mineral reserves. This is
because some mineralized pillars are now being left behind during the mining of
the various veins when mining at Cebada, and 100% extraction for some resource
and reserve blocks is not possible at the mines. The cut and fill method does
allow for a resource block to be mined from the bottom up in its entirety in
some areas but complete extraction is rarely achieved.
Micons audited Endeavour Silver mineral resource estimates
are contained in Tables 1.1 and 1.2, with the mineral reserves summarized in
Table 1.3. The figures in the tables have been rounded to reflect that the
resources and reserves are estimates. However, while rounding has been applied
to the block estimates in order to provide a statement which implies an
appropriate level of accuracy; this may result in apparent errors which are not
considered material.
Micon believes that the resource and reserve estimate
compiled by Endeavour and audited by Micon has been reasonably prepared and
conforms to the current CIM standards and definitions for estimating resources
and reserves as required under NI 43-101 Standards of Disclosure for Mineral
Projects. Therefore, Micon accepts Endeavour Silvers resource and reserve
estimate as its basis for the ongoing mining operations at the Guanajuato Mines
project.
Table 1.1
December 31, 2008 Indicated Mineral
Resource Estimate, Guanajuato Mines Project
(Cut-off Grade 200 g/t
Silver-Equivalent)
Area |
Tonnes |
Gold (g/t) |
Silver (g/t) |
Gold (oz) |
Silver (oz) |
Cebada |
83,000 |
2.00
|
179
|
5,000 |
478,000 |
Bolañitos |
186,000 |
1.34
|
217
|
8,000 |
1,298,000 |
Golondrinas |
19,000 |
2.39
|
159
|
2,000 |
97,000 |
Total |
288,000 |
1.60 |
202 |
15,000 |
1,873,000 |
26
Endeavour Silver Corp.
Table 1.2
December 31, 2008 Inferred Mineral
Resource Estimate, Guanajuato Mines Project
(Cut-off Grade 200 g/t
Silver-Equivalent)
Area |
Tonnes |
Gold (g/t) |
Silver (g/t) |
Gold (oz) |
Silver (oz) |
Cebada |
162,000 |
1.90
|
280
|
10,000 |
1,461,000 |
Bolañitos |
513,000 |
1.96
|
231
|
32,000 |
3,809,000 |
Golondrinas |
107,000 |
2.32
|
140
|
8,000 |
481,000 |
Total |
782,000 |
2.00 |
229 |
50,000 |
5,751,000 |
Thus, at a block cut-off grade of 200 g/t silver, Micon
estimates that the total remaining mineral resource as of December 31, 2008 is
288,000 t at a grade of 202 g/t silver and 1.60 g/t gold for the Indicated
Resources, and 782,000 t at a grade of 229 g/t silver and 2.0 g/t gold for the
Inferred Resources. The Indicated portion of this mineral resource contains an
estimated 1,873,000 oz of silver and 15,000 oz of gold, while the Inferred
portion of the mineral resource contains an estimated 5,751,000 oz of silver and
50,000 oz of gold. The mineral resources are exclusive of the mineral reserves.
Table 1.3
December 31, 2008 Mineral Reserve
Estimate, Guanajuato Mines Project
(Cut-off Grade 230 g/t
Silver-Equivalent)
Area
|
In-situ Tonnes and Grade |
Recoverable
Tonnes and Grade |
Tonnes
(t) |
Gold
(g/t) |
Silver
(g/t) |
Gold
(oz) |
Silver
(oz) |
Tonnes
(t) |
Gold
(g/t) |
Silver
(g/t) |
Gold
(oz) |
Silver
(oz) |
Cebada |
82,000 |
2.02
|
319
|
5,000
|
844,000 |
89,000 |
1.75
|
277
|
5,000
|
792,000 |
Bolañitos |
73,000 |
2.60
|
200
|
6,000
|
468,000 |
76,000 |
2.31
|
178
|
6,000
|
437,000 |
Lucero |
39,000 |
3.42
|
389
|
4,000
|
483,000 |
41,000 |
3.03
|
346
|
4,000
|
451,000 |
Soledad |
6,000
|
2.60
|
189
|
1,000
|
36,000 |
6,000
|
2.31
|
168
|
400
|
34,000 |
San Jose |
2,000
|
1.00
|
240
|
100
|
15,000 |
2,000
|
0.89
|
213
|
100
|
14,000 |
Total |
202,000 |
2.51 |
285 |
16,100 |
1,846,000 |
214,000 |
2.20 |
251 |
15,500 |
1,728,000 |
Thus, at a cut-off grade of 230 g/t silver-equivalent, Micon
estimates that the total remaining mineral reserve as of December 31, 2008 is
214,000 t at a grade of 251 g/t silver and 2.2 g/t gold for the recoverable
probable mineral reserves. The recoverable probable mineral reserves contain an
estimated 1,728,000 oz of silver and 15,500 oz of gold. The recoverable reserves
include appropriate factors for mine recovery and dilution, but do not include
metallurgical recovery factors.
Micon believes that the land controlled by Endeavour Silver
is highly prospective both along strike and down dip of the known mineralization
and that further resources could be converted into reserves with additional
exploration and development. According to historical production, the Guanajuato
mining district has the potential to be a significant silver producing district
in Mexico once again.
Given the success of Endeavour Silvers previous exploration
program it plans a two-phase exploration program focused on following up several
of the new discoveries made near Endeavour Silver's mining operation at
Guanajuato and testing several new prospective targets within the district. If
the initial 2009 drilling is successful, a budget for a second phase exploration
program will be prepared and submitted for approval by the Endeavour Silvers
Board of Directors. The primary long-term goal of this program is to expand
reserves and resources and to identify properties for potential acquisition in
the Guanajuato district to secure future growth.
Phase 1 of the exploration program will include 3,000 m of
core in 11 surface diamond drill holes to target vein discoveries and new prospective
areas in the Cebada and Bolanitos areas of the Guanajuato district. Endeavour
Silver is budgeting to spend an estimated US$500,000, mainly on surface diamond
drilling, in an effort to continue to expand the resource base through both
exploration and development on its properties during 2009. The estimated cost
of diamond drilling is US$140/m.
27
Endeavour Silver Corp.
Phase 1 Target Areas
Phase 1 targets include: Bolañitos-San Jose South and Cebada
North.
|
1) |
Bolañitos-San Jose South surface mapping/sampling;
surface diamond drilling (1,500 m). |
|
|
|
|
2) |
Cebada North - surface mapping/sampling/trenching;
surface diamond drilling (1,500 m). |
Micon has reviewed Endeavour Silvers proposal for further
exploration on its Guanajuato Mines property and recommends that Endeavour
Silver conducts the exploration program as proposed subject to funding and any
other matters which may cause the proposed exploration program to be altered in
the normal course of its business activities or alterations which may affect the
program as a result of exploration activities themselves.
Through its acquisition of the Guanajuato Mines project,
Endeavour Silver has acquired an operating project in one of the major silver
producing districts in Mexico. Micon has audited and accepted the current
resource and reserve estimate for the project and makes the following additional
recommendations:
|
1) |
Micon recommends that Endeavour Silver continues to
develop a reconciliation plan for the Guanajuato Mines project. The
ability to be able to reconcile the ore mined and milled on a
stope-by-stope basis to the original estimates for the stope will be a
critical factor in future resource and reserve estimations. The
reconciliations will form the basis of reviewing dilution estimates,
mining loss and gain estimates, and will assist in reviewing the
classification categories of the resources. |
|
|
|
|
2) |
Micon recommends that Endeavour Silver continues to
pursue the necessary paperwork for its on-site laboratory to join a
proficiency program of round robin testing such as the one run by CanMet.
This would assist the on-site laboratory in assessing its performance for
one or more analytical methods independently of internal quality control.
Coupled with this program a total of between 5% and 10% of the samples
submitted to the on-site assay laboratory should be sent out to a
secondary accredited laboratory. |
|
|
|
|
3) |
Micon recommends that a blank sample should be
generated from either un-mineralized rock formations within the district
or from un-mineralized sand deposits in the area. Enough material should
be acquired to generate blank samples for use throughout the QA/QC program
at the Guanajuato Mines project. |
|
|
|
|
4) |
Micon recommends that Endeavour Silver continues
sending out representative samples of the various mineralized zones
encountered in the drilling for bulk density determinations and that this
information is used in conducting future resource and reserve estimates on
the Guanajuato Mines project. |
|
|
|
|
5) |
Micon recommends that Endeavour Silver completes its
conversion of the existing paper database. As further data are generated
from the mining, more detailed examination of the block modelling
parameters should be done to develop better estimation protocols. This
would not only help in future exploration but would also help in infill
drilling. |
Given the amount of historical mining conducted on the Guanajuato
Mines project, the extent of the remaining mineralization within the known mining
areas, and the lack of a modern comprehensive exploration program covering the
entire property in the past, the property has the potential to host further
zones of silver and gold mineralization, similar in character and grade to those
exploited in the past, outside the present resource and reserve base.
28
Endeavour Silver Corp.
ITEM 5:
DIVIDENDS
5.1
Dividends
No dividends have been declared during the past three fiscal
years covering the period beginning January 1, 2006 and ending December 31,
2008. The Company has no present intention of paying dividends on its common
shares as it anticipates that all available funds will be invested to finance
further acquisition, exploration and development of its mineral properties.
ITEM 6:
DESCRIPTION OF CAPITAL STRUCTURE
6.1 General
Description of Capital Structure
The Companys capital structure is comprised of only one class
of shares. The Companys authorized share capital is comprised of an unlimited
number of common shares without par value.
As at March 31, 2009, the Company has 51,537,018 common shares
issued and outstanding.
The following table provides a summary concerning the Companys
share capital as of December 31, 2008:
|
December 31, 2008 |
|
|
Authorized
share capital |
Unlimited number of common shares without par value |
Number of shares issued and outstanding
|
49,080,478 common shares without par value
|
|
|
All common shares of the Company rank equally as to dividends,
voting powers and participation in assets and in all other respects. Each share
carries one vote per share at meetings of the shareholders of the Company. There
are no indentures or agreements limiting the payment of dividends and there are
no conversion rights, special liquidation rights, pre-emptive rights or
subscription rights attached to the common shares. The shares presently issued
are not subject to any calls or assessments.
6.2 Constraints
To the best of its knowledge, the Company is not aware of any
constraints imposed on the ownership of its securities to ensure that the
Company has a required level of Canadian ownership.
6.3
Ratings
To the best of its knowledge, the Company is not aware of any
ratings, including provisional ratings, from rating organizations for the Companys
securities that are outstanding and continue in effect.
29
Endeavour Silver Corp.
ITEM 7: MARKET
FOR SECURITIES
7.1 Trading
Price and Volume
The Companys common shares are listed for trading on the TSX
Toronto Stock Exchange (the TSX) under the symbol EDR. The Company
listed on the TSX and delisted from the TSX Venture Exchange on February 7,
2006. The Company listed on the NYSE Amex, formerly known as the American Stock
Exchange, on January 29, 2007 under the symbol EXK.
The price ranges in Canadian $ and volume traded on the TSX for
the most recently completed fiscal period ended December 31, 2008 and the months
of January and February 2009 are set out below:
Date |
Open |
High |
Low |
Close |
Volume Traded |
Feb-09 |
1.75
|
2.34
|
1.50
|
1.63
|
2,514,400 |
Jan-09 |
1.27
|
2.09
|
1.21
|
1.85
|
4,724,900 |
Dec-08 |
1.60
|
1.62
|
1.16
|
1.24
|
3,194,100 |
Nov-08 |
1.10
|
1.73
|
1.00
|
1.65
|
1,537,900 |
Oct-08 |
2.17
|
2.45
|
1.00
|
1.11
|
2,157,100 |
Sep-08 |
2.23
|
2.61
|
1.35
|
2.17
|
2,638,100 |
Aug-08 |
2.99
|
3.02
|
2.05
|
2.40
|
1,317,300 |
Jul-08 |
3.31
|
3.59
|
2.85
|
2.95
|
1,557,800 |
Jun-08 |
3.03
|
3.31
|
2.91
|
3.20
|
1,446,400 |
May-08 |
2.82
|
3.60
|
2.71
|
3.02
|
1,875,800 |
Apr-08 |
3.34
|
3.85
|
2.65
|
2.82
|
2,068,700 |
Mar-08 |
4.26
|
4.48
|
3.41
|
3.45
|
2,072,100 |
Feb-08 |
3.80
|
4.49
|
3.25
|
4.19
|
2,050,951 |
Jan-08 |
3.95
|
4.46
|
2.90
|
3.72
|
3,280,452 |
30
Endeavour Silver Corp.
The price ranges in US$ and volume traded on the NYSE Amex for
the most recently completed fiscal period ended December 31, 2008 and the months
of January and February 2009 are set out below::
Date |
Open |
High |
Low |
Close |
Volume Traded |
Feb-09 |
1.31
|
1.87
|
1.20
|
1.37
|
5,883,086 |
Jan-09 |
1.08
|
1.73
|
0.98
|
1.51
|
6,405,374 |
Dec-08 |
1.16
|
1.36
|
0.90
|
1.02
|
4,110,288 |
Nov-08 |
0.89
|
1.49
|
0.83
|
1.30
|
2,590,225 |
Oct-08 |
2.29
|
2.32
|
0.71
|
0.93
|
4,127,421 |
Sep-08 |
2.41
|
2.60
|
1.25
|
2.10
|
5,172,183 |
Aug-08 |
2.97
|
2.99
|
1.90
|
2.27
|
2,825,862 |
Jul-08 |
3.14
|
3.60
|
2.71
|
2.90
|
3,606,545 |
Jun-08 |
3.05
|
3.32
|
2.75
|
3.12
|
2,229,672 |
May-08 |
2.80
|
3.60
|
2.64
|
3.06
|
3,041,927 |
Apr-08 |
3.34
|
3.82
|
2.61
|
2.80
|
3,564,287 |
Mar-08 |
4.30
|
4.57
|
3.30
|
3.40
|
4,505,415 |
Feb-08 |
3.77
|
4.60
|
3.24
|
4.34
|
3,529,875 |
Jan-08 |
3.90
|
4.52
|
2.80
|
3.72
|
5,138,467 |
ITEM
8: ESCROWED SECURITIES
8.1
Escrowed Securities
Escrowed
Securities |
|
Designation of
class |
Common
shares without par value |
Number of
securities held in escrow |
93,750
|
Percentage of
class |
0.18%
(as of March 31, 2009) |
As at March 31, 2009, the Company has a total of 93,750 common
shares held in escrow, the release of which is subject to regulatory approval.
The escrow agent is Computershare Trust Company of Canada
31
Endeavour Silver Corp.
ITEM
9: DIRECTORS AND OFFICERS
9.1 Name,
Occupation and Security Holding
The following is a list of the current directors and officers
of the Company, their province/state and country of residence, their current
positions with the Company and their principal occupations during the past five
years:
Name and Province/State and
Country of Residence
|
Principal Occupation
for the Last Five Years
|
Current Position with the
Company and Period of Service
|
Approximate number and
percentage of voting securities owned, directly
or indirectly or over which direction or control is
exercised (2)(3) |
Bradford J. Cooke British Columbia, Canada |
President, CEO and Director of Endeavour Silver
Corp. |
Director, Chairman and Chief Executive Officer
(From July 25, 2002) |
1,264,350
2.45% |
Godfrey J. Walton British Columbia, Canada |
President, G.J. Walton & Associates Ltd.
and Director, President and COO of Endeavour Silver Corp. |
Director, President and Chief Operating Officer
(From July 25, 2002) |
163,300
0.32% |
Leonard Harris Colorado, USA |
Retired, and Director of Glamis Gold Ltd.,
Corriente Resources Inc., Solitario Resources Corp., Cardero Resources
Corp., Alamos Minerals Ltd, Alamos Gold Inc., Canarc Resource Corp.,
Sulliden Exploration Inc., IMA Exploration Inc., Morgain Minerals Inc.,
Indico Resources Ltd, Aztec Metals Corp., Golden Arrow Resources Corp |
Director (From July 24, 2003) |
10,000
0.02% |
Mario D. Szotlender (1) Caracas,
Venezuela |
President, Mena Resources Inc. |
Director (From July 25, 2002) |
79,200
0.15% |
Geoff Handley (1) Sydney, Australia
|
Past Executive VP Strategic Development, Placer
Dome Inc., Currently Director of Eldorado Gold Ltd, Pan Australian
Resources Limited, Boart Longyear Limited, Oryx Mining and Exploration
Ltd. |
Director (From June 14, 2006) |
Nil |
32
Endeavour Silver Corp.
Rex McLennan (1) |
Chief Financial Officer of Viterra Inc.,Past
Chief Financial Officer and Executive Vice President of 2010 Vancouver
Olympics Organizing Committee, Past Chief Financial Officer &
Executive Vice President of Placer Dome Inc. |
Director (From June 14, 2007) |
Nil |
Bernie Poznanski British Columbia, Canada |
Lawyer, Koffman Kalef Business Lawyers |
Corporate Secretary (From March 9, 2009) |
Nil |
Dan Dickson British Columbia, Canada |
Controller for Endeavour Silver Corp from
March, 2007 to March, 2008, Manager KPMG from Sept 2002 to February 2007
|
Chief Financial Officer (From April 1, 2008)
|
Nil |
Barry Devlin Blaine, Washington |
Past Manager of Generative Exploration and
Chief Geologist for Hecla Mining |
Vice President, Exploration (From May 2, 2007)
|
Nil |
David Howe Durango, Mexico |
Past General Manager of St. Ann Jamaica Bauxite
Ltd. & Vice President operations / GM of Hecla Venezuela |
Vice President Operations, Mexico (From
November 1, 2007) |
Nil |
Hugh Clarke British Columbia, Canada |
Manager, Investor Relations for Endeavour
Silver Corp. Investor Relations for Hunter Dickenson |
Vice President, Corporate Communications (From
April 1, 2008 ) |
Nil |
|
(1) |
Audit Committee members. |
|
|
|
|
(2) |
As at March 23, 2009 |
|
|
|
|
(3) |
Refer to www.sedi.ca
for continuous disclosure of Directors & Officers
holdings. |
As of the date hereof, the Company has three executive
committees: A Compensation Committee, a Nominating Committee and a Disclosure
Committee.
Directors' Terms of Office
The directors have served as directors of the Company since the
date shown above and their terms of office expire at the beginning of the next
annual general meeting.
33
Endeavour Silver Corp.
Control of Securities
The directors and officers of the Company beneficially own,
directly or indirectly, have control of or direction over an aggregate of
1,516,850 common shares of the Company, representing approximately 3% of the
issued and outstanding common shares as at March 18, 2009.
9.2 Cease
Trade Orders, Bankruptcies, Penalties or Sanctions
As at the date of the AIF and during the 10 years prior to the
date of the AIF, none of the directors or officers of the Company or a
shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company:
(a) |
is or has been a director or executive officer of any
company (including the Company), that while that person was acting in that
capacity: |
|
|
|
|
(i) |
was the subject of a cease trade order or similar order
or an order that denied the relevant company access to any exemption under
securities legislation, for a period of more than 30 consecutive
days; |
|
|
|
|
(ii) |
was subject to an event that resulted, after the director
or executive officer ceased to be a director or executive officer, in the
company being the subject of a cease trade or similar order or an order
that denied the relevant company access to any exemption under securities
legislation, for a period of more than 30 consecutive days; or |
|
|
|
|
(iii) |
within a year of that person ceasing to act in that
capacity, became bankrupt, made a proposal under any legislation relating
to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold its assets. |
|
|
|
(b) |
has become bankrupt, made a proposal under any
legislation relating to bankruptcy or insolvency or become subject to or
instituted any proceedings, arrangement or compromise with creditors, or
had a receiver, receiver manager or trustee appointed to hold the assets
of the director, officer or shareholder. |
Subsequent to December 31, 2000, no director, officer or
promoter of the Company or a shareholder holding a sufficient number of
securities of the Company to affect materially the control of the Company, is or
has:
(a) |
been the subject of any penalties or sanctions imposed by
a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities
regulatory authority; or |
|
|
(b) |
been subject to any other penalties or sanctions imposed
by a court or regulatory body that would likely be considered important to
a reasonable investor making an investment
decision. |
34
Endeavour Silver Corp.
9.3 Conflicts
of Interest
The Company's directors and officers may serve as directors or
officers of other companies or have significant shareholdings in other resource
companies and, to the extent that such other companies may participate in
ventures in which the Company may participate, the directors of the Company may
have a conflict of interest in negotiating and concluding terms respecting the
extent of such participation. In the event that such a conflict of interest
arises at a meeting of the Company's directors, a director who has such a
conflict will abstain from voting for or against the approval of such
participation or such terms. From time to time several companies may participate
in the acquisition, exploration and development of natural resource properties
thereby allowing for their participation in larger programs, permitting
involvement in a greater number of programs and reducing financial exposure in
respect of any one program. It may also occur that a particular company will
assign all or a portion of its interest in a particular program to another of
these companies due to the financial position of the company making the
assignment. In accordance with the laws of British Columbia, the directors of
the Company are required to act honestly, in good faith and in the best
interests of the Company. In determining whether or not the company will
participate in a particular program and the interest therein to be acquired by
it, the directors will primarily consider the degree of risk to which the
Company may be exposed and its financial position at the time.
The directors and officers of the Company are aware of the
existence of laws governing the accountability of directors and officers for
corporate opportunity and requiring disclosure by the directors of conflicts of
interest and the Company will rely upon such laws in respect of any directors'
and officers' conflicts of interest in or in respect of any breaches of duty by
any of its directors and officers. All such conflicts will be disclosed by such
directors or officers in accordance with the Business Corporations Act (British
Columbia) and they will govern themselves in respect thereof to the best of
their ability in accordance with the obligations imposed upon them by law.
To the best of its knowledge, the Company is not aware of any
such conflicts of interest.
ITEM
10: PROMOTERS
Within the fiscal period ended December 31, 2008, the fiscal
period December 31, 2007, and the fiscal period ended December 31, 2006, the
Company did not have nor employed any person or company acting or performing as
a promoter for the Company.
ITEM
11: LEGAL PROCEEDINGS
11.1
Legal Proceedings
There are no known legal proceedings to which the Company is a
party or to which any of its property is the subject or any such proceedings
known to the Company to be contemplated.
35
Endeavour Silver Corp.
ITEM
12: INTEREST OF MANAGEMENT
AND OTHERS IN MATERIAL TRANSACTIONS
12.1
Interest of Management and Others in Material Transactions
Other than as set forth below and in this AIF and in the
Companys audited financial statements for the period ended December 31, 2008
and other than transactions carried out in the ordinary course of business of
the Company or its subsidiary, within the recently completed financial period
ended December 31, 2008, for the fiscal period ended December 31, 2007 and the
fiscal period ended December 31, 2006, none of the following:
(a) |
director or executive officer of the Company; |
|
|
(b) |
a person or company that is direct or indirect beneficial
owner of, or who exercises control or direction over, more than 10% of any
class or series of the outstanding voting securities of the Company;
and |
|
|
(c) |
an associate or affiliate of any of the persons or
companies referred to in the above paragraphs (a) or (b), has, to the best
of the Companys knowledge, any material interest, direct or indirect, in
any transaction that has materially affected or will materially affect the
Company and its subsidiary. |
The Companys directors and officers may serve as directors or
officers of other public resource companies or have significant shareholdings in
other public resource companies and, to the extent that such other companies may
participate in ventures in which the Company may participate, the directors of
the Company may have a conflict of interest in negotiating and concluding terms
respecting the extent of such participation. The interests of these companies
may differ from time to time. Items 4.2 and 9.3 provide further details.
ITEM
13: TRANSFER AGENT AND
REGISTRAR
13.1 Transfer
Agent and Registrar
The Companys transfer agent and registrar is:
Computershare Investor Services
Inc.
3rd Floor, 510 Burrard Street
Vancouver, BC
Canada, V6C 3B9
ITEM
14: MATERIAL CONTRACTS
14.1
Material Contracts
On February 26, 2009 the Company agreed to a Trust Indenture
with Computershare Trust Company of Canada providing for the issue of
debentures. The Company issued 13,993 10% subordinated unsecured convertible
redeemable debentures. The interest is 10% annually paid in arrears. At any time
after February 26, 2009, each debenture may be converted by the holder into one
unit of the Company consisting of one of the Companys common shares and one
half of a common share purchase warrant at a conversion price of CAN $1.90 per
debenture. Each full share purchase warrant will entitle the holder to purchase
one common share at an exercise price of CAN $2.05 for up to 5 years from
conversion.
36
Endeavour Silver Corp.
There are no other contracts, other than those entered into in
the ordinary course of the Companys business, that are material to the Company
and which were entered into in the most recently completed fiscal period ended
December 31, 2008 or before or after the most recently completed financial
period and still in effect as of the date of this AIF.
ITEM
15: INTERESTS OF EXPERTS
15.1 Names
of Experts
KPMG LLP is the external auditor of the Company and reported on
the fiscal 2008 audited financial statements of the Company. See Item 1.1.
The Qualified Persons who completed the audit of the reserves
and resources are Jim Leader, P.Eng., William Lewis, P.Geo., and Dibya Kanti
Mukhopadhyay, MAusIMM, of Micon International (Micon). The reportTechnical
Report Audit of the Resource and Reserve Estimates for the Guanacevi Project,
Durango State, Mexico dated March 18, 2009 was filed on Sedar on March 31,
2009.
The Qualified Persons who completed the audit of the reserves
and resources are Jim Leader, P.Eng., William Lewis, P.Geo., and Charley Murahwi
P.Geo, MAusIMM, of Micon International (Micon). The report Technical
Report Audit of the Resource and Reserve Estimates for the Guanajuato Mines
Project, Guanajuato State, Mexico dated March 18, 2009 was filed on Sedar
on March 31, 2009.
15.2
Interests of Experts
KPMG LLP have confirmed that they are independent with respect
to the Company within the meaning of the Rules of Professional Conduct of the
Institute of Chartered Accountants of British Columbia.
To the best of The Companys knowledge, the other experts named
in Item 15.1 did not have any registered or beneficial interest, direct or
indirect, in any securities or other property of the Company when the experts
prepared their respective reports.
ITEM
16: ADDITIONAL INFORMATION
16.1 Additional
Information
Additional information relating to the Company are as follows:
(a) |
may be found on SEDAR at www.sedar.com and www.sedi.ca |
|
|
(b) |
additional information, including directors and
officers remuneration and indebtedness, principal holders of the
Companys securities and securities authorized for issuance under equity
compensation plans, if applicable, is contained in the Companys
Information Circular pertaining to its most recent Annual General Meeting
of security holders that involves the election of directors; and |
|
|
(c) |
is also provided in the Companys financial statements
and management discussion and analysis for its most recently completed
financial period ended December 31, 2008. |
37
Endeavour Silver Corp.
16.2 Audit Committee
1. The Audit
Committees Charter
Multilateral
Instrument 52-110 Audit Committees (MI 52-110) became applicable to all
issuers listed on the Toronto Stock Exchange after July 1, 2005. Effective March
17, 2008, MI 52-110 was rescinded and replaced by National Instrument 52-110
Audit Committees (NI 52-110). NI 52-110 requires that every issuer disclose
certain information concerning the constitution of its audit committee and its
relationship with its independent auditor, as set forth below.
2. Composition
of the Audit Committee
The
Companys audit committee is comprised of three directors, as set forth below:
Geoff Handley |
Mario D. Szotlender |
Rex McLennan |
As
defined in NI 52-110, Geoff Handley, Mario Szotlender and Rex McLennan are
independent. The Company therefore meets the requirement of NI 52-110 that all
audit committee members be independent.
All
of the members of the audit committee are financially literate, meaning that he
must be able to read and understand financial statements.
3. Relevant Education
and Experience
Geoff Handley Mr. Handley is a geologist with a Science Degree and
over 30 years experience in the exploration and mining industry which included
analyzing the financial statements of mining companies as an investment analyst
and, later, as the manager/executive responsible for corporate mergers and
acquisition activities at Placer Dome Inc.
Mario Szotlender - Mr. Szotlender is a financier and businessman with a
Bachelors degree in International Relations and 16 years experience financing
and managing resource projects in Central and South America. B.IR. degree,
Universidad Central de Venezuela, Caracas, Venezuela.
Rex
McLennan - Mr. McLennan holds a Master of Business Administration degree
from McGill University and a Bachelor of Science degree from the University of
British Columbia. He has held increasingly responsible positions in the mining
and oil and gas sectors. From 1997 to 2005, he was the Executive Vice President
and Chief Financial Officer for Placer Dome Inc., and prior to this held the
position of Vice President and Treasurer with the same company. For more than
ten years, he held positions of increasing responsibility in business planning,
finance and treasury and was a Senior Advisor in the Treasurers Department for
Imperial Oil, a publicly traded Canadian subsidiary of Exxon Corporation.
4. Reliance on Certain
Exemptions
At no
time since the commencement of the Companys most recently completed financial
year has the Company relied on the following exemptions:
|
(a) |
the exemption in section 2.4. De Minimis Non-audit
Services;, |
|
(b) |
the exemption in section 3.2 Initial Public Offerings; |
|
(c) |
the exemption in section 3.4 Events Outside Control
of Member; |
|
(d) |
the exemption in section 3.5 Death, Disability or
Resignation of Audit Committee Member; or |
38
Endeavour Silver Corp.
|
(e) |
an exemption from National Instrument 52-110, Audit
Committees, in whole or part granted under Section 8,
Exemptions |
5. Reliance on the
Exemption in Subsection 3.3(2) or Section 3.6
At no
time since the commencement of the Companys most recently completed financial
year, has the Company relied on the exemption in subsection 3.3(2),
Controlled Companies, or section 3.6, Temporary Exemption for Limited
and Exceptional Circumstances.
6. Reliance on
Section 3.8
At no
time since the commencement of the Companys most recently completed financial
year, has the Company relied on the exemption in section 3.8, Acquisition of
Financial Literacy.
7. Audit Committee
Oversight
At no
time since the commencement of the Companys most recently completed financial
year, has a recommendation of the Committee to nominate or compensate an
external auditor not been adopted by the Board or Directors.
8. Pre-Approval Policies
and Procedures
The
audit committee has not adopted specific policies and procedures for the
engagement of non-audit services. Subject to the requirements of NI 52-110, the
engagement of non-audit services is considered by the Companys Board of
Directors and, where applicable, by the audit committee, on a case-by-case
basis.
9. External Auditor
Service Fees (By Category)
Set
forth below are details of certain service fees paid to the Companys external
auditor in each of the last two fiscal years for audit services:
Financial Year
End |
Assurance Fees(1) |
Tax Fees(2) |
All Other Fees(3) |
December 31/2007
|
$597,000 |
$16,420 |
Nil
|
December 31/2008
|
$440,150 |
$30,448 |
Nil
|
*All amounts are Canadian dollars
(1) |
The aggregate fees billed in each of the last two fiscal
years for assurance and related services by the Companys external
auditor that are reasonably related to the performance of the audit or
review of the Companys financial statements. |
(2) |
The aggregate fees billed in each of the last two fiscal
years for professional services rendered by the companys external
auditor for tax compliance and tax advice. |
(3) |
The aggregate fees billed in each of the last two fiscal
years for products and services provided by the Companys external
auditor, other than the services reported under clauses 1 and 2 above. |
39
Endeavour Silver Corp.
SCHEDULE A
ENDEAVOUR SILVER CORP. (the "Company") |
Audit Committee Charter
(effective October 31,
2006)
The following Board Charter has been approved by the Board of
Directors (the Board) of Endeavour Silver Corp. (the
Corporation) as of the date set out above.
1
Purpose Of Audit Committee
The
purpose of the Audit Committee (the Committee) is to act as the representative
of the Board of Directors in carrying out its oversight responsibilities
relating to:
- The audit process;
- The financial accounting and reporting process to shareholders and
regulatory bodies; and
- The system of internal financial controls.
All reasonably necessary costs to allow the Committee to carry
out its duties shall be paid for by the Company. Also, in carrying out the
foregoing duties, the Committee shall have the right and the ability to retain
any outside legal, accounting or other expert advice or assistance to assist
them in the proper completion of their duties, for and on behalf of the Company
and at its cost, without any requirement for further Board or management
approval of such expenditure.
2
Composition
The
Committee shall consist of three Directors, all of whom are independent within
the meaning of Multilateral Instrument 52-110, Audit Committees, and as
required by all applicable U.S. securities laws and regulations, and the
policies of the American Stock Exchange. The Committee shall be appointed
annually by the Board of Directors immediately following the Annual General
Meeting of the Company. Each member of the Committee shall be financially
literate, meaning that he must be able to read and understand financial
statements. One member of the Committee must have accounting and financial
expertise, meaning that he possesses financial or accounting credentials or has
experience in finance or accounting.
3
Duties
The Committees duty is to monitor and oversee the operations
of Management and the external auditor. Management is responsible for
establishing and following the internal controls, financial reporting processes
and for compliance with applicable laws and policies. The external auditor is
responsible for performing an independent audit of the Companys financial
statements in accordance with generally accepted auditing standards, and for
issuing its report on the statements. The Committee should review and evaluate
this Charter on an annual basis.
40
Endeavour Silver Corp.
The specific duties of the Committee
are as follows:
• |
Management Oversight: |
|
|
|
o |
Review and evaluate the Companys processes for
identifying, analyzing and managing financial risks that may prevent the
Company from achieving its objectives; |
|
o |
Review and evaluate the Companys internal controls, as
established by Management; |
|
o |
Review and evaluate the status and adequacy of internal
information systems and security; |
|
o |
Meet with the external auditor at least one a year in the
absence of Management; |
|
o |
Request the external auditors assessment of the
Companys financial and accounting personnel; |
|
o |
Review and evaluate the adequacy of the Companys
procedures and practices relating to currency exchange rates;
and |
|
o |
Review and evaluate the Companys banking
arrangements. |
|
|
|
• |
External Auditor Oversight |
|
|
|
o |
Review and evaluate the external auditors process for
identifying and responding to key audit and internal control
risks; |
|
o |
Review the scope and approach of the annual
audit; |
|
o |
Inform the external auditor of the Committees
expectations; |
|
o |
Recommend the appointment of the external auditor to the
Board; |
|
o |
Meet with Management at least once a year in the absence
of the external auditor; |
|
o |
Review the independence of the external auditor on an
annual basis; |
|
o |
Review with the external auditor both the acceptability
and the quality of the Companys accounting principles; and |
|
o |
Confirm with the external auditor that the external
auditor is ultimately accountable to the Board of Directors and the
Committee, as representatives of the shareholders. |
|
|
|
• |
Financial Statement Oversight |
|
|
|
o |
Review the quarterly reports with both Management and the
external auditor; |
|
o |
Discuss with the external auditor the quality and the
acceptability of the generally accepted accounting principles applied by
Management; |
|
o |
Review and discuss with Management the annual audited
financial statements; and |
|
o |
Recommend to the Board whether the annual audited
financial statements should be accepted, filed with the securities
regulatory bodies and publicly disclosed. |
|
|
|
• |
Whistleblower Procedures |
|
|
|
o |
Provide for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and |
|
o |
Provide for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matter. |
41
Endeavour Silver Corp.
EX-99.2
3
exhibit99-2.htm
FINANCIAL STATEMENTS
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 2
![](endeavourlglogo.jpg)
Consolidated Financial Statements
Year Ended December 31, 2008,
Year Ended December 31, 2007
and
Year Ended December 31, 2006
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL
REPORTING
The accompanying consolidated financial statements of Endeavour
Silver Corp. (the Company) have been prepared by management in accordance with
Canadian generally accepted accounting principles (GAAP), and within the
framework of the significant accounting policies disclosed in the notes to these
consolidated financial statements.
Management, under the supervision and participation of the
Chief Executive Officer and the Chief Financial Officer, have a process in place
to evaluate disclosure controls and procedures and internal control over
financial reporting as required by Canadian and United States securities
regulations. We, as CEO and CFO, will certify our annual filings with CSA and
SEC as required in Canada by Multilateral Instrument 52-109 and in the United
States as required by the Securities Exchange Act of 1934.
The Board of Directors is responsible for ensuring that
management fulfills its responsibilities for financial reporting and is
ultimately responsible for reviewing and approving the consolidated financial
statements. The Board carries out its responsibility principally through its
Audit Committee which is independent from management.
The Audit Committee of the Board of Directors meets with
management to review results of the consolidated financial statements and
related financial reporting matters prior to submitting the consolidated
financial statements to the Board of Directors for approval. The Audit Committee
reviews the consolidated financial statements and MD&A; considers the report
of the external auditors; assesses the adequacy of internal controls, including
managements assessment described below; examines the fees and expenses for
audit services; and recommends to the Board the independent auditors for
appointment by the shareholders. The independent auditors have full and free
access to the Audit Committee and meet with it to discuss the audit work,
financial reporting matters and our internal control over financial reporting.
The Audit Committee is appointed by the Board of Directors and all of its
members are independent directors.
March 6, 2009 |
|
|
|
|
|
/s/
Bradford Cooke |
|
/s/
Dan Dickson |
Chief Executive Officer |
|
Chief Financial Officer
|
|
|
Endeavour Silver Corp. |
Page - 2 - |
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Endeavour
Silver Corp. (the Company) as at December 31, 2008 and December 31, 2007 and the
consolidated statements of operations and comprehensive income, shareholders
equity and deficit, and cash flows for each of the years in the three-year
period ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards. With respect to the consolidated financial
statements for the year ended December 31, 2008 and 2007, we also conducted our
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 2008 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2008 in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in
certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effect of such differences is presented
in Note 20 to the consolidated financial statements.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of December 31, 2008, based on the
criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated March 6, 2009 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
March 6, 2009
|
|
Endeavour Silver Corp. |
Page - 3 - |
COMMENTS BY AUDITORS FOR US READERS
ON CANADA – US REPORTING DIFFERENCES
In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of the Company's financial statements, such as the change described
in note 3(c) to the consolidated financial statements as at December 31, 2008
and for the year then ended. Our report to the shareholders dated March 6, 2009
is expressed in accordance with Canadian reporting standards, which do not require
a reference to such a change in accounting principles in the auditors' report
when the change is properly accounted for and adequately disclosed in the financial
statements.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
March 6, 2009
|
|
Endeavour Silver Corp. |
Page - 4 - |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Board of Directors of Endeavour Silver
Corp.
We have audited Endeavour Silver Corps (the Company) internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Managements
Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on the criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In the year ended December 31, 2008 we have also conducted our
audit on the consolidated financial statements in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Our report dated March 6, 2009 expressed an
unqualified opinion on those consolidated financial statements.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
March 6, 2009
|
|
Endeavour Silver Corp. |
Page - 5 - |
ENDEAVOUR SILVER CORP.
CONSOLIDATED BALANCE SHEET
(expressed in thousands of
US dollars)
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
Notes |
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
3,582 |
|
$ |
16,577 |
|
Marketable securities |
|
6 |
|
|
35 |
|
|
3,573 |
|
Accounts receivable and prepaids |
|
7 |
|
|
6,203 |
|
|
7,200 |
|
Inventories |
|
8 |
|
|
3,159 |
|
|
2,916 |
|
Due from
related parties |
|
9 |
|
|
119 |
|
|
228 |
|
Total current assets |
|
|
|
|
13,098 |
|
|
30,494 |
|
|
|
|
|
|
|
|
|
|
|
Long term deposits |
|
|
|
|
914 |
|
|
877 |
|
Long term investments |
|
10 |
|
|
2,155 |
|
|
3,932 |
|
Mineral property, plant and equipment |
|
11 |
|
|
51,125 |
|
|
46,848 |
|
Total assets |
|
|
|
$ |
67,292 |
|
$ |
82,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
$ |
5,339 |
|
$ |
4,348 |
|
Income taxes payable |
|
|
|
|
- |
|
|
781 |
|
Total current liabilities |
|
|
|
|
5,339 |
|
|
5,129 |
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations |
|
12 |
|
|
1,445 |
|
|
1,578 |
|
Future income tax liability |
|
16 |
|
|
4,036 |
|
|
5,068 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
10,820 |
|
|
11,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Common shares, unlimited shares authorized,
no par value, issued |
|
|
|
|
|
|
|
|
|
and outstanding 49,080,478
shares (2007 - 48,982,146 shares) |
|
Page 7 |
|
|
87,584 |
|
|
87,458 |
|
Special Warrants, (2,311,540 units) |
|
13 (c ) |
|
|
2,118 |
|
|
- |
|
Contributed surplus |
|
Page 7 |
|
|
11,285 |
|
|
8,921 |
|
Accumulated comprehensive income |
|
Page 7 |
|
|
212 |
|
|
720 |
|
Deficit |
|
|
|
|
(44,727 |
) |
|
(26,723 |
) |
Total shareholders' equity |
|
|
|
|
56,472 |
|
|
70,376 |
|
|
|
|
|
$ |
67,292 |
|
$ |
82,151 |
|
Nature of Operations (note 1) |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 19) |
|
|
|
|
|
|
|
|
|
Subsequent events (notes 11, 13 & 18) |
|
|
|
|
|
|
|
|
|
Approved on behalf of the Board |
|
|
|
|
|
/s/
Bradford Cooke |
|
/s/
Godfrey Walton |
Director |
|
Director |
|
|
Endeavour Silver Corp. |
Page - 6 - |
ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(expressed in thousands of US dollars, except for shares and per share
amounts)
|
|
|
|
|
Year
Ended |
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31 |
|
|
December 31 |
|
|
December 31 |
|
|
|
Notes |
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
$ |
39,302 |
|
$ |
32,319 |
|
$ |
15,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
27,802 |
|
|
24,335 |
|
|
9,174 |
|
Depreciation and depletion |
|
|
|
|
8,383 |
|
|
4,682 |
|
|
2,639 |
|
Exploration |
|
|
|
|
8,570 |
|
|
5,967 |
|
|
400 |
|
General and administrative |
|
|
|
|
5,078 |
|
|
4,836 |
|
|
3,009 |
|
Stock-based compensation |
|
13 |
|
|
2,349 |
|
|
4,681 |
|
|
3,413 |
|
Earnings (loss) |
|
|
|
|
(12,880 |
) |
|
(12,182 |
) |
|
(2,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) |
|
|
|
|
(1,452 |
) |
|
2,427 |
|
|
494 |
|
Income (loss) from property option interest
|
|
|
|
|
- |
|
|
- |
|
|
122 |
|
Realized gain (loss) on marketable securities |
|
|
|
|
(637 |
) |
|
665 |
|
|
176 |
|
Impairment on asset backed commercial paper
|
|
10 |
|
|
(1,394 |
) |
|
(1,327 |
) |
|
- |
|
Allowance for value added tax |
|
|
|
|
(800 |
) |
|
- |
|
|
- |
|
Write off of value added tax |
|
|
|
|
(145 |
) |
|
- |
|
|
- |
|
Investment and other
income |
|
|
|
|
305 |
|
|
867 |
|
|
789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes and other items |
|
|
|
|
(17,003 |
) |
|
(9,550 |
) |
|
(1,383 |
) |
Non-controlling interest |
|
|
|
|
- |
|
|
(1,483 |
) |
|
(1,156 |
) |
Income tax recovery (provision) |
|
16 |
|
|
(1,001 |
) |
|
(1,169 |
) |
|
(1,409 |
) |
Net loss for the
period |
|
|
|
|
(18,004 |
) |
|
(12,202 |
) |
|
(3,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities |
|
4 |
|
|
(1,145 |
) |
|
206 |
|
|
- |
|
Reclassification adjustment for loss (gain) included
in net income |
|
4 |
|
|
637 |
|
|
(210 |
) |
|
- |
|
|
|
|
|
|
(508 |
) |
|
(4 |
) |
|
- |
|
Comprehensive income (loss) for the period |
|
|
|
|
(18,512 |
) |
|
(12,206 |
) |
|
(3,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share based on net loss |
|
|
|
$ |
(0.37 |
) |
$ |
(0.27 |
) |
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
49,032,192 |
|
|
45,441,128 |
|
|
37,713,913 |
|
See the accompanying notes to the consolidated financial statements.
|
|
Endeavour Silver Corp. |
Page - 7 - |
ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND DEFICIT
(expressed in thousands of U.S. dollars, except share amounts)
|
|
|
|
|
December 31 |
|
|
December 31 |
|
|
December 31, |
|
|
|
Notes |
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares, opening |
|
|
|
|
48,982,146 |
|
|
42,373,988 |
|
|
32,366,330 |
|
Issued on private placement |
|
13 (c) |
|
|
- |
|
|
- |
|
|
6,333,200 |
|
Exercise of options |
|
13 (d) |
|
|
88,000 |
|
|
727,000 |
|
|
282,500 |
|
Exercise of warrants |
|
13 (f) |
|
|
- |
|
|
3,038,222 |
|
|
2,579,366 |
|
Issued on acquisition of mineral properties
|
|
5 & 11 |
|
|
- |
|
|
2,700,416 |
|
|
671,558 |
|
Share appreciation
rights |
|
13 (e)
|
|
|
10,332 |
|
|
142,520 |
|
|
141,034 |
|
Number of common shares, closing |
|
|
|
|
49,080,478 |
|
|
48,982,146 |
|
|
42,373,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, opening |
|
|
|
$ |
87,458 |
|
$ |
63,353 |
|
$ |
31,332 |
|
Issued on private placement |
|
|
|
|
- |
|
|
- |
|
|
23,366 |
|
Exercise of options |
|
13 (d) |
|
|
105 |
|
|
2,704 |
|
|
833 |
|
Exercise of warrants |
|
13 (f) |
|
|
- |
|
|
8,233 |
|
|
5,434 |
|
Issued on acquisition of mineral properties |
|
5 & 11 |
|
|
- |
|
|
12,885 |
|
|
2,252 |
|
Share appreciation rights |
|
13 (e) |
|
|
21 |
|
|
283 |
|
|
136 |
|
Common shares,
closing |
|
|
|
|
87,584 |
|
|
87,458 |
|
|
63,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special warrants, opening |
|
|
|
|
|
|
|
|
|
|
|
|
Issued on private placement, net of issuance costs |
|
13 (c) |
|
|
2,118 |
|
|
- |
|
|
- |
|
Special
warrants, closing |
|
|
|
|
2,118 |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed surplus, opening |
|
|
|
|
8,921 |
|
|
5,064 |
|
|
2,255 |
|
Stock based compensation |
|
13 (d) |
|
|
2,349 |
|
|
4,681 |
|
|
3,413 |
|
Fair value of warrants issued on private placement |
|
13 (f) |
|
|
82 |
|
|
- |
|
|
- |
|
Fair value of warrants issued for mineral
properties |
|
|
|
|
- |
|
|
508 |
|
|
(130 |
) |
Exercise of share purchase options |
|
13 (d) |
|
|
(46 |
) |
|
(1,049 |
) |
|
(338 |
) |
Share appreciation rights |
|
13 (e) |
|
|
(21 |
) |
|
(283 |
) |
|
(136 |
) |
Contributed
surplus, closing |
|
|
|
|
11,285 |
|
|
8,921
|
|
|
5,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated comprehensive income, opening
|
|
|
|
|
720 |
|
|
212 |
|
|
79 |
|
Cumulative impact of reporting currency change |
|
2 |
|
|
- |
|
|
- |
|
|
133 |
|
Cumulative impact of adoption of financial
instrument standard |
|
|
|
|
- |
|
|
512 |
|
|
- |
|
Unrealized gain (loss) on marketable securities |
|
|
|
|
(1,145 |
) |
|
206 |
|
|
- |
|
Realized loss on marketable securities included in net
income |
|
|
|
|
637 |
|
|
(210 |
) |
|
- |
|
Accumulated
comprehensive income, closing |
|
|
|
|
212 |
|
|
720
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, opening |
|
|
|
|
(26,723 |
) |
|
(14,521 |
) |
|
(10,573 |
) |
Loss for the
period |
|
|
|
|
(18,004 |
) |
|
(12,202 |
) |
|
(3,948 |
) |
Deficit, closing |
|
|
|
|
(44,727 |
) |
|
(26,723 |
) |
|
(14,521 |
) |
See the accompanying notes to the consolidated financial statements.
|
|
Endeavour Silver Corp. |
Page - 8 - |
ENDEAVOUR SILVER CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(expressed in
thousands of U.S. dollars)
|
|
|
|
|
Year Ended |
|
|
Year
Ended |
|
|
Year Ended
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
Notes |
|
|
2008 |
|
|
2007 |
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
|
$ |
(18,004 |
) |
$ |
(12,202 |
) |
$ |
(3,948 |
) |
Items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
13 |
|
|
2,349 |
|
|
4,681 |
|
|
3,413 |
|
Depreciation and depletion |
|
|
|
|
8,383 |
|
|
4,682 |
|
|
2,639 |
|
Non-controlling interest |
|
|
|
|
- |
|
|
1,483 |
|
|
1,156 |
|
Future income tax loss (recovery) |
|
16 |
|
|
21 |
|
|
300 |
|
|
1,405 |
|
Unrealized foreign exchange loss
(gain) |
|
|
|
|
(58 |
) |
|
(386 |
) |
|
- |
|
Impairment of asset backed commercial paper |
|
10 |
|
|
1,394 |
|
|
1,327 |
|
|
- |
|
Allowance for doubtful IVA |
|
|
|
|
945 |
|
|
- |
|
|
- |
|
(Gain) loss on marketable securities |
|
|
|
|
637 |
|
|
(665 |
) |
|
176 |
|
Net changes in non-cash working capital |
|
14 |
|
|
(291 |
) |
|
(1,577 |
) |
|
(2,994 |
) |
Cash from (used for)
operations |
|
|
|
|
(4,624 |
)
|
|
(2,357 |
)
|
|
1,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activites |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditures |
|
|
|
|
(12,625 |
) |
|
(17,649 |
) |
|
(10,837 |
) |
Investment in asset backed commercial
paper |
|
10 |
|
|
- |
|
|
(5,203 |
) |
|
- |
|
Acquisition of subsidiary, net of cash acquired
|
|
|
|
|
- |
|
|
- |
|
|
(67 |
) |
Long term deposits |
|
|
|
|
(37 |
) |
|
(877 |
) |
|
- |
|
Investment in marketable securities |
|
|
|
|
(3,963 |
) |
|
(1,555 |
) |
|
(3,449 |
) |
Proceeds from sale of marketable securities
|
|
|
|
|
5,995 |
|
|
2,504 |
|
|
181 |
|
Cash used in investing
activities |
|
|
|
|
(10,630 |
)
|
|
(22,780 |
)
|
|
(14,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments issued |
|
13 |
|
|
2,541 |
|
|
9,891 |
|
|
30,624 |
|
Share issuance costs |
|
|
|
|
(282 |
) |
|
(47 |
) |
|
(1,840 |
) |
Cash from financing
activites |
|
|
|
|
2,259 |
|
|
9,844 |
|
|
28,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
(12,995 |
) |
|
(15,293 |
) |
|
16,459 |
|
Cash and cash equivalents,
beginning of period |
|
|
|
|
16,577 |
|
|
31,870 |
|
|
15,411 |
|
Cash and cash equivalents, end of period |
|
|
|
$ |
3,582 |
|
$ |
16,577 |
|
$ |
31,870 |
|
See note 14 for supplementary cash flow information.
|
|
Endeavour Silver Corp. |
Page - 9 - |
ENDEAVOUR SILVER CORP.
Notes
to the Consolidated Financial Statements
Year ended December 31, 2008,
December 31, 2007 and December 31, 2006
(expressed in thousands of U.S.
dollars, unless otherwise stated)
1. |
NATURE OF OPERATIONS |
|
|
|
Endeavour Silver Corp. and its subsidiary companies
(collectively the Company or Endeavour Silver) are engaged in silver
mining in Mexico and related activities including acquisition,
exploration, development, extraction, processing, refining and
reclamation. |
|
|
|
These financial statements have been prepared on a going
concern basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred
significant operating losses to date. At December 31, 2008, the Company
had working capital of approximately $7.8 million. Management recognizes
that the Company will need to generate additional financial resources in
order to meet its planned business objectives in the near and long term.
The Companys ability to continue as a going concern is dependent on the
Companys ability to raise debt financing, equity financing or the
attainment of profitable operations. |
|
|
|
Subsequent to year end, management completed a
convertible debt financing (see note 18) and continues to pursue
alternatives to improve the financial position of the Company to remain a
going concern through 2009. There can be no assurances that the Company
will continue to obtain adequate additional financing and/or achieve
profitability or positive cash flows. Furthermore, failure to continue as
a going concern would require that the Companys assets and liabilities be
restated on a liquidation basis which would differ significantly from the
going concern basis. |
|
|
2. |
CHANGE IN FUNCTIONAL AND REPORTING
CURRENCY |
|
|
|
Prior to January 1, 2007, the Companys operations were
measured in Canadian dollars and the consolidated financial statements
were expressed in Canadian dollars. Effective January 1, 2007, the US
dollar was adopted as the unit of measure of the Companys operations
which reflects the significant operational exposure to the US dollar, the
predominantly US dollar asset and investment base of the Company and the
transition from an exploration company to a mine operator. Concurrent with
this change in functional currency, the Company adopted the US dollar as
its reporting currency. In accordance with Canadian generally accepted
accounting principles (GAAP), the Company is required to restate all
amounts presented for comparative purposes into US dollars using the
current rate method whereby all revenues, expenses and cash flows are
translated at the average rates that were in effect during these periods
and all assets and liabilities are translated at the closing rate in
effect at the end of these periods. Equity transactions have been
translated at historic rates; the resulting net translation adjustment has
been credited to comprehensive income. |
|
|
|
The effect on the consolidated financial statements
resulted in an accumulated comprehensive income adjustment of $212 as at
December 31, 2006. |
|
|
3. |
SIGNIFICANT ACCOUNTING
POLICIES |
(a) |
Basis of presentation |
|
|
|
These financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
(GAAP). Significant measurement differences from United States GAAP are
described in Note 20 to these financial statements. These consolidated
financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and balances have
been eliminated. |
|
|
(b) |
Use of estimates |
|
|
|
The preparation of financial statements in conformity
with Canadian GAAP requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of mineralized reserves, valuations of asset back commercial
paper, impairment of long-lived assets, measurement of asset retirement
obligations, valuation allowances for future income tax assets, and
assumptions used in determining the fair value of non-cash stock-based
compensation. Actual results could differ from those
estimates. |
|
|
Endeavour Silver Corp. |
Page - 10 - |
ENDEAVOUR SILVER CORP.
Notes
to the Consolidated Financial Statements
Year ended December 31, 2008,
December 31, 2007 and December 31, 2006
(expressed in thousands of U.S.
dollars, unless otherwise stated)
3. |
SIGNIFICANT ACCOUNTING POLICIES
(continued) |
|
|
|
(c) |
Financial instruments |
|
|
|
|
Financial assets and financial liabilities, including
derivatives, are measured at fair value on initial recognition and
recorded on the balance sheet. Measurement in subsequent periods depends
on whether the financial instrument has been classified as
held-for-trading, available-for-sale, held-to-maturity, loans and
receivables or other financial liabilities. |
|
|
|
|
Financial assets and liabilities held-for-trading are
measured at fair value with changes in those fair values recognized in net
income. Financial assets and financial liabilities considered
held-to-maturity, loans and receivables, and other financial liabilities
are measured at amortized cost using the effective interest method of
amortization. Available-for- sale financial assets are measured at fair
value with unrealized gains and losses recognized in other comprehensive
income. Investments in equity instruments classified as available-for-sale
that do not have a quoted market price in an active market are measured at
cost. Derivative instruments, including embedded derivatives, are recorded
on the balance sheet at fair value. Changes in the fair values of
derivative instruments are recognized in net income with the exception of
derivatives designated as effective cash flow hedges. The Company has no
such designated hedges. |
|
|
|
|
The disclosure of the Company financial instruments is
further described in Note 17. |
|
|
|
|
The transition adjustment attributable to the
re-measurement of financial assets and financial liabilities at fair value
for available-for-sale financial assets was recognized in accumulated
other comprehensive income as at January 1, 2007. |
|
|
|
(d) |
Fair value of financial instruments |
|
|
|
|
The fair values of the Companys cash and cash
equivalents, receivables, and accounts payable and accrued liabilities
approximate their carrying values due to their short terms to maturity.
Marketable securities are recorded at fair value. Asset backed commercial
paper is recorded at managements estimated fair value. |
|
|
|
(e) |
Comprehensive income/loss |
|
|
|
|
Other comprehensive income represents changes in
shareholders equity during a period arising from transactions and other
events and circumstances from non-owner sources and includes unrealized
gains and losses on financial assets classified as available-for-sale. The
components of accumulated comprehensive income are disclosed in the
consolidated statement of shareholders equity. At January 1, 2007, the
Company recorded a non cash increase of $512to marketable securities and a
non-cash adjustment of $512 to record the cumulative effect of the change
in accounting policy in accumulated other comprehensive income |
|
|
|
(f) |
Foreign currency translation |
|
|
|
|
The Company uses the U.S. dollar as its functional and
reporting currency. Therefore accounts denominated in currencies other
than the U.S. dollar have been translated as follows: |
|
|
|
|
• |
Revenue and expense items at the rate of exchange in
effect on the transaction date; |
|
• |
Non-monetary assets and liabilities at historical
exchange rates, unless such items are carried at market, in which case
they are translated at the exchange rate in effect on the balance sheet
date; and |
|
• |
Monetary assets and liabilities at the exchange rate at
the balance sheet date. |
|
• |
Exchange gains and losses are recorded in the statement
of operations in the period in which they occur. |
|
|
|
(g) |
Cash and cash equivalents |
|
|
|
|
Cash and cash equivalents consist of deposits in banks
and highly liquid investments with an original maturity at the date of the
purchase of ninety days or less. |
|
|
|
(h) |
Marketable securities |
|
|
|
|
Marketable securities include investments in shares of
companies and other investments capable of reasonably prompt liquidation.
Share investments are classified as available-for-sale and carried at fair
value with unrealized gains and losses at the reporting date recognized in
comprehensive income in accordance with CICA Handbook section
1530. |
|
|
Endeavour Silver Corp. |
Page - 11 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
3. |
SIGNIFICANT ACCOUNTING POLICIES (continued)
|
(i) |
Inventories
|
| |
|
Product inventories are valued at the lower of average production cost and net realizable value. Work-in-process inventories, including ore stockpiles are valued at the lower of average production cost and net realizable value,
after an allowance for further processing costs. Finished goods inventory characterized as dore bars or concentrate is valued at the lower of average production costs and net realizable value. Materials and supplies are valued at the lower of cost
and replacement cost. Similar inventories within the consolidated group are measured using the same method, and the reversal of previous write-downs to net realizable value is required when there is a subsequent increase in the value of
inventories.
|
| |
(j) |
Mineral properties, plant and equipment
|
| |
|
Mineral properties include direct costs of acquiring (including option payments) properties and costs incurred directly in the development process of feasible properties. Expenses relating to exploration properties are expensed as
incurred. Prior to 2007, the Company capitalized exploration expenditures directly related to specific mineral properties. Under the current policy, exploration expenditures on non-producing properties are expensed, while acquisition costs continued
to be capitalized. The change in 2007 was applied retrospectively and the comparatives for 2006 were re- stated in 2007. The amount expensed for the year ended December 31, 2006 was $400, with a corresponding reduction in mineral properties.
|
| |
|
Management periodically reviews the carrying value of its mineral properties with internal and external mining related professionals. A decision to abandon, reduce or expand a specific project is based upon many factors including
general and specific assessments of reserves, anticipated future prices, anticipated future costs of exploring, developing and operating a producing mine, expiration term and ongoing expense of maintaining leased mineral properties and the general
likelihood that the Company will continue exploration. The Company does not set a pre-determined holding period for properties with unproven reserves. However, properties which have not demonstrated suitable mineral concentrations at the conclusion
of each phase of an exploration program are re-evaluated to determine if future exploration is warranted and their carrying values are appropriate.
|
| |
|
If any area of interest is abandoned or it is determined that its carrying value cannot be supported by future production or sale, the related costs are charged against operations in the period of abandonment or determination that
the carrying value exceeds its fair value. The amounts recorded as mineral properties represent costs incurred to date and do not necessarily reflect present or future values.
|
| |
|
The accumulated costs of mineral properties that are developed to the stage of commercial production are amortized using the units of production basis using proven and probable reserves (as defined by National Instrument
43-101).
|
| |
|
Plant and equipment are recorded at cost and amortized using the straight-line method at rates varying from 10% to 30% annually.
|
| |
(k) |
Asset retirement obligations
|
| |
|
These obligations are measured initially at fair value and the resulting costs capitalized to the carrying value of the related asset. In subsequent periods, the liability is adjusted for any changes in the amount or timing of the
estimated future cash costs and for the accretion of discounted underlying future cash flows. The capitalized asset retirement cost is amortized to operations over the life of the asset.
|
| |
(l) |
Revenue recognition
|
| |
|
Mineral revenue, based upon prevailing metal prices, is recognized upon delivery when title and risk of ownership of metals or metal bearing concentrate passes to the buyer and when collection is reasonably assured. Revenue is
subject to adjustment upon final settlement of metal prices, weights and assays. Historically any such adjustments have been insignificant.
|
| |
(m) |
Stock-based compensation
|
| |
|
The Company has a share option plan which is described in Note 13(d). The Company records all stock-based compensation for options using the fair value method. Under the fair value method, stock-based payments are measured at the
fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable, and are charged to operations over the vesting period. The offset is credited to contributed
surplus. Consideration received on the exercise of stock options is recorded as share capital and the related contributed surplus is transferred to share capital.
|
|
|
Endeavour Silver Corp. |
Page - 12 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
3. |
SIGNIFICANT ACCOUNTING POLICIES (continued)
|
(n) |
Income taxes
|
| |
|
The Company follows the asset and liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and losses carried forward. Future tax assets and liabilities are measured using substantively enacted or enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the substantive
enactment date. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the
estimated realizable amount.
|
| |
(o) |
Loss per share
|
| |
|
Basic loss per share is computed by dividing the loss available to common shareholders by the weighted average number of shares outstanding during the period. For all periods presented, loss available to common shareholders equals
the reported loss. The Company uses the treasury stock method for calculating diluted earnings per share. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted earnings per
share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the year. In the Companys case, diluted loss per share presented is
the same as basic loss per share as the effect of outstanding options and warrants in the loss per share calculation would be anti-dilutive.
|
| |
(p) |
Comparative figures
|
| |
|
Certain of the prior periods comparative figures have been reclassified to conform to the presentation adopted in the current year.
|
4. |
ADOPTION OF NEW ACCOUNTING STANDARDS
|
| | |
|
On January 1, 2008, the Company adopted five new accounting standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1506, Accounting Changes; Handbook Section 1535, Capital
Disclosures; Handbook Section 3031, Inventories; Handbook Section 3862, Financial Instruments Disclosure and Handbook Section 3863, Financial Instruments Presentation.
|
| | |
|
(a) |
Effective January 1, 2008, the Company adopted the new CICA Section 1506, Accounting Changes, which establishes criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in
accounting policies, changes in estimates and correction of errors. As a result of adopting this new standard, changes in accounting policies are only permitted when required by a primary source of GAAP or when the change will result in more
reliable and more relevant information. There were no changes in policies or estimates during the period, except for those new standards adopted and noted below.
|
| | |
|
(b) |
Effective January 1, 2008, the Company adopted the new CICA Section 1535, Capital Disclosures, which requires companies to disclose their objectives, policies and processes for managing capital, quantitative data about what
the entity regards as capital, and whether companies have complied with externally imposed capital requirements and, if not in compliance, the consequences of such non-compliance. The Company has included this disclosure in note 13 (a).
|
|
|
Endeavour Silver Corp. |
Page - 13 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
4. |
ADOPTION OF NEW ACCOUNTING STANDARDS (continued)
|
|
(c) |
Effective January 1, 2008, the Company adopted
the CICA Section 3031, Inventories, which replaces Section 3030
of the same name. This standard harmonizes accounting for inventories
under Canadian GAAP with International Financial Reporting Standards (IFRS).
Under this standard, inventories are measured at the lower of cost and
net realizable value. Similar inventories within a consolidated group
are to be measured using the same method, and the reversals of previous
write-downs to net realizable value are required when there is a subsequent
increase in the value of inventories. |
|
|
|
|
|
|
The application of this section has not
impacted the Companys financial statements. |
|
|
|
|
|
(d) |
Effective January 1, 2008, the Company adopted
the CICA Section 3862, Financial Instruments Disclosures, and
Section 3863, Financial Instruments Presentation. These
standards replace CICA 3861, Financial Instruments Disclosure
and Presentation. |
|
|
|
|
|
|
These standards increase the disclosures
currently required, which will enable users to evaluate the significance
of financial instruments for an entitys financial position and performance,
including disclosures about fair value. In addition, disclosure is required
of qualitative and quantitative information about exposure to risks arising
from financial instruments, included specified minimum disclosures about
credit risk, liquidity risk, and market risk. The quantitative disclosures
must provide information about the extent to which the company is exposed
to such risk, based on information provided internally to the entitys
key management personnel. See note 17 for further disclosure. |
|
|
|
|
|
(e) |
Recently released Canadian accounting
standards |
|
|
|
|
|
|
The Company has assessed new and revised
accounting pronouncements that have been issued that are not yet effective
and determined that the following may have a significant impact on the
Company: |
|
|
|
|
|
|
i) |
In 2006, the Canadian Accounting Standards Board ("AcSB")
published a new strategic plan that will significantly affect financial
reporting requirements for Canadian companies. The AcSB strategic plan
outlines the convergence of Canadian GAAP with IFRS over an expected five
year transitional period. In February 2008 the AcSB announced that 2011
is the changeover date for publicly-listed companies to use IFRS, replacing
Canada's own GAAP. The date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011. The transition
date of January 1, 2011 will require the restatement for comparative purposes
of amounts reported by the Company for the year ended December 31, 2010.
While the Company has begun assessing the adoption of IFRS for 2011, the
financial reporting impact of the transition to IFRS cannot be reasonably
estimated at this time. |
|
|
|
|
|
|
ii) |
In February 2008, the CICA issued Handbook Section
3064, Goodwill and intangible assets which replaces section 3062,
Goodwill and intangible assets and Section 3450, Research and
Development Costs effective for the Company January 1, 2009. Section
3064 establishes standard for recognition, measurement and disclosure
of goodwill and intangible assets. The Companys assessing the impact
of these standards on its consolidated financial statements. |
|
|
Endeavour Silver Corp. |
Page - 14 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
5. |
BUSINESS ACQUISITION AND SIGNIFICANT ASSET
ACQUISITIONS (continued) |
|
a) |
Acquisition of the Guanacevi property |
|
|
|
|
|
In May 2004, the Company entered into an option agreement
to acquire 100% interest in the outstanding shares of Minera Santa Cruz
y Garibaldi SA de CV (Minera Santa Cruz), which owns 100%
of the producing Santa Cruz silver-gold mine located in Durango, Mexico
for $2.5 million, with final payment occurring January 28, 2008. On January
28, 2006 the Company completed the acquisition of 51% of the outstanding
shares of Minera Santa Cruz on completion of initial cash payments totaling
$1,275. |
|
|
|
|
|
In May 2004, the Company entered into option agreements
to purchase certain mining concessions and the Guanacevi mineral processing
plant, also located in Durango, Mexico. The Company acquired a 51% beneficial
ownership interest in these assets on January 28, 2006 on payment of $2.3
million. In 2006, the Company accounted for this acquisition as a purchase
of an asset and accordingly reclassified $1.7 million from mineral properties
to plant and equipment. The remaining 49% interest was to be transferred
upon completion of the 2008 payment. However in July 2006, the Company
acquired 100% shares of the company that owned the plant, Metalurgica
Guanacevi, S.A. de C.V. (Metalurgica), for $2.6 million comprised
of $438 and 671,558 units at a market price of CAN $3.53 per unit. Each
unit was comprised of one common share and one-quarter of a common share
purchase warrant; each full warrant was exercisable to purchase one common
share at an exercise price of CAN $3.70 until August 23, 2007 (Note 13
(e)) |
|
|
|
|
|
The following table sets forth the original May 2004
payment schedules: |
|
|
|
|
|
|
|
|
|
Mining
|
|
|
|
|
|
|
|
Minera Santa Cruz |
|
|
Processing Plant |
|
|
concessions |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial option agreement - |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2004 |
$ |
- |
|
$ |
57 |
|
$ |
43 |
|
$ |
100 |
|
|
Agreement |
|
|
|
|
514 |
|
|
386 |
|
|
900 |
|
|
January 28, 2005 |
|
852 |
|
|
1,143 |
|
|
5 |
|
|
2,000 |
|
|
January 28, 2006 |
|
423 |
|
|
572 |
|
|
5 |
|
|
1,000 |
|
|
January 28, 2007 |
|
638 |
|
|
857 |
|
|
5 |
|
|
1,500 |
|
|
January 28, 2008 |
|
638 |
|
|
857 |
|
|
5 |
|
|
1,500 |
|
|
|
$ |
2,551 |
|
$ |
4,000 |
|
$ |
449 |
|
$ |
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51% ownership |
|
1,275 |
|
|
2,286 |
|
|
439 |
|
|
4,000 |
|
|
100% ownership |
|
1,276 |
|
|
1,714 |
|
|
10 |
|
|
3,000 |
|
|
|
$ |
2,551 |
|
$ |
4,000 |
|
$ |
449 |
|
$ |
7,000 |
|
Under the Minera Santa Cruz option
interest agreement the scheduled January 28, 2007 payment of $638 was made with
176,201 shares of the Company in lieu of cash.
The Company was able to acquire the
remaining shares of Minera Santa Cruz for the final option interest agreement
payment of $638 due in January 2008, however the Company negotiated an early buy
out of the minority shareholders. In May 2007, the Company issued 1,350,000
shares of the Company with a fair market value of $5.04 to acquire the remaining
49% of outstanding shares in Minera Santa Cruz. The settlement price reflected
the minority shareholders earnings to date, the 2008 option payment and the
projected 2007 earnings. The aggregate purchase price of $6.8 million above the
non-controlling interest liability of $4.1 million and the future income tax
liability of $1.6 million was allocated to mineral properties.
|
|
Endeavour Silver Corp. |
Page - 15 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
|
BUSINESS ACQUISITION AND SIGNIFICANT ASSET ACQUISITIONS
(continued) |
|
b) |
Acquisition of the Guanajuato mines project |
|
|
|
|
|
On April 30, 2007 the Company acquired the exploitation
contracts to the Unidad Bolanitos silver-gold mines and plant located
in the northern parts of the Guanajuato and La Luz silver districts in
the state Guanajuato, Mexico. The Company paid $2.4 million in cash and
224,215 shares of the Company with a fair market value of $4.46 per share. |
|
|
|
|
|
On May 30, 2007 the Company acquired 100% of the Guanajuato
mine assets from two subsidiary companies of Industrias Penoles SA de
CV (Penoles). The assets consist of 2,071 hectares of land,
three mines and a 500 ton per day processing plant. The purchase price
was 800,000 shares of the Company with a fair market value of $4.84 and
250,000 2 year warrants with an exercise price of CAN $5.50. The fair
value of the warrants was determined to be $460; the fair value was based
on an expected stock price volatility of 68.7%, expected life of 2 years
and an estimated risk-free rate of 3.98%. |
|
|
|
|
|
The Company accounted for these acquisitions as asset
acquisitions as the contracts and the plant are considered to be separate
asset purchases that do not represent a business as defined under Canadian
GAAP. |
|
|
|
|
|
The Company allocated $7.3 million to mineral properties,
$396 to the plant and recognized an asset retirement obligation of $664
related to the future reclamation of the Guanajuato properties (Note 12). |
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Investment in shares of companies, at cost
|
$ |
35 |
|
$ |
3,066 |
|
|
Unrealized gain
|
|
- |
|
|
507
|
|
|
|
$ |
35 |
|
$ |
3,573 |
|
7. |
ACCOUNTS RECEIVABLE AND
PREPAIDS |
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
$ |
1,661 |
|
$ |
1,908 |
|
|
IVA receivables |
|
2,886 |
|
|
4,676 |
|
|
Other receivables (1) |
|
843 |
|
|
26 |
|
|
Prepaids and
advances |
|
813 |
|
|
590
|
|
|
|
$ |
6,203 |
|
$ |
7,200 |
|
(1) Includes receivable from monthly
income tax installments of $720
In 2008, the Company recorded a $800
allowance related to value added tax outstanding from periods prior to 2007, and
wrote off $145 of value added tax related to 2007 and 2008, which is deemed
uncollectible.
|
|
|
December 31 |
|
|
December 31 |
|
|
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Warehouse inventory |
$ |
1,642 |
|
$ |
1,294 |
|
|
Stockpile inventory |
|
151 |
|
|
1,012 |
|
|
Finished Goods inventory |
|
941 |
|
|
348 |
|
|
Work in process
inventory |
|
425 |
|
|
262
|
|
|
|
$ |
3,159 |
|
$ |
2,916 |
|
|
|
Endeavour Silver Corp. |
Page - 16 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
9. |
RELATED PARTY TRANSACTIONS
|
| |
|
The Company shares common administrative services and office space with related party companies and from time to time will incur third party costs on behalf of the related parties on a full cost recovery basis. The Company has a
$21 receivable related to administration costs outstanding as of December 31, 2008 (2007 $ nil, 2006 - $ 34).
|
| |
|
During the course of the period the company paid $155 (2007 - $177, 2006 - $ nil) in consulting fees to a company with common directors and management.
|
| |
|
The Company has paid $120 (2007 $130, 2006- $255) for legal services to a legal firm with a common member of management. The Company has $31 payable related to legal and share issuances costs outstanding as
of December 31, 2008.
|
| |
|
On December 31, 2007 the Company signed option agreements with Aztec Metals Corp. (Aztec) a non-public company with common directors, whereby Aztec had the right to acquire unexplored properties (Rio Chico and
Matehuala) for a cash payment of $63 and issuance of 533,333 common shares in Aztec.
|
| |
|
Aztec paid Endeavour $43 and delivered a signed silver participation contract June 30, 2008 to exercise the option on the Matehuala property and cancelled the option to acquire the Rio Chico property during the year. The
common shares acquired by the Company have an estimated value of $35 as of December 31, 2008, compared to $160 deemed cost. The Company has $98 receivable related to 2008 property tax payments and the initial Rico Chico option payment
outstanding as of December 31, 2008. Subsequent to year end, the Company agreed to accept common shares in lieu of cash for the outstanding receivable.
|
| |
|
In 2007, the Company paid $95 in performance bonus compensation to terminated employees who are now employees of a company with common directors and management. There were no such transactions during the current fiscal
year.
|
| |
10. |
LONG TERM INVESTMENTS
|
| |
|
At December 31, 2008 the Company held Canadian Asset Backed Commercial Paper ABCP purchased in a Canaccord Capital account in August 2007 with a par value $5.2 million. At the dates at which we acquired the
investments, the non-bank sponsored ABCP was rated RI (High) by Dominion Bond Rating Services (DBRS), the highest credit rating issued for commercial paper. In August 2007, the ABCP market experienced liquidity problems and was
subsequently frozen.
|
| |
|
In September 2007, a Pan-Canadian Committee (the Committee) consisting of a panel of major ABCP investors was formed to restructure the affected ABCP trusts. A press release issued by the Committee on December 23, 2007
outlined a proposal to restructure ABCP for new notes that have maturities based on the maturities of the assets of underlying ABCP
|
| |
|
As of December 31, 2007, based on the information available, the Company estimated the fair value of our ABCP investments to be $3.9 million, calculated by taking a 20% impairment from the face value of the asset and
discounting the remaining value over a one year period using a discount rate of prime + 1%, resulting in an $1.3 million impairment.
|
| |
|
On March 20, 2008 the Committee issued an information statement which provided details of the restructuring plan. The proposed restructuring plan (the Restructuring Plan) was submitted under the Companies Creditors
Arrangement Act and approved by the majority of noteholders on April 25, 2008. The Restructuring Plan was sanctioned by the Ontario Superior Court on June 5, 2008. Subsequent to the approval the court of appeal reviewed filing by a group of
investors seeking relief including dismissal of the Restructuring Plan and as of September 19, 2008 the Supreme Court of Canada denied the noteholders seeking relief thereby allowing the implementation of the Restructuring Plan January 19, 2009.
|
| |
|
The Company has assessed the estimated fair value of our ABCP investments and based on the available information regarding current market conditions, the underlying assets of our existing trusts and the indicative values contained
in the report issued by JP Morgan, we recorded an additional impairment of $1.4 million in the third quarter of 2008 on completion of the court process for implementation of the Restructuring Plan. There is a significant amount of uncertainty in
estimating the amount of timing of cash flows associated with the ABCP. The Company estimated the value using a basic discounted cashflow model assuming principal is repaid between 2013 and 2016, interest earned at banker acceptance less 50 bps,
using a 12% discount rate. This results in an estimated fair value of CAN$2.6 million.
|
|
|
Endeavour Silver Corp. |
Page -17- |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
10. |
LONG TERM INVESTMENTS (continued) |
Subsequent to December 31, 2008 the
Restructuring Plan was executed as follows:
|
• |
The creation of three master asset vehicles
(MAV). |
|
• |
Within each MAV, the issuance of 5 different series of
notes: |
|
|
o |
Class A-1 Notes will be the senior notes, with the other
series of Notes subordinated to them. Class A-1 Notes are expected to
receive AA ratings, have maturities from 6 to 8 years and a coupon rate of
Bankers Acceptance (BA) Rate less 0.5%. |
|
|
o |
Class A-2 Notes will be senior to the Class B Notes, C
Notes and IA Tracking Notes. Class A- 2 Notes are expected to receive AA
ratings, have maturity of 8 years and a coupon rate of BA Rate less
0.5% |
|
|
o |
Class B Notes will be senior to the Class C Notes and IA
Tracking Notes. Class B Notes will not be rated and are expected to have a
maturity of 8 years and a coupon rate BA Rate of less 0.5% |
|
|
o |
Class C Notes will be senior to the IA Tracking Notes.
Class C Notes will not be rated and are expected to have a maturity of 8
years and a coupon rate of 20%. It was stated by JP Morgan the Class C
Notes that investors should expect return closer to BA Rate less
0.5%. |
|
|
o |
IA Tracking Notes will not be rated. IA Tracking Notes
are expected to have a maturity of 8 years and a coupon rate equivalent to
the net rate of return generated by the specific underlying
assets. |
|
• |
The allocation of existing ABCP notes to the new notes
were based on a report issued by J.P. Morgan, financial advisor to the
Committee. The new notes were issued subsequent to year end based on the
relative contribution from the assets underlying the existing trusts based
on this report. |
|
• |
There is no market data on these notes and no formal
rating have yet been issued by DBRS. |
Based on Restructuring Plan:
|
• |
CAN $3,229 of our investments
were replaced with Class A-1 Notes |
|
• |
CAN $1,093 of our investments
were replaced with Class A-2 Notes |
|
• |
CAN $ 198 of our investments were
replaced with Class B Notes |
|
• |
CAN $ 140 of our investments were
replaced with Class C Notes |
|
• |
CAN $ 464 of our investments will
be were replaced with IA Tracking Notes |
11. |
MINERAL PROPERTY, PLANT AND
EQUIPMENT |
|
|
|
Mineral property, plant and equipment
comprise: |
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net book |
|
|
|
|
|
Accumulated |
|
|
Net book |
|
|
|
|
Cost |
|
|
amortization |
|
|
value |
|
|
Cost
|
|
|
amortization |
|
|
value
|
|
|
Properties |
$ |
37,066 |
|
$ |
9,041 |
|
$ |
28,025 |
|
$ |
32,365 |
|
$ |
5,444 |
|
$ |
26,921 |
|
|
Mill |
|
17,380 |
|
|
3,366 |
|
|
14,014 |
|
|
13,723 |
|
|
1,517 |
|
|
12,206 |
|
|
Machinery and equipment |
|
7,575 |
|
|
1,190 |
|
|
6,385 |
|
|
6,754 |
|
|
480 |
|
|
6,274 |
|
|
Transportation and vehicles |
|
1,003 |
|
|
370 |
|
|
633 |
|
|
720 |
|
|
182 |
|
|
538 |
|
|
Buildings |
|
1,770 |
|
|
185 |
|
|
1,585 |
|
|
724 |
|
|
74 |
|
|
650 |
|
|
Office equipment |
|
689 |
|
|
206 |
|
|
483 |
|
|
324 |
|
|
65 |
|
|
259 |
|
|
|
$ |
65,483 |
|
$ |
14,358 |
|
$ |
51,125 |
|
$ |
54,610 |
|
$ |
7,762 |
|
$ |
46,848 |
|
(a) |
Guanacevi properties and plant (Durango,
Mexico) |
|
|
|
See note 5, Business acquisitions and significant asset
acquisitions to these financial statements for a discussion of the
acquisitions of Minera Santa Cruz and Metalurgica. |
|
|
|
In June 2005, the Company acquired nine silver mining
properties in the Guanacevi district, Durango, Mexico, from Industrias
Peñoles S.A. de C.V. (Peñoles). Six of these properties form part of the
producing Santa Cruz silver mine. This transaction effectively allowed the
Company to acquire the outright ownership of the six mineral concessions
as |
|
|
Endeavour Silver Corp. |
Page - 18 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
11. |
MINERAL PROPERTY, PLANT AND EQUIPMENT (continued)
|
|
well as a 4.5% net proceeds royalty from Peñoles. The
Company is required to send all mineral production from these properties
to the Peñoles smelter in Torreon, Mexico, for smelting and refining.
Peñoles retains a 3% net proceeds royalty on future production after
deduction of all shipping and smelting costs, including taxes and
penalties if any. The Company also formed a strategic alliance with
Peñoles to acquire additional mining properties in Mexico. Peñoles has
agreed to provide the Company with access to information on its portfolio
of mineral concessions throughout Mexico. On each additional Peñoles
property made available to the Company to acquire, a purchase price may be
negotiated, payable in common shares of the Company. If the Company
acquires additional properties from third parties introduced by Peñoles,
the Company will pay Peñoles a 5% fee on the purchase price, which is
payable in common shares of the Company. If Peñoles acquires property from
a third party introduced by the Company, Peñoles will pay the Company a 5%
fee on the cash purchase price. In compensation for the nine mining
properties acquired and certain mining equipment located thereon and the
formation of the strategic alliance, the Company issued 1,000,000 units to
Peñoles in July 2005; each unit consisted of one common share and one
warrant to purchase an additional common share at $2.10 until July 22,
2006 and thereafter at $2.30 until July 22, 2007. The fair value of the
warrants was determined to be $260 which was included in mineral
properties; the fair value was based on an expected stock price volatility
of 54.45%, expected life of 1 year and an estimated risk-free rate of
1.28%. |
|
|
|
On November 22, 2007, the Company paid $50 and 30,000
common shares to enter into an option agreement to acquire 100% interest
in the El Maliche property in the Guanacevi district. To exercise the
option an additional $50 is payable in May 2009. |
|
|
|
On November 29, 2007, the Company signed an option to
acquire 100% interest in 15 properties within the San Pedro district in
the state of Durango. The Company issued 120,000 common shares and 60,000
1-year warrants with an exercise price of US $4.69. The fair value of the
warrants was determined to be $48; the fair value was based on an expected
stock price volatility of 55.5%, expected life of 1 year and an estimated
risk-free rate of 3.98%. The warrants expired unexercised subsequent to
year end. To acquire the properties, the Company is required to issue
570,776 shares as final payment in November 2009. |
|
|
|
In prior years the Company acquired various property
concessions in the Guanacevi District that it maintains with nominal
property tax payments to the Mexican government. |
|
|
|
In October 2005, the Company acquired a mining lease from
Minera Tayahua, S.A. de C.V., on the El Porvenir property in Guanacevi.
Under the lease agreement, the Company agreed to mine El Porvenir at a
rate between 9,000 tonnes and 27,000 tonnes per quarter and to pay a 3%
net smelter royalty from production. The Company held the exclusive right
to mine the El Porvenir property for a 5-year period, however the
agreement included a clause that either party can terminate the contract
in advance, without indicating cause, communicating the termination date
at least 2 years before the effective date of the termination. On August
16, 2006 The Company received a letter indicating contract termination as
of August 31, 2008. The Company mined the El Porvenir property until
August 30, 2008. |
|
|
(b) |
Parral properties |
|
|
|
In August 2006, The Company acquired the option to
purchase the concession rights in the El Cometa properties. During the
year ended December 31, 2008 the Company made the 2008 payments on the
properties totaling $130 and has paid $250 to date. The Company continues
to explore the property and has option payments totaling $100 in August
2009 to acquire the concession rights. |
|
|
|
In January 2008, the Company signed an option agreement
to acquire 100% interest in the Navegantes properties, Chihuahua, Mexico
for $470 over two years. On ratification of the option agreement the
Company paid $50, however the Company subsequently dropped the
option. |
|
|
(c) |
Arroyo Seco properties |
|
|
|
In October 2006, the Company acquired an option to
purchase a 100% interest in the Arroyo Seco property, in Michoacan, Mexico
for $229,000 over 5 years. The Company paid $92 during the year ended
December 31, 2008 and has paid $184 of the total option
agreement. |
|
|
Endeavour Silver Corp. |
Page -19 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
11. |
MINERAL PROPERTY, PLANT AND EQUIPMENT (continued)
|
(e) |
Mineral property contingencies |
|
|
|
Management believes the Company has diligently
investigated rights of ownership of all of the mineral properties to a
level which is acceptable by prevailing industry standards with respect to
the current stage of development of each property in which it has an
interest and, to the best of its knowledge, all agreements relating to
such ownership rights are in good standing. However, all properties may be
subject to prior claims, agreements or transfers, and rights of ownership
may be affected by undetected defects. |
|
|
(f) |
Subsequent Events |
|
|
|
In February 2009, the Company signed an option agreement
to acquire Porvenir Cuatro concessions located in the Guanacevi district
for payments totalling $700over two years. The Company paid $100 cash on
ratification of the option and will issue 136,426 shares equivalent to
$200, subject to regulatory approval. To acquire the property the Company
is required issue $240 worth of shares within 1 year of the agreement date
and $160 in cash or shares within 2 years of the agreement
date. |
12. |
ASSET RETIREMENT OBLIGATIONS |
|
|
|
Although the ultimate amount of the reclamation costs to
be incurred cannot be predicted with certainty, the total undiscounted
amount of estimated cash flows required to settle the Companys estimated
obligations is $1,858 (2007 $2,047) based on costs at December 31, 2008,
which has been discounted using a credit adjusted risk free rate of 8.25%.
Significant reclamation and closure activities include land
rehabilitation, decommissioning of buildings and mine facilities, ongoing
care and maintenance and other costs. The payment timing of cash flows has
been estimated based on the mine lives using current reserves, measures
and indicated resources. |
|
|
|
Changes to the reclamation and closure cost balance
during the period are as follows: |
|
Balance at December 31, 2007 |
$ |
1,578 |
|
|
|
|
|
|
|
Changes during the period: |
|
|
|
|
Incurrence |
|
- |
|
|
Change in
estimate |
|
(264 |
) |
|
Interest accretion |
|
131
|
|
|
|
|
|
|
|
Balance at
December 31, 2008 |
$ |
1,445 |
|
The present value of the reclamation
liabilities may be subject to change based on managements changes to estimates,
changes in remediation technology or changes to the applicable laws and
regulations.
|
|
Endeavour Silver Corp. |
Page - 20 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
|
(a) |
The Company considers the items included in the
consolidated statement of shareholders equity as capital. The Companys
objective when managing capital is to safeguard its ability to continue as
a going concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders. The Company
manages the capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure,
the Company may issue new shares through private placements, convertible
debentures, asset acquisitions or return capital to shareholders. The
Company is not subject to externally imposed capital
requirements. |
|
|
|
|
(b) |
As at December 31, 2008 and December 31, 2007 a total of
93,750 common shares are held in escrow, the release of which is subject
to regulatory approval. |
|
|
|
|
(c) |
Private Placements |
|
(i) |
In December 2008, the Company completed a brokered and
non brokered private placements of special warrants for 2,311,540 units at
CAN$1.30 per unit for gross proceeds of CAN$3.0 million. Each special
warrant is exercisable into a unit comprised of one common share and
one-half of a common share purchase warrant. Each whole share purchase
warrant is exercisable to purchase one common share at an exercise price
of CAN$1.90 until February 25, 2014 (Note 13(e)). The agents received a
cash commission of 6% totaling $0.1 million and 131,792 agents warrants
at an exercise price of CAN$1.51 until February 25, 2014. The warrants
issued to the agents have an estimated fair value of $0.1 million and have
been recorded in share capital on a net basis. The special warrants are
classified as a separate equity component at year end as the Company had
not yet received final approval from the provincial securities regulator
on the final prospectus. As of February 25, 2009, the Company received
receipt of final prospectus approval. As of February 25, 2009, all of the
special warrants have been converted into units. |
|
|
|
|
(ii) |
In March 2006, the Company entered into an agreement with
certain agents in a best efforts private placement offering of up to 5
million special warrants at CAN$4.50 per special warrant for gross
proceeds of up to CAN$22.5 million. An over-subscription option allowed
for up to an additional 2 million special warrants for additional proceeds
of CAN$9 million. On April 24, 2006, the Company closed the placement for
5,110,000 special warrants, for gross proceeds of CAN$23.0 million. Each
special warrant was comprised of one common share and one-half of a common
share purchase warrant. Each whole share purchase warrant was exercisable
to purchase one common share at a price of CAN$5.25 until October 24,
2007. The Company filed its prospectus on May 15, 2006 for the placement.
In connection with this offering, the agents received a cash commission of
6% of the gross proceeds and broker warrants exercisable for common shares
equal to 6% of the total special warrants placed. The broker warrants had
the same terms as the warrants in the private placement. |
|
|
|
|
|
The remaining 1.89 million special warrants in the best
efforts private placement offering received shareholder approval in June
2006. In July 2006, the Company issued 1,112,000 special warrants at
CAN$4.50 per special warrant for gross proceeds of CAN$5.0 million. Each
special warrant entitled the holder to acquire 1.1 common shares and 0.55
common share purchase warrants of the Company. Each full share purchase
warrant was exercisable to acquire one common share of the Company at
CAN$5.25 per share until October 24, 2007. On closing of the
over-subscription, the Agents received a 6% cash commission totaling CAN$
0.3 million as well as 66,720 agent special warrants. Each agent special
warrant converted into one agent warrant. Each agent warrant was
exercisable to acquire one common share at $5.25 per share until October
24, 2007. |
|
|
|
|
(iii) |
In February 2005, the Company completed brokered and
non-brokered private placements to raise a total of CAN $1.6 million. The
Company completed a brokered private placement for 312,500 units at
CAN$1.60 per unit for gross proceeds of CAN$ 0.5 million. Each unit
consisted of one common share and one share purchase warrant, exercisable
to acquire one common share at an exercise price of CAN$2.10 until
February 1, 2006 and CAN$2.30 thereafter until February 1, 2007 (Note
13(e)). The Company also completed a non-brokered private placement for
710,500 units at the same price and the same terms as the brokered private
placement for an additional CAN$1.1 million in gross proceeds. Share
issuance costs consisted of agents fees of CAN$38 and 40,000 agents
warrants (with the same terms as the warrants in the private placement).
The 40,000 warrants issued to the agent have a fair value of CAN$22 and
have been recorded in share capital on a net
basis. |
|
|
Endeavour Silver Corp. |
Page - 21 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
13. |
SHARE CAPITAL (continued) |
|
(iv) |
In October 2005, the Company completed a private
placement for 6,000,000 units at CAN$2.40 per unit for gross proceeds of
CAN$14.4 million. Each unit is comprised of one common share and one-half
of a common share purchase warrant. Each whole share purchase warrant is
exercisable to purchase one common share at an exercise price of CAN$2.90
until October 5, 2007. The underwriters received a cash commission of
CAN$0.9 million and 450,000 agents warrants that have the same terms as
the warrants in the private placement. |
(d) |
Purchase options |
|
|
|
Options to purchase common shares have been granted to
directors, officers, employees and consultants pursuant to the current
Companys stock option plan approved by the Companys shareholders in
fiscal 2006, at exercise prices determined by reference to the market
value on the date of the grant. The stock option plan allows for granting
options to its directors, officers, employees and consultants to acquire
up to 6,768,000 shares. In June 2008, Company sought approval from
shareholders to increase the option pool to 9,800,000 shares. Subsequent
to shareholder approval the TSX determined there was inadequate disclosure
within the management information circular for shareholders to effectively
approve the plan amendment. Due to the TSX rejection of the amendment, the
Company was in a position whereby it could not fulfil the exercise of the
entire options granted by management within the year. As of December 19,
2008, directors and officers surrendered 900,000 of their 2008 option
grants. |
|
|
|
The following table summarizes the status of the
Companys stock option plan and changes during the periods
presented: |
|
Prices expressed in
CAN $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008 |
|
|
December
31, 2007 |
|
|
December
31, 2006 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
average |
|
|
|
|
|
average |
|
|
|
|
Number |
|
|
exercise |
|
|
Number |
|
|
exercise |
|
|
Number |
|
|
exercise |
|
|
|
|
of
Shares |
|
|
price |
|
|
of Shares
|
|
|
price
|
|
|
of Shares
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period |
|
4,089,400 |
|
|
$3.25 |
|
|
3,626,400 |
|
|
$2.43 |
|
|
2,223,900 |
|
|
$1.88 |
|
|
Granted |
|
2,133,000 |
|
|
$3.20 |
|
|
1,685,000 |
|
|
$4.13 |
|
|
1,910,000 |
|
|
$2.91 |
|
|
Exercised |
|
(88,000 |
) |
|
$0.83 |
|
|
(727,000 |
) |
|
$2.70 |
|
|
(282,500 |
) |
|
$2.04 |
|
|
Cancelled (1) |
|
(1,401,000 |
) |
|
$3.31 |
|
|
(495,000 |
) |
|
$3.07
|
|
|
(225,000 |
) |
|
$1.52
|
|
|
Outstanding, end of period |
|
4,733,400 |
|
|
$3.28 |
|
|
4,089,400 |
|
|
$3.25 |
|
|
3,626,400 |
|
|
$2.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at period-end |
|
4,263,400 |
|
|
$3.33 |
|
|
4,089,400 |
|
|
$3.25 |
|
|
3,626,400 |
|
|
$2.43 |
|
(1) 20,000 priced at CAN
$1.60 options were cancelled in exchange for 10,332 share appreciation rights in
2008, while 245,000 and 225,000 options were cancelled in exchange for 142,520
and 141,034 share appreciation rights in 2007 and 2006, respectively. See note
13 (e).
The following tables summarize
information about stock options outstanding at December 31, 2008:
|
|
Endeavour Silver Corp. |
Page - 22 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
13. |
SHARE CAPITAL (continued) |
|
|
Options
Outstanding |
|
Options
Exercisable |
|
|
|
Weighted |
|
|
|
|
|
|
Number |
Average |
Weighted |
|
Number |
Weighted |
CAN $ |
|
Outstanding |
Remaining |
Average |
|
Exercisable |
Average |
Price |
|
as at |
Contractual Life |
Exercise |
|
as at |
Exercise |
Intervals |
|
Dec
31, 2008 |
(Number of Years) |
Prices |
|
Dec
31, 2008 |
Prices |
|
|
|
|
|
|
|
|
$0.00 - $0.99 |
|
105,000 |
0.1 |
$0.66 |
|
105,000 |
$0.66 |
$1.00 - $1.99 |
|
380,000 |
0.9 |
$1.55 |
|
348,000 |
$1.59 |
$2.00 - $2.99 |
|
2,040,400 |
2.1 |
$2.63 |
|
1,970,400 |
$2.64 |
$3.00 - $3.99 |
|
648,000 |
4.4 |
$3.14 |
|
280,000 |
$3.20 |
$4.00- $4.99 |
|
1,405,000 |
7.5 |
$4.72 |
|
1,405,000 |
$4.72 |
$5.00- $5.99 |
|
155,000 |
3.3
|
$5.48 |
|
155,000 |
$5.48 |
|
|
|
|
|
|
|
|
|
|
4,733,400 |
3.9
|
$3.28 |
|
4,263,400 |
$3.33 |
During the year ended December 31,
2008, the Company recognized stock-based compensation expense of $2.3 million
(2007 - $4.7 million, 2006 $3.4 million) based on the fair value of options
granted.
Option pricing models require the input
of highly subjective assumptions including the expected price volatility.
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide a
reliable single measure of the fair value of the Companys stock options.
The weighted average fair values of
stock options granted and the assumptions used to calculate compensation expense
have been estimated using the Black-Scholes Option Pricing Model with the
following assumptions for the period ended:
|
|
Period Ended |
|
Period Ended |
|
Period Ended |
|
|
December 31, 2008 |
|
December 31, 2007 |
|
December 31, 2006 |
|
|
|
|
|
|
|
|
Weighted average fair value of |
|
|
|
|
|
|
options granted during the period |
$1.71 |
|
$2.76 |
|
$1.73 |
|
|
|
|
|
|
|
|
Risk-free interest rate |
3.23% |
|
3.98% |
|
3.05% |
|
Expected dividend yield |
0% |
|
0% |
|
0% |
|
Expected stock price volatility |
67% |
|
67% |
|
83% |
|
Expected option life in years |
4.00 |
|
5.52 |
|
4.00 |
In 2008, the Company granted stock
options to new employees to acquire up to 498,000 common shares at a weighted
average exercise price of CAN $3.91 per share with expiry dates between January
1, 2013 and May 31, 2013 with no vesting periods.
In 2008, the Company granted stock
options to directors, officers, employees and contractors to acquire up to
1,635,000 common shares at an exercise price of CAN $2.98 per share with expiry
dates between June 1, 2013 and November 30, 2013. All options granted subsequent
to June 1, 2008 are subject to a vesting period, where by 20% of the options
vest immediately while the remaining vest 20% every six months over a two year
period.
|
|
Endeavour Silver Corp. |
Page - 23 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
13. |
SHARE CAPITAL (continued) |
(e) |
Share appreciation rights plan |
|
|
|
The company allowed that in the event that the Company
graduated to a TSE listing, a participant may, as allowed under the
Exchange policies, if determined by the Board, have the right (the
Right), when entitled to exercise an Option, to terminate such Option in
whole or in part by notice in writing to the Company and in lieu of
receiving Common Shares pursuant to the exercise of the Option, shall
receive instead and at no cost to the participant that number of Common
Shares, disregarding fractions, which, when multiplied by the market price
on the day immediately prior to the exercise of the Right, have a total
value equal to the product of that number of Common shares subject to the
Option times the difference between the market price on the day
immediately prior to the exercise of the Right and the Option exercise
price. The shareholder rights plan agreement was approved and activated
June 14, 2006. During fiscal 2008, 20,000 options (2007 245,000, 2006
225,000) were cancelled for the exchange of 10,332 share appreciation
rights (2007 142,520, 2006 141,034). |
|
|
(f) |
Warrants |
|
|
|
At December 31, 2008, the Company had outstanding
warrants to purchase an aggregate 1,597,562 common shares as
follows: |
Exercise |
|
|
|
|
Oustanding at |
|
|
|
|
|
|
|
|
|
|
|
Oustanding at |
|
Price |
|
Expiry Dates |
|
|
December 31, 2007 |
|
|
Issued |
|
|
Exercised |
|
|
Expired |
|
|
December 31, 2008 |
|
CAN $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.50 |
|
May 30, 2009 |
|
|
250,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
250,000 |
|
$4.65 |
|
January 8, 2009 1 |
|
|
60,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
60,000 |
|
$1.51 |
|
February 25, 2014 |
|
|
- |
|
|
131,792 |
|
|
- |
|
|
- |
|
|
131,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,000 |
|
|
131,792 |
|
|
- |
|
|
- |
|
|
441,792 |
|
1 Subsequent to December 31,
2008 60,000 warrants priced at $4.65 expired.
1,155,770 warrants with a 5 year life
and an exercise price of $1.90 were issued on the on the conversion of the
special warrants subsequent to year end. See note 13 (c)(i) for more
details.
At December 31, 2007, the Company had
outstanding warrants to purchase an aggregate 310,000 common shares as
follows:
Exercise |
|
|
|
|
Oustanding at |
|
|
|
|
|
|
|
|
|
|
|
Oustanding at |
|
Price |
|
Expiry Dates |
|
|
December 31, 2006 |
|
|
Issued |
|
|
Exercised |
|
|
Expired |
|
|
December 31, 2007 |
|
CAN $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.30 |
|
February 1, 2007
|
|
|
327,000 |
|
|
- |
|
|
(320,000 |
) |
|
(7,000 |
) |
|
- |
|
$2.90 |
|
October 5, 2007 |
|
|
2,601,634 |
|
|
- |
|
|
(2,554,134 |
) |
|
(47,500 |
) |
|
- |
|
$5.25 |
|
October 24, 2007
|
|
|
3,539,920 |
|
|
- |
|
|
(10,135 |
) |
|
(3,529,785 |
) |
|
- |
|
$3.70 |
|
August 23, 2007 |
|
|
167,888 |
|
|
- |
|
|
(153,953 |
) |
|
(13,935 |
) |
|
- |
|
$5.50 |
|
May 30, 2009 |
|
|
- |
|
|
250,000 |
|
|
- |
|
|
- |
|
|
250,000 |
|
$4.65 |
|
January 8, 2009 |
|
|
- |
|
|
60,000 |
|
|
- |
|
|
- |
|
|
60,000 |
|
|
|
|
|
|
6,636,442 |
|
|
310,000 |
|
|
(3,038,222 |
) |
|
(3,598,220 |
) |
|
310,000 |
|
|
|
Endeavour Silver Corp. |
Page - 24 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
13. |
SHARE CAPITAL (continued) |
At December 31, 2006, the Company had
outstanding warrants to purchase an aggregate 6,636,442 common shares as
follows:
Exercise |
|
|
|
|
Oustanding at |
|
|
|
|
|
|
|
|
|
|
|
Oustanding at |
|
Price |
|
Expiry Dates |
|
|
December 31, 2005 |
|
|
Issued |
|
|
Exercised |
|
|
Expired |
|
|
December 31, 2006 |
|
CAN $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.30 |
|
February 1, 2007
|
|
|
1,058,000 |
|
|
- |
|
|
(731,000 |
) |
|
- |
|
|
327,000 |
|
$2.10 |
|
July 22, 2007 |
|
|
1,000,000 |
|
|
- |
|
|
(1,000,000 |
) |
|
- |
|
|
- |
|
$2.90 |
|
October 5, 2007
|
|
|
3,450,000 |
|
|
- |
|
|
(848,366 |
) |
|
- |
|
|
2,601,634 |
|
$5.25 |
|
October 24, 2007 |
|
|
- |
|
|
3,539,920 |
|
|
|
|
|
- |
|
|
3,539,920 |
|
$3.70 |
|
August 23, 2007 |
|
|
- |
|
|
167,888 |
|
|
- |
|
|
- |
|
|
167,888 |
|
|
|
|
|
|
5,508,000 |
|
|
3,707,808 |
|
|
(2,579,366 |
) |
|
- |
|
|
6,636,442 |
|
14. |
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
FLOWS |
|
|
|
Period Ended |
|
|
Period Ended |
|
|
Period Ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net changes in non-cash working capital |
|
|
|
|
|
|
|
|
|
|
Accounts receivable and prepaids |
$ |
52 |
|
$ |
(4,096 |
) |
$ |
(1,481 |
) |
|
Inventories |
|
(662 |
) |
|
634 |
|
|
(2,234 |
) |
|
Due from related parties |
|
109 |
|
|
(194 |
) |
|
(35 |
) |
|
Accounts payable and accrued
liabilities |
|
991 |
|
|
1,302 |
|
|
752 |
|
|
Income taxes payable |
|
(781 |
) |
|
777
|
|
|
4 |
|
|
|
$ |
(291 |
) |
$ |
(1,577 |
) |
$ |
(2,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing
activities: |
|
|
|
|
|
|
|
|
|
|
Reclamation included in mineral property, plant and
equipment |
$ |
(264 |
) |
$ |
525 |
|
$ |
954 |
|
|
Tax gross up related to
acquistion of subsidiaries |
|
- |
|
|
1,853 |
|
|
986 |
|
|
Fair value of stock options allocated to
shares issued |
|
|
|
|
|
|
|
|
|
|
on exercise of stock options |
|
46 |
|
|
1,049 |
|
|
338 |
|
|
Fair value of shares issued under the share
appreciation rights plan |
|
21 |
|
|
283 |
|
|
136 |
|
|
Fair value of equity issued on
buy out of Minera Santa Cruz |
|
- |
|
|
7,444 |
|
|
204 |
|
|
Fair value of agent warrants issued on private
placement |
|
82 |
|
|
- |
|
|
- |
|
|
Fair value of equity issued on
acquisition of Guanajuato mines project |
|
- |
|
|
5,332 |
|
|
- |
|
|
Fair value of equity issued on acquisition of
other mineral properties |
|
- |
|
|
661 |
|
|
- |
|
|
Fair value of equity issued on
acquisition of Metalurgica |
|
- |
|
|
- |
|
|
2,121 |
|
|
|
Endeavour Silver Corp. |
Page - 25 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
15. |
SEGMENT DISCLOSURES |
|
|
|
The Company has corporate/exploration and mining
segments, while Guanacevi and Guanajuato operations are disclosed below as
separate producing operations. |
|
|
|
December 31, 2008 |
|
|
|
|
Corporate |
|
|
Guanacevi |
|
|
Guanajuato |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
3,246 |
|
$ |
255 |
|
$ |
81 |
|
$ |
3,582 |
|
|
Marketable securities |
|
35 |
|
|
- |
|
|
- |
|
|
35 |
|
|
Accounts receivables and prepaids |
|
1,758 |
|
|
2,837 |
|
|
1,608 |
|
|
6,203 |
|
|
Inventories |
|
- |
|
|
2,175 |
|
|
984 |
|
|
3,159 |
|
|
Due to related parties |
|
119 |
|
|
- |
|
|
- |
|
|
119 |
|
|
Mineral property,plant and equipment |
|
100 |
|
|
41,547 |
|
|
9,478 |
|
|
51,125 |
|
|
Long term investments |
|
2,155 |
|
|
- |
|
|
- |
|
|
2,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
- |
|
|
30,692 |
|
|
8,610 |
|
|
39,302 |
|
|
Net income (loss) before taxes and other items |
$ |
(20,180 |
) |
$ |
4,757 |
|
$ |
(1,580 |
) |
|
(17,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
Corporate |
|
|
Guanacevi |
|
|
Guanjuato |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
16,404 |
|
$ |
779 |
|
$ |
(606 |
) |
$ |
16,577 |
|
|
Marketable securities |
|
3,573 |
|
|
- |
|
|
- |
|
|
3,573 |
|
|
Accounts receivables and prepaids |
|
253 |
|
|
4,473 |
|
|
2,474 |
|
|
7,200 |
|
|
Inventories |
|
- |
|
|
2,544 |
|
|
372 |
|
|
2,916 |
|
|
Due to related parties |
|
228 |
|
|
- |
|
|
- |
|
|
228 |
|
|
Mineral property,plant and equipment |
|
166 |
|
|
37,194 |
|
|
9,488 |
|
|
46,848 |
|
|
Long term investments |
|
3,932 |
|
|
- |
|
|
- |
|
|
3,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
- |
|
|
28,245 |
|
|
4,074 |
|
|
32,319 |
|
|
Net income (loss) before taxes and other items |
$ |
(11,270 |
) |
$ |
4,481 |
|
$ |
(2,761 |
) |
$ |
(9,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endeavour Silver Corp. |
Page - 26 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
16. |
INCOME TAXES |
|
|
|
On October 1, 2007, the Government of Mexico enacted
legislation which introduces certain tax reforms including a new minimum
flat tax effective January 1, 2008. In 2008, the interpretation of the
legislation, planning and experience resulted in the Company assessing the
future income tax of the projects and entities will be subject to the
income tax regime over the life of the projects as opposed to estimating
the entities will be subject to the minimum flat tax regime in
2007. |
|
|
|
When circumstances cause a change in managements
judgment about the recoverability of future tax assets, the impact of the
change on the valuation allowance will be reflected in current
income. |
|
|
|
The reconciliation of the income tax provision computed
at statutory rates to the reported income tax provision is as
follows: |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Canadian statutory tax rates |
|
31.00% |
|
|
34.12% |
|
|
|
|
|
|
|
|
|
|
Income tax benefit computed at Canadian
statutory rates |
$ |
(5,263 |
) |
$ |
(3,772 |
) |
|
Foreign tax rates different from statutory rate |
|
838 |
|
|
(341 |
) |
|
Temporary differences not recognized in the
period |
|
2,031 |
|
|
4,606 |
|
|
Permanent differences |
|
2,063 |
|
|
2,008 |
|
|
Change in Mexico tax regime estimate |
|
1,332 |
|
|
(1,332 |
) |
|
|
|
|
|
|
- |
|
|
|
$ |
1,001 |
|
$ |
1,169 |
|
The tax effect of the temporary
differences that gives rise to future tax as of December 31, 2008 and 2007 for
Mexico subsidiaries is presented below:
|
|
|
December 31, |
|
|
December 31, |
|
|
Mexico operations
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Future income tax assets: |
|
|
|
|
|
|
|
Tax loss carryforwards |
$ |
2,281 |
|
$ |
- |
|
|
Other |
|
810 |
|
|
- |
|
|
Future income tax liabilities: |
|
|
|
|
|
|
|
Mineral properties, plant and
equipment |
$ |
(7,127 |
) |
$ |
(5,099 |
) |
|
Future income tax
liabilities, net |
$ |
(4,036 |
) |
$ |
(5,099 |
) |
As at December 31, 2008, the Company
had available for deduction against future taxable income in Mexico non-capital
losses of approximately MXN $111.1 million (2007 MXN $89.1 million). These
losses, if unutilized, have expiration years ranging from 2011 to 2018.
|
|
Endeavour Silver Corp. |
Page - 27 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
16. |
INCOME TAXES (continued) |
|
|
|
The tax effect of the temporary differences that gives
rise to future tax assets as of December 31, 2008 and December 31, 2007
for Canadian operations is presented below: |
|
|
|
December 31, |
|
|
December 31, |
|
|
Canada operations
|
|
2008 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Future income tax assets: |
|
|
|
|
|
|
|
Tax loss carryforwards |
$ |
3,861 |
|
$ |
3,641 |
|
|
Mineral properties, plant and
equipment |
|
508 |
|
|
640 |
|
|
Other |
|
437 |
|
|
|
|
|
Total future income tax assets |
|
4,806 |
|
|
4,281 |
|
|
Valuation
allowance |
|
(4,806 |
) |
|
(4,250 |
) |
|
Future income tax assets, net |
$ |
- |
|
$ |
31 |
|
As at December 31, 2008, the Company
had available for deduction against future taxable income in Canada non-capital
losses of approximately CAN$16.0 million (2007 CAN $12.0 million). These
losses, if unutilized, have expiration years ranging from 2011 to 2028.
|
|
Endeavour Silver Corp. |
Page - 28 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
17. |
FINANCIAL
INSTRUMENTS |
|
(i) |
Financial Assets and Liabilities |
|
|
|
|
|
The Companys financial instruments consist of cash and
cash equivalents, receivables, marketable securities, accounts payable,
accrued liabilities and asset backed commercial paper (ABCP). Cash and
cash equivalents are designated as held for trading and therefore carried
at fair value, with the unrealized gain or loss recorded in income.
Marketable securities are available for sale with the unrealized gain or
loss recorded in other comprehensive income. Interest income and expense
are both recorded in income. |
|
|
|
|
|
The fair values of cash and cash equivalents, accounts
receivables, accounts payable and accrued liabilities approximate carrying
value because of the short term nature of these instruments. The fair
value of the asset backed commercial paper is determined by discounting
the stream of future payments at the estimated prevailing market rates
(See note 10). There are no significant differences between the carrying
values and the fair values of any financial assets or
liabilities. |
|
|
|
|
(ii) |
Financial Instrument Risk Exposure and Risk
Management |
|
|
|
|
|
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the
risk management process. The types of risk exposure and the way in which
such exposure is managed is provided as follows: |
|
|
|
|
|
Credit Risk |
|
|
|
|
|
The Company is exposed to credit risk on its bank
accounts, trade receivable and IVA receivable balance. Credit risk
exposure on bank accounts is limited through maintaining its cash and
equivalents with high-credit quality financial institutions, maintaining
investment policies, assessing institutional exposure and continual
discussion with external advisors. Trade receivables are generated on the
sale of silver to a large Mexican refiner which the Company has deemed to
have a high credit rating. IVA receivables are generated on the purchase
of supplies and services to produce silver which are refundable from the
Mexican government. |
|
|
|
|
|
Liquidity Risk |
|
|
|
|
|
The Company ensures that there is sufficient capital in
order to meet short term business requirements, after taking into account
the Companys holdings of cash equivalents, marketable securities and
receivables. The Company believes that these sources will be sufficient to
cover the likely short term cash requirements and commitments. |
|
|
|
|
|
Market Risk |
|
|
|
|
|
The significant market risk exposures to which the
Company is exposed are foreign exchange risk, interest risk, and commodity
price risk. |
|
|
|
|
|
Foreign Currency Risk The Companys operations
in Mexico and Canada make it subject to foreign currency fluctuations. The
Companys operating expenses are primarily incurred in Mexican pesos and
Canadian dollars, and the fluctuation of the US dollar in relation to
these currencies will consequently have an impact upon the profitability
of the Company and may also affect the value of the Companys assets and
the amount of shareholders equity. The Company has not entered into any
agreements or purchased any instruments to hedge possible currency
risks. |
|
|
Endeavour Silver Corp. |
Page - 29 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
|
FINANCIAL
INSTRUMENTS (continued) |
The US dollar equivalent of financial
assets and liabilities denominated in currencies other than the US dollar as at
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
Canadian Dollar |
|
|
Mexican Peso |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
5,068 |
|
|
4,825 |
|
|
Financial Liabilities |
|
|
|
|
|
|
|
(870 |
) |
|
(2,679 |
) |
|
Net Financial Assets |
|
|
|
|
|
|
|
4,198 |
|
|
2,146 |
|
|
As at December 31, 2008, with other variables unchanged,
a 20% strengthening of the US dollar against the Canadian dollar would
decrease net earnings by $0.6m due to these financial assets and
liabilities. |
|
|
|
As at December 31, 2008, with other variables unchanged,
a 20% strengthening of the US dollar against the Mexican peso would
decrease net earnings by $0.4m due to these financial assets and
liabilities. |
|
|
|
Interest Rate Risk In respect of financial
assets, the Companys policy is to invest cash at floating rates of
interest and cash reserves are to be maintained in cash equivalents in
order to maintain liquidity. Fluctuations in interest rates impact the
value of cash equivalents. |
|
|
|
Commodity Price Risk The value of the Companys
mineral resource properties is related to the price of silver and gold,
and the outlook for these minerals. Silver and gold prices have
historically fluctuated widely and are affected by numerous factors
outside of the Companys control, including, but not limited to,
industrial and retail demand, central bank lending, forward sales by
producers and speculators, levels of worldwide production, short-term
changes in supply and demand because of speculative hedging activities,
and certain other factors. The Company has elected not to actively manage
our commodity risk at this time. |
|
|
18. |
SUBSEQUENT EVENT |
|
|
|
In February 2009, the Company issued CAN $14 million in
10% subordinated unsecured convertible redeemable debentures (the
Debentures) maturing February 2014. The interest is 10% annually, paid
quarterly in arrears. At any time after February 26, 2009, each Debenture
may be converted by the holder into one unit of the Company consisting of
one of the Companys common shares and one half of a common share purchase
warrant at a conversion price of CAN $1.90 per Debenture. Each full share
purchase warrant will entitle the holder to purchase one common share at
an exercise price of CAN $2.05 for up to 5 years from conversion. A total
of 7,364,737 common shares are issuable upon conversion. Subsequent to
July 26, 2010, each Debenture can be redeemed by the Company for cash,
plus a redemption fee of 7%, provided the closing share price is greater
than CAN $2.85 for thirty consecutive days. The Company incurred placement
fee totaling CAN $1,081 offsetting proceeds, and issued 644,414 share
purchase warrants exercisable at CAN$ 1.90 for five years. |
|
|
19. |
COMMITMENTS |
|
|
|
The Company has operating lease commitments for office
space for $217 annually until 2011, totalling $0.7
million. |
|
|
Endeavour Silver Corp. |
Page - 30 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
20. |
RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
|
| |
|
Accounting practices under Canadian and United States generally accepted accounting principles (GAAP), as they affect the Company, are substantially the same, except for the following measurement differences.
|
(a) |
Stock based compensation
|
| |
|
Under U.S. GAAP, Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (SFAS 123(R)), which is a revision of SFAS 123, Accounting for Stock Based Compensation
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employee, requires all share based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The Company currently uses the fair value method to account for all stock option grants. For the years presented, there are no differences in stock-based compensation.
|
| |
|
Under U.S. GAAP, stock based compensation of $1,696, $586 and $67 would be presented within general and administrative costs, cost of sales and exploration expense, respectively in 2008, whereas the stock- based
compensation expense is reported separately for Canadian GAAP. In 2007 and 2006 stock based compensation of $4,681 and $3,413, respectively would be presented within general and administrative costs.
|
| |
(c) |
Reporting comprehensive income
|
| |
|
Statement of Financial Accounting Standards No 130 (SFAS 130) Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income equals net income (loss) for the year as adjusted for all other non-owner changes in shareholders equity. SFAS 130 requires that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement. For the years ended December 31, 2006 and 2005, comprehensive loss equals $512 and $ nil, respectively. Upon adoption of CICA Handbook Section 1530 on January 1,
2007, there are no ongoing differences between Canadian and US GAAP in reporting and displaying comprehensive income.
|
| |
(d) |
Mineral property exploration
|
| |
|
US GAAP requires that long lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, the
Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the
asset, an impairment loss is recognized. The Securities and Exchange Commission (SEC) staff has indicated that their interpretation of U.S. GAAP requires mineral property exploration costs to be expensed as incurred until commercially
mineable deposits are determined to exist within a particular property, as cash flows cannot be reasonably estimated prior to such determination. Accordingly, for all periods presented, the Company would expense all mineral property exploration
costs for U.S. GAAP purposes, which is consistent with the Canadian GAAP treatment..
|
|
|
Endeavour Silver Corp. |
Page - 31 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
20. |
RECONCILIATION WITH UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES |
(e) |
Accounting for uncertainty in income
taxes |
|
|
|
In June 2006, The FASB has issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be
taken in a tax return. The Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The provisions of FIN 48
are to be applied to all tax positions upon initial adoption, with the
cumulative effect adjustment reported as an adjustment to the opening
balance of retained earnings. The Company did not have any unrecognized
tax benefits at January 1, 2007. In addition, no adjustments were
recognized for uncertain tax benefits during the year. Accordingly, there
is no impact on the Companys December 31, 2008 consolidated financial
statements. |
|
|
|
The Company files income tax returns in Canada and
Mexico. Years ranging from 2002 through 2008, as applicable, are subject
to examination by the taxing authorities in the respective jurisdictions
where returns are filed. |
|
|
(f) |
Impact of recent United States accounting
pronouncements: |
|
(i) |
Effective January 1, 2008, for US GAAP accounting
purposes, the Company has adopted SFAS No.157, Fair Value Measurement
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. The statement only applies to fair value measurements that
are already required. There is no difference between Canadian and US GAAP
to the Companys December 31, 2008 consolidated financial statements
resulting from the adoption of SFAS 157. |
|
|
|
|
(ii) |
Effective January 1, 2008, for US GAAP accounting
purposes, the Company has adopted SFAS No.159, Fair Value Options for
Financial Assets and Liabilities (SFAS 159). SFAS 159 permits entities
to choose to measure various financial instruments and certain other items
at fair value. As the Company has not elected to measure any asset under
SFAS 159, there is no effect on the Companys December 31, 2008
consolidated financial statements. |
|
|
|
|
(iii) |
In June 2008, the EITF reached a consensus on EITF Issue
No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 addresses the
determination of whether an equity linked financial instrument (or
embedded feature) that has all of the characteristics of a derivative
under other authoritative U.S. GAAP accounting literature is indexed to an
entitys own stock and would therefore meet the first part of a scope
exception from classification and recognition as a derivative instrument.
The Company plans to adopt the provisions of EITF 07-5 on January 1, 2009,
for US GAAP accounting purposes. The Company is currently assessing the
effect of the adoption of EITF 07-5 on its consolidated financial
statements. |
|
|
|
|
(iv) |
The FASB has issued FASB Statement No. 141(R),
Business Combinations (SFAS 141R), which amends SFAS No.
141, and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquire. It also provides disclosure
requirements to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS 141R is
effective for fiscal years beginning on or after December 15, 2008 and is
to be applied prospectively. This statement will affect how the Company
accounts for future business combinations. |
|
|
Endeavour Silver Corp. |
Page - 32 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
20. |
RECONCILIATION WITH UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES |
|
(v) |
The FASB has issued FASB Statement No.160, Non
-controlling Interests in Consolidated Financial Statements an amendment
of ARB No.151 (SFAS 160). SFAS 160 establishes accounting and
reporting standards pertaining to (i) ownership interests in subsidiaries
held by parties other than the parent, (ii) the amount of net income
attributable to the parent and to the non-controlling interest, (iii)
changes in a parents ownership interest, and (iv) the valuation of any
retained non-controlling equity investment when a subsidiary is
deconsolidated. For presentation and disclosure purposes, SFAS 160
required non-controlling interests to be classified as a separate
component of stockholders equity. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008 and is to be applied
prospectively, except for the presentation and disclosure requirements
which are to be applied retrospectively for all periods presented. The
Company does not expect this standard to have an effect on the
consolidated financial statements. |
|
|
Endeavour Silver Corp. |
Page - 33 - |
ENDEAVOUR SILVER CORP.
Notes to the Consolidated Financial Statements
Year ended December 31, 2008, December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, unless otherwise stated)
|
HEAD OFFICE |
#301 700 West Pender Street |
|
|
Vancouver, BC, Canada V6C 1G8 |
|
|
Telephone: (604)
685-9775 |
|
|
1-877-685-9775 |
|
|
Facsimile:
(604) 685-9744 |
|
|
Website:
www.edrsilver.com |
|
|
|
|
|
|
|
|
|
|
DIRECTORS |
Bradford Cooke |
|
|
Godfrey Walton |
|
|
Leonard Harris |
|
|
Mario Szotlender |
|
|
Geoff Handley |
|
|
Rex McLennan |
|
|
|
|
|
|
|
OFFICERS |
Bradford Cooke ~ Chairman and Chief Executive
Officer |
|
|
Godfrey Walton ~ President and Chief Operating
Officer |
|
|
Dan Dickson ~ Chief Financial Officer |
|
|
Dave Howe ~ Vice-President, Mexico Operations
|
|
|
Barry Devlin ~ Vice-President, Exploration
|
|
|
Hugh Clarke ~ Vice-President, Corporate
Communications |
|
|
|
|
|
|
|
REGISTRAR AND |
Computershare Trust Company of Canada |
|
TRANSFER AGENT |
3rd Floor - 510 Burrard Street
|
|
|
Vancouver, BC, V6C 3B9 |
|
|
|
|
|
|
|
AUDITORS |
KPMG LLP |
|
|
777 Dunsmuir Street |
|
|
Vancouver, BC, V7Y 1K3 |
|
|
|
|
|
|
|
SOLICITORS |
Koffman Kalef LLP |
|
|
19th Floor 885 West Georgia Street
|
|
|
Vancouver, BC, V6C 3H4 |
|
|
|
|
|
|
|
SHARES LISTED |
Toronto Stock Exchange |
|
|
Trading Symbol - EDR |
|
|
|
|
|
American Stock Exchange |
|
|
Trading Symbol EXK |
|
|
|
|
|
Frankfurt Stock Exchange |
|
|
Trading Symbol - EJD
|
|
|
Endeavour Silver Corp. |
Page - 34 - |
EX-99.3
4
exhibit99-3.htm
MD&A
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 3
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in
US dollars unless otherwise noted) |
Date of Preparation: March 23, 2009
|
PRELIMINARY INFORMATION
The following Managements Discussion and Analysis (MD&A)
of Endeavour Silver Corp. (the Company) should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2008
and the related notes contained therein. In addition, the following should be
read in conjunction with the Companys most recent Annual Information Form,
which has been filed with the Canadian Provincial Securities Regulatory
Authorities (*) and the most recent annual report on Form 40-F which has
been filed with the U.S. Securities and Exchange Commission (the SEC). All
financial information in this MD&A is prepared in accordance with Canadian
generally accepted accounting principles (CAN GAAP), and all dollar amounts
are expressed in U.S. dollars unless otherwise indicated.
Cautionary Note concerning Forward-Looking Statements:
This MD&A contains forward-looking statements within the meaning of
the United States Private Securities Litigation Reform act of 1995 and
forward-looking information within the meaning of applicable Canadian
securities legislation. Such forward-looking statements and information herein
include, but are not limited to, statements regarding Endeavours anticipated
performance in 2009, including silver and gold production, timing and
expenditures to develop new silver mines and mineralized zones, silver and gold
grades and recoveries, cash costs per ounce, capital expenditures and sustaining
capital. The Company does not intend to, and does not assume any obligation to
update such forward-looking statements or information, other than as required by
applicable law. Forward-looking statements or information involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, level of activity, performance or achievements of Endeavour and its
operations to be materially different from those expressed or implied by such
statements. Such factors include, among others: fluctuations in the prices of
silver and gold, fluctuations in the currency markets (particularly the Mexican
peso, Canadian dollar and U.S. dollar); changes in national and local
governments, legislation, taxation, controls, regulations and political or
economic developments in Canada and Mexico; operating or technical difficulties
in mineral exploration, development and mining activities; risks and hazards of
mineral exploration, development and mining (including, but not limited to
environmental hazards, industrial accidents, unusual or unexpected geological
conditions, pressures, cave-ins and flooding); inadequate insurance, or
inability to obtain insurance; availability of and costs associated with mining
inputs and labour; the speculative nature of mineral exploration and
development, diminishing quantities or grades of mineral reserves as properties
are mined; the ability to successfully integrate acquisitions; risks in
obtaining necessary licenses and permits, and challenges to the companys title
to properties; as well as those factors described in the section risk factors
contained in the Companys most recent annual report on Form 40-F filed with the
SEC and Annual Information Form filed with the Canadian securities regulatory
authorities. Although the Company has attempted to identify important factors
that could cause actual results to differ materially from those contained in
forward-looking statements or information, there may be other factors that cause
results to be materially different from those anticipated, described, estimated,
assessed or intended. There can be no assurance that any forward-looking
statements or information will prove to be accurate as actual results and future
events could differ materially from those anticipated in such statements or
information. Accordingly, readers should not place undue reliance on
forward-looking statements or information.
Cautionary Note to U.S. Investors concerning Estimates of
Measured, Indicated and Inferred Resources: In this MD&A, the terms
measured, indicated and inferred resources
are used. The Company advises U.S. investors that while such terms are recognized
and permitted under Canadian securities rules, the SEC does not recognize them.
U.S. investors are cautioned not to assume that all or any part of the mineral
deposits in these categories will ever be converted to proven or probable reserves.
Inferred resources in particular have a great amount of uncertainty
as to their existence, and their economic feasibility. U.S. investors are cautioned
not to assume that all or any part of an inferred mineral resource actually
exists, will ever be upgraded to a higher resource category or will ever be
economically feasible to mine. Under Canadian securities rules, estimates of
inferred resources may not form part of the basis of feasibility or other economic
studies.
(*) available at the SEDAR website at www.sedar.com
1
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
TABLE OF CONTENTS
HISTORY AND STRATEGY
The Company is engaged in the evaluation, acquisition,
exploration, development and exploitation of silver mining properties in
Mexico.
Historically, the business philosophy was to acquire and
explore early-stage mineral prospects in Canada and the United States. In 2002
the Company was re-organized, a new management team was appointed, and the
business strategy was revised to focus on acquiring advanced-stage silver mining
properties in Mexico. Mexico, despite its long and prolific history of metal
production, appeared to be relatively un-explored using modern exploration
techniques and offered promising geological potential for precious metals
exploration and production.
After evaluating several mineral properties in Mexico in 2003,
the Company negotiated an option to purchase the Guanacevi silver mines and
process plant located in Durango, Mexico in May 2004. Management recognized that
even though the mines had run out of ore, little modern exploration had been
carried out to discover new silver ore-bodies. Exploration drilling commenced in
June 2004 and quickly met with encouraging results. By September 2004,
sufficient high grade silver mineralization had been outlined to justify the
development of a ramp into the newly discovered ore-body called North Porvenir.
In December 2004, the Company commenced the mining and processing of ore from
the new North Porvenir mine to produce silver dore bars.
In 2007, the Company replicated the success of Guanacevi with
the acquisition of the Guanajuato Mines project in Guanajuato State. Guanajuato
was very similar in that there was a fully built and permitted processing plant,
the mines were running out of ore and the operation was for sale. The
acquisition was finalized in May 2007 and as a result of the successful mine
rehabilitation and exploration work conducted in 2008, both silver production
and resources grew sharply last year, and Guanajuato is now a strong and growing
part of the Companys asset base.
2
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Both Guanacevi and Guanajuato are good examples of Endeavours
business model of acquiring fully built and permitted silver mines that were
about to close for lack of ore. By bringing the money and expertise needed to
find new silver orebodies, Endeavour has successfully re-opened and is now
expanding these mines to unfold their full potential. The obvious benefit of
acquiring fully built and permitted infrastructure is that if new exploration
efforts are successful, the mine development cycle from discovery to production
only takes a matter of months instead of the several years normally required in
the traditional mining business model.
The Company historically funded its exploration and development
activities through equity financings. Equity financings also facilitated the
acquisition and development of the Guanacevi and Guanajuato Mines projects.
However, since 2004, the Company has been able to finance more and more of its
acquisition, exploration, development and operating activities from production
cash flows.
OPERATING PERFORMANCE
2008 Highlights
|
• |
Mineral sales climbed 22% to $39.3 million |
|
|
|
|
|
• |
Mine operating earnings jumped 44% to $11.5
million |
|
|
|
|
|
• |
Cash costs fell 4% to $9.03 per oz silver
produced |
|
|
|
|
|
• |
Silver production increased 10% to 2.3 million
ounces |
|
|
|
|
|
• |
Silver reserves fell by 7.1 million ounces |
|
|
|
|
|
• |
Silver resources grew by 12.3 million ounces |
|
|
|
|
|
• |
Completed major capital projects at Guanacevi |
|
|
|
|
|
|
• |
Mine Development 5,048 meters |
|
|
• |
Ventilation Shaft 292 meters deep |
|
|
• |
Pump Station Modification |
|
|
• |
Leach Circuit Expansion |
|
|
• |
Electrical Substation Expansion |
|
|
• |
Flotation Circuit Rehabilitation |
|
|
• |
Tailings Dam Phase 2 Expansion |
|
|
• |
New Silver Refinery |
|
|
• |
New Warehouse |
|
|
• |
New Security Building |
|
|
• |
New Assay Lab |
|
|
• |
New Toxic Waste Storage |
|
|
|
|
|
• |
Completed major capital projects at Guanajuato |
|
|
|
|
|
|
• |
Mine Development 2,197 meters |
|
|
• |
Shaft Safety Upgrades 4 shafts |
|
|
• |
Mine Equipment Rehabilitation |
|
|
• |
Crushing Circuit Rehabilitation |
3
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
|
|
• |
New Concentrate Load-Out |
|
|
• |
New Assay Lab |
|
|
• |
New Mechanics Shop |
|
|
• |
Tailings Dam Phase 2 Expansion |
|
|
• |
Drill road/pad Replanting 2,000 trees |
|
|
|
|
|
• |
Successful exploration projects at Guanacevi |
|
|
|
|
|
|
• |
Extended by drilling each of the known North Porvenir,
Santa Cruz, and Alex Breccia ore-bodies to the northwest and to
depth |
|
|
• |
Discovered economically interesting silver-gold-lead-zinc
mineralization in five separate high grade vein systems, three moderate
grade manto systems, and one bulk tonnage, lower grade stock-work zone in
the San Pedro area |
|
|
|
|
|
• |
Successful exploration projects at Guanajuato |
|
|
|
|
|
|
• |
Discovered economically interesting silver-gold
mineralization in two separate high grade vein systems, the 3785 zone in
the Veta Madre and the Lucero, San Jose, Bolanitos and Santa Maria zones
in the Vetas La Luz |
In 2008, the Company continued to make safety a primary focus,
as demonstrated by managements decision to close all of the production shafts
at Guanjuato in January in order to upgrade them to North American safety
standards, in spite of the fact that the shafts were deemed to be safe under
Mexican safety standards. This caused silver production to fall in the first
half of the year but after the shafts were re-opened in June, the Guanajuato
operations were able to quickly expand production through the latter half of the
year. Safety training programs are held regularly at both operations and the
direct result is safer working environments.
Endeavour also focuses on maintaining high environmental
standards at both operations. New toxic waste storage facilities were
constructed in 2008, tailings water is routinely recycled and we have a policy
of zero emissions from our tailings facilities.
The Company is pro-active in its employee relations, which
resulted in an enhanced employee bonus program during the year. Endeavour also
tries to maintain good relations with each of the local communities in which it
operates, including the introduction of new employment opportunities and skills
training programs.
4
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Comparative Table of Consolidated Mine
Operations
|
Plant T'put |
Grade |
Recovered ounces |
Recoveries |
Cash cost |
Period |
Tonnes |
Ag(gpt) |
Au(gpt) |
Ag(oz) |
Au(oz) |
Ag(%) |
Au(%) |
per oz $ |
Production 2007 Year: |
|
|
|
|
|
|
|
|
Q1, 2007 |
47,781 |
427 |
0.88 |
490,986 |
1,020 |
74.8 |
75.1 |
5.45 |
Q2, 2007 |
58,060 |
290 |
0.99 |
430,248 |
1,481 |
74.8 |
76.4 |
9.67 |
Q3, 2007 |
94,469 |
281 |
0.80 |
577,384 |
1,804 |
67.8 |
74.4 |
10.64 |
Q4, 2007 |
91,251 |
319 |
0.85
|
636,866 |
2,122
|
68.0
|
80.4 |
11.09
|
Total |
291,561 |
319 |
0.87 |
2,135,484 |
6,427 |
70.4 |
76.8 |
9.38 |
Production 2008 Year: |
|
|
|
|
|
|
|
|
Q1, 2008 |
78,157 |
304 |
0.71 |
504,669 |
1,433 |
66.2 |
79.8 |
10.01 |
Q2, 2008 |
86,391 |
257 |
0.77 |
517,077 |
1,705 |
72.8 |
83.0 |
9.62 |
Q3, 2008 |
96,721 |
270 |
0.93 |
625,094 |
2,465 |
75.4 |
84.9 |
9.55 |
Q4, 2008 |
90,927 |
288 |
0.98
|
696,075 |
2,416
|
82.2
|
88.4 |
7.43
|
Total |
352,196 |
279 |
0.85 |
2,342,915 |
8,019 |
74.5 |
84.2 |
9.03 |
|
|
|
|
|
|
|
|
|
YTD 2008 : YTD 2007 |
21% |
-12% |
-1% |
10% |
25% |
6% |
10% |
-4% |
Comparative Table of Guanacevi Mine
Operations
|
Plant T'put |
Grade
|
Recovered
Ounces |
Recoveries
|
Cash cost |
Period |
Tonnes |
Ag(gpt) |
Au(gpt) |
Ag(oz) |
Au(oz) |
Ag(%) |
Au(%) |
per oz $ |
Production 2007 Year: |
|
|
|
|
|
|
|
|
Q1, 2007 |
47,781 |
427 |
0.88 |
490,986 |
1,020 |
74.8 |
75.1 |
5.45 |
Q2, 2007 |
40,749 |
377 |
0.72 |
382,377 |
824 |
75.9 |
76.4 |
9.86 |
Q3, 2007 |
68,084 |
342 |
0.61 |
491,643 |
987 |
65.8 |
74.5 |
10.31 |
Q4, 2007 |
69,681 |
370 |
0.65
|
542,789 |
1,126
|
65.4
|
76.9
|
7.45
|
Total |
226,295 |
375 |
0.70 |
1,907,795 |
3,957 |
69.4 |
75.7 |
8.16 |
Production 2008 Year: |
|
|
|
|
|
|
|
|
Q1, 2008 |
68,651 |
322 |
0.60 |
458,624 |
1,012 |
64.5 |
75.9 |
8.61 |
Q2, 2008 |
65,276 |
287 |
0.55 |
419,245 |
883 |
69.2 |
78.7 |
8.92 |
Q3, 2008 |
63,979 |
321 |
0.58 |
465,661 |
976 |
70.7 |
81.3 |
9.66 |
Q4, 2008 |
57,750 |
346 |
0.58
|
514,867 |
917 |
79.4
|
87.7
|
7.37
|
Total |
255,656 |
318 |
0.58 |
1,858,397 |
3,788 |
70.6 |
80.6 |
8.60 |
|
|
|
|
|
|
|
|
|
YTD 2008 : YTD 2007 |
13% |
-15% |
-17% |
-3% |
-4% |
2% |
7% |
5% |
5
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Comparative Table of Guanajuato Mine
Operations
|
Plant T'put |
Grade |
Recovered
Ounces |
Recoveries
|
Cash costs |
Period |
Tonnes |
Ag(gpt) |
Au(gpt) |
Ag(oz) |
Au(oz) |
Ag(%) |
Au(%) |
per oz $ |
Production 2007 Year: |
Purchased May 2, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1, 2007 |
0 |
0 |
0 |
0 |
0 |
0 |
0.0 |
- |
Q2, 2007 |
17,311 |
120 |
1.70 |
47,870 |
657 |
71.7 |
69.4 |
8.07 |
Q3, 2007 |
26,385 |
124 |
1.29 |
85,742 |
817 |
81.5 |
74.7 |
12.58 |
Q4, 2007 |
21,570 |
155 |
1.50
|
94,077 |
886 |
87.7
|
85.0
|
32.97
|
Total |
65,266 |
133 |
1.47 |
227,689 |
2,360 |
81.5 |
76.6 |
20.06 |
Production 2008 Year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1, 2008 |
9,506 |
171 |
1.54 |
46,045 |
421 |
88.1 |
87.7 |
24.58 |
Q2, 2008 |
21,115 |
164 |
1.44 |
97,832 |
822 |
88.1 |
87.7 |
12.75 |
Q3, 2008 |
32,742 |
170 |
1.62 |
159,433 |
1,489 |
88.3 |
87.2 |
9.22 |
Q4, 2008 |
33,177 |
188 |
1.67 |
181,208 |
1,499 |
90.6 |
88.9 |
7.60 |
Total |
96,540 |
175 |
1.59
|
484,518 |
4,231
|
89.0
|
87.9
|
10.79
|
|
|
|
|
|
|
|
|
|
YTD 2008 : YTD 2007
|
48% |
31% |
8% |
113%
|
79% |
9% |
15% |
-46%
|
Consolidated Production Results
2008 compared to 2007
In 2008, Endeavour achieved two important milestones in its
silver mining operations: the Company recorded its fourth consecutive year of
growing silver production, up 10% from 2007 to 2,342,915 ounces (oz) silver; and
cash costs declined for four consecutive quarters, down 4% from 2007 to $9.03 in
2008.
Like 2007, consolidated silver production in 2008 was
relatively flat in the first two quarters, as management focused primarily on
the capital investment programs at Guanacevi, in Durango State, and Guanajuato
in Guanajuato State, expanding the two operating mines and upgrading the two
process plants. As a result of the capital projects, consolidated silver
production rose from approximately 505,000 oz in Q1, 2008 to approximately
695,000 oz in Q4, 2008 and consolidated silver recoveries improved from 66% in
Q1, 2008 to 82% in Q4, 2008. Cash costs of production fell from US$11.09 per oz
silver in the fourth quarter (Q4), 2007 to US$7.43 per oz silver in Q4, 2008.
The increase in silver production is attributable to the
re-commissioning of the Guanajuato Mine, which was acquired in May 2007 but only
re-commenced commercial production in June 2008, after completion of major mine
exploration, rehabilitation and safety upgrade programs. The decrease in cash
costs is a result of both the completion of various capital projects that
improved operating efficiencies, and the depreciation of the Mexican peso
relative to the US dollar.
Guanacevi Mines Production Results
2008 compared to 2007
Silver production for 2008 decreased 3% from 1,907,795 in 2007
to 1,858,397 in 2008. Cash costs increased by 5% at the Guanacevi mine from
$8.16 for 2007 to $8.60 for 2008, with Q4 cash operating costs falling to $7.37
per oz.
6
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
The Guanacevi Mines maintained a flat production profile in
2008 relative to 2007 as a result of the decision to back-off on production
growth in Q3 and Q4, 2008. Tonnage throughput fell from 754 tonnes per day (tpd)
in Q1 2008 to 634 tpd in Q4 2008 on a seven day work week. Ore grades, however,
increased from 322 grams per tonne (gpt) silver and 0.60 gpt gold in Q1, 2008 to
346 gpt silver and 0.58 gpt gold in Q4, 2008, and metal recoveries also
improved, resulting in record quarterly silver production in Q4, 2008.
At Guanacevi, the main factors in the slight reduction of
silver production were lower ore grades in 2008 relative to 2007, the
re-assignment of some mine personnel from production to focus on development and
some down-time at the plant for repairs and various capital projects such as
completion of the new agitation leach circuit.
Guanacevi mine development fell behind plan during the year, as
the mine contractor hired at the beginning of 2008 did not perform to
expectations thus delaying access to the Porvenir North area and limiting mine
production to lower grade parts of the ore-body. The Company recently put
renewed emphasis on accelerating mine development and has replaced the old
contractor with a new mine contractor in order to meet the development plan for
2009. The Company is also focused on opening sufficient new stopes to increase
mine production and provide a selection of ore grades in order to capitalize on
the volatility of precious metal prices.
The plant underwent a number of improvements including
expansion of the leach circuits, contact thickeners and tailings pond to
effectively handle increased throughput. Subsequent to the completion of the
plant expansion, reagents were also adjusted and metal recoveries significantly
increased in the fourth quarter of 2008.
The production costs per ounce increased during the first three
quarters of 2008 as the appreciating Mexican Peso, stope limitations and plant
expansion program reduced output efficiencies. However in the fourth quarter of
2008, completion of expansion program, the downsizing of personnel, the
devaluation of the Mexican Peso, improved mine grades and plant recoveries led
to a significant reduction of cost per ounce for the quarter.
Guanajuato Mines Production Results
2008 compared to 2007
Silver production for 2008 increased 113% from 227,689 in 2007
to 484,518 in 2008. Cash costs decreased by 46% at the Guanajuato mine from
$20.06 per oz in 2007 to $10.79 per oz in 2008, with Q4 2008 cash operating
costs falling to $7.60 per oz.
The Guanajuato Mines in particular enjoyed a substantial
ramp-up in silver production in 2008 due to the successful mine exploration,
rehabilitation and shaft safety upgrade programs undertaken in the first half of
2008. Tonnage throughput rose from 125 tonnes per day (tpd) in Q1, 2008 to 431
tpd in Q4, 2008, operating on a 6 day work week. Ore grades increased from 171
grams per tonne (gpt) silver and 1.54 gpt gold in Q1, 2008 to 188 gpt silver and
1.67 gpt gold in Q4, 2008.
In 2008, the average silver grade increased due to a focus on
mining higher grade material and reducing dilution in the stopes and the average
silver recovery rate increased due to optimization of the plant.
Guanajuato mine production fell behind plan in the first half
of 2008 as a result of managements decision to close all of the main production
shafts in order to upgrade them to North American safety standards. Labour and
equipment were reassigned to rehabilitation activities instead of producing ore
but after the shafts were re-opened in June, the Guanajuato operations were able
to quickly expand production through the latter half of 2008.
The plant underwent minor improvements such as rehabilitating
the crushing circuit and building a new concentrate load-out area. However, the
most significant improvement came as a result of the sharply higher smelting
fees introduced in the second quarter of 2008. Through metallurgical testing,
management discovered that the
7
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Guanajuato silver-gold sulphide concentrates respond very well
to cyanide leaching so the Company ceased shipping concentrates to the smelter
and started shipping them to the Guanacevi leach plant starting in November of
2008.
The production costs per ounce decreased during the first three
quarters of 2008 due to improved efficiencies at the mines. However, in the
fourth quarter of 2008, the new concentrate treatment plan combined with the
devaluation of the Mexican Peso led to a significant additional reduction of
cost per ounce for the quarter.
Cash Costs (Non-GAAP Measure)
Cash operating cost per oz is a non-GAAP measure reported in
the silver and gold mining industry as a benchmark of performance, but it does
not have a standardized meaning prescribed by GAAP and is therefore unlikely to
be comparable to similar measures presented by other issuers. The cash operating
cost is provided to investors and used by management as a measure of the
Companys operating performance. The Company reports its cash operating cost per
oz of silver produced as cost of sales, net of gold credits and royalties.
8
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Reconciliation of cash operating cost per oz to cost of
sales (2008):
Consolidated (in US $000s except ozs produced/payable
and cash cost/oz) |
|
|
|
|
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-08 |
|
|
31-Dec-08 |
|
|
30-Sep-08 |
|
|
30-Jun-08 |
|
|
31-Mar-08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales |
$ |
27,802 |
|
$ |
7,226 |
|
$ |
7,648 |
|
$ |
6,361 |
|
$ |
6,567 |
|
Add/(Subtract): |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
Royalties |
$ |
(807 |
) |
$ |
(264 |
) |
$ |
(77 |
) |
$ |
(198 |
) |
$ |
(268 |
) |
Change
in Inventories |
$ |
173 |
|
$ |
(153 |
) |
$ |
100 |
|
$ |
196 |
|
$ |
30 |
|
By-Product gold sales |
$ |
(6,383 |
) |
$ |
(1,742 |
) |
$ |
(1,821 |
) |
$ |
(1,473 |
) |
$ |
(1,347 |
) |
Cash Operating Costs
|
$ |
20,785 |
|
$ |
5,067 |
|
$ |
5,850 |
|
$ |
4,886 |
|
$ |
4,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ozs Produced |
|
2,343,455 |
|
|
696,615 |
|
|
625,094 |
|
|
517,077 |
|
|
504,669 |
|
Ozs
Payable |
|
2,300,640 |
|
|
682,401 |
|
|
612,465 |
|
|
507,993 |
|
|
497,781 |
|
Cash Cost Per Oz US$ |
$ |
9.03 |
|
$ |
7.43 |
|
$ |
9.55 |
|
$ |
9.62 |
|
$ |
10.01 |
|
Guanacevi Mines (in US $000s except ozs produced/payable
and cash cost/oz) |
|
|
|
|
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-08 |
|
|
31-Dec-08 |
|
|
30-Sep-08 |
|
|
30-Jun-08 |
|
|
31-Mar-08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales |
$ |
19,950 |
|
$ |
4,983 |
|
$ |
5,376 |
|
$ |
4,467 |
|
$ |
5,124 |
|
Add/(Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
$ |
(807 |
) |
$ |
(264 |
) |
$ |
(77 |
) |
$ |
(198 |
) |
$ |
(268 |
) |
Change
in Inventories |
$ |
13 |
|
$ |
(191 |
) |
$ |
(22 |
) |
$ |
196 |
|
$ |
30 |
|
By-Product gold sales |
$ |
(3,336 |
) |
$ |
(769 |
) |
$ |
(824 |
) |
$ |
(764 |
) |
$ |
(979 |
) |
Cash Operating Costs
|
$ |
15,820 |
|
$ |
3,759 |
|
$ |
4,453 |
|
$ |
3,701 |
|
$ |
3,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ozs Produced |
|
1,858,937 |
|
|
515,407 |
|
|
465,661 |
|
|
419,245 |
|
|
458,624 |
|
Ozs
Payable |
|
1,840,348 |
|
|
510,253 |
|
|
461,004 |
|
|
415,053 |
|
|
454,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Cost Per Oz US$ |
$ |
8.60 |
|
$ |
7.37 |
|
$ |
9.66 |
|
$ |
8.92 |
|
$ |
8.61 |
|
Guanajuato Mines Project (in US $000s except ozs
produced/payable and cash cost/oz) |
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-08 |
|
|
31-Dec-08 |
|
|
30-Sep-08 |
|
|
30-Jun-08 |
|
|
31-Mar-08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales |
$ |
7,852 |
|
$ |
2,243 |
|
$ |
2,272 |
|
$ |
1,894 |
|
$ |
1,443 |
|
Add/(Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Change
in Inventories |
$ |
160 |
|
$ |
38 |
|
$ |
122 |
|
$ |
- |
|
$ |
- |
|
By-Product gold sales |
$ |
(3,047 |
) |
$ |
(973 |
) |
$ |
(997 |
) |
$ |
(709 |
) |
$ |
(368 |
) |
Cash Operating Costs
|
$ |
4,965 |
|
$ |
1,308 |
|
$ |
1,397 |
|
$ |
1,185 |
|
$ |
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ozs Produced |
|
484,518 |
|
|
181,208 |
|
|
159,433 |
|
|
97,832 |
|
|
46,045 |
|
Ozs
Payable |
|
460,292 |
|
|
172,148 |
|
|
151,461 |
|
|
92,940 |
|
|
43,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Cost Per Oz US$ |
$ |
10.79 |
|
$ |
7.60 |
|
$ |
9.22 |
|
$ |
12.75 |
|
$ |
24.58 |
|
* Based on payable silver production attributable to cost of
sales.
9
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Reconciliation of cash operating cost per oz to cost of
sales (2007):
Consolidated
(in US $000s except ozs produced/payable and cash cost/oz) |
|
|
|
|
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-07 |
|
|
31-Dec-07 |
|
|
30-Sep-07 |
|
|
30-Jun-07 |
|
|
31-Mar-07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
$ |
24,335 |
|
$ |
8,759 |
|
$ |
6,917 |
|
$ |
5,092 |
|
$ |
3,567 |
|
Add/(Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
$ |
(787 |
) |
$ |
(211 |
) |
$ |
(191 |
) |
$ |
(194 |
) |
$ |
(191 |
) |
Change
in Inventories |
$ |
131 |
|
$ |
(289 |
) |
$ |
518 |
|
|
|
|
$ |
(98 |
) |
By-Product gold sales |
$ |
(3,934 |
) |
$ |
(1,309 |
) |
$ |
(1,199 |
) |
$ |
(799 |
) |
$ |
(627 |
) |
Cash Operating Costs
|
$ |
19,745 |
|
$ |
6,950 |
|
$ |
6,045 |
|
$ |
4,099 |
|
$ |
2,651 |
|
Ozs Produced |
|
2,135,484 |
|
|
636,866 |
|
|
577,381 |
|
|
430,251 |
|
|
490,986 |
|
Ozs Payable |
|
2,105,021 |
|
|
626,734 |
|
|
568,177 |
|
|
424,034 |
|
|
486,076 |
|
Cash Cost Per Oz US$ |
$ |
9.38 |
|
$ |
11.09 |
|
$ |
10.64 |
|
$ |
9.67 |
|
$ |
5.45 |
|
Guanacevi
Mines (in US $000s except ozs produced/payable and cash cost/oz) |
|
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-07 |
|
|
31-Dec-07 |
|
|
30-Sep-07 |
|
|
30-Jun-07 |
|
|
31-Mar-07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
$ |
18,717 |
|
$ |
5,383 |
|
$ |
5,397 |
|
$ |
4,370 |
|
$ |
3,567 |
|
Add/(Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
$ |
(742 |
) |
$ |
(211 |
) |
$ |
(191 |
) |
$ |
(149 |
) |
$ |
(191 |
) |
Change
in Inventories |
$ |
131 |
|
$ |
(289 |
) |
$ |
518 |
|
|
|
|
$ |
(98 |
) |
By-Product gold sales |
$ |
(2,700 |
) |
$ |
(880 |
) |
$ |
(704 |
) |
$ |
(489 |
) |
$ |
(627 |
) |
Cash Operating Costs
|
$ |
15,406 |
|
$ |
4,003 |
|
$ |
5,020 |
|
$ |
3,732 |
|
$ |
2,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ozs Produced |
|
1,907,795 |
|
|
542,789 |
|
|
491,643 |
|
|
382,377 |
|
|
490,986 |
|
Ozs Payable |
|
1,888,717 |
|
|
537,361 |
|
|
486,726 |
|
|
378,554 |
|
|
486,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Cost Per Oz US$ |
$ |
8.16 |
|
$ |
7.45 |
|
$ |
10.31 |
|
$ |
9.86 |
|
$ |
5.45 |
|
Guanajuato
Mines (in US $000s except ozs produced/payable and cash cost/oz) |
|
|
|
|
|
|
For the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year ended |
|
|
|
|
|
For
the three months ended |
|
|
|
|
|
|
31-Dec-07 |
|
|
31-Dec-07 |
|
|
30-Sep-07 |
|
|
30-Jun-07 |
|
|
31-Mar-07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
$ |
5,618 |
|
$ |
3,376 |
|
$ |
1,520 |
|
$ |
722 |
|
$ |
- |
|
Add/(Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
$ |
(45 |
) |
$ |
- |
|
$ |
- |
|
$ |
(45 |
) |
$ |
- |
|
Change
in Inventories |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
By-Product gold sales |
$ |
(1,234 |
) |
$ |
(429 |
) |
$ |
(495 |
) |
$ |
(310 |
) |
$ |
- |
|
Cash Operating Costs
|
$ |
4,339 |
|
$ |
2,947 |
|
$ |
1,025 |
|
$ |
367 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ozs Produced |
|
227,689 |
|
|
94,077 |
|
|
85,738 |
|
|
47,874 |
|
|
- |
|
Ozs Payable |
|
216,304 |
|
|
89,373 |
|
|
81,451 |
|
|
45,480 |
|
|
- |
|
Cash Cost Per Oz US$ |
$ |
20.06 |
|
$ |
32.97 |
|
$ |
12.58 |
|
$ |
8.07 |
|
$ |
0.00 |
|
* Based on payable silver production attributable to cost of
sales.
10
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Exploration Activities
In 2008, Endeavour drilled 41,160 meters (135,000 feet) in 172
drill holes testing 14 exploration targets in order to replace mine reserves and
expand silver resources. The Companys exploration drilling programs in Mexico
met with continued success, highlighted by the discovery of several new, high
grade silver-gold mineralized zones near Endeavours two mining operations,
Guanacevi in Durango State, and Guanajuato in Guanajuato State.
Guanacevi
In 2008, exploration drilling at Guancevi focused in two areas:
expanding the known ore bodies along the Santa Cruz vein structure close to the
Porvenir mine so that they could be added to the mine plan for development and
production; and discovering new high-grade silver mineralized zones in the San
Pedro area north of the Porvenir mine that have the potential to develop future
resources and production. The 2008 drilling program successfully extended each
of the North Porvenir, Santa Cruz, and Alex Breccia ore-bodies to the northwest
and to depth. The Porvenir Dos ore-body was not drilled in 2008.
In the San Pedro area of Guancevi, to the north of the Porvenir
mine, exploration drilling in 2008 intersected economically interesting
silver-gold-lead-zinc mineralization in five separate high grade vein systems,
three moderate grade manto systems, and one bulk tonnage, lower grade stock-work
zone. In contrast to the classic, high grade vein ore-bodies in the Santa Cruz
vein near the Porvenir mine, the San Pedro area geology and mineralization is
slightly different. The veins here tend to be more lead-zinc rich, and narrower
but more numerous. Where they intersect a particular sub-horizontal geological
contact, the mineralization spreads out along the contact as mantos or
pancake-shaped mineralized zones.
The resources increased in two main areas during 2008; the
first is Alex Breccia, where the mineralization was extended to depth by
underground drilling. The zone is still open and expected to continue, however
more drilling from the cross cut is not possible until it is extended further
into the hanging wall; the second is San Pedro where several new zones were
discovered during the year. The Noche Buena and the Veta Blanca areas are both
very interesting new targets. They will be the focus for exploration drilling in
2009. The indicated resources tonnes increased by 44%, 20% in silver ounces and
3% in gold ounces over the indicated resource from last year. The inferred
resource increased in tonnes by 85%, in silver ounces by 42% and in gold ounces
by 19% from 2007.
Guanajuato
In 2008, exploration drilling at Guanajuato focused in two
areas: testing several targets along the Veta Madre vein structure close to the
Cebada mine; and testing several targets along the La Luz vein structures (La
Luz consists of multiple sub-parallel veins) close to the Bolanitos mine. The
2008 drilling program was successful in discovering new high-grade silver-gold
mineralized zones in five target areas; the 3785 mineralized zone near the
Cebada mine, the Bolanitos, Santa Maria, San Jose, and Lucero vein prospects
near the Bolanitos mine.
Compared to Guanacevi, the Guanajuato veins tend to grade
slightly lower in silver but much higher in gold. Within the Guanajuato
district, the Veta Madre vein typically forms a central lode, with hanging-wall
and foot-wall splays, occupying a major fault structure, whereas the La Luz
veins form a swarm of sub-parallel veins occupying lesser fault structures. The
Cebada ore-bodies were typically larger and had greater vertical extent (500+
meters) than at La Luz but the Bolanitos ore-bodies were more numerous.
The new resources in Guanajuato come from two areas; one the
3785 area of Cebada on the Veta Madre; and two the Lucero vein in Bolanitos.
These two main areas were part of the exploration success in Guanajuato and
resulted in a large increase in the resources at Guanajuato. The indicated
resource tonnes increased by 586%, by 615% in silver ounces and 414% in gold
ounces. The inferred resource tonnes increased this year by 144%, in silver
ounces by 156% and in gold ounces by 139% from 2007.
11
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Parral
In August 2006, the Company acquired the option to purchase the
El Cometa property in the district of Hidalgo de Parral, Chihuahua, Mexico. In
2007, the Company discovered, drilled and estimated a NI 43-101 poly-metallic
inferred resource in the Cometa, Consuelo and Estrella veins.
In 2008, an infill drilling program comprised of 6 holes
totaling 1,800 meters was completed at El Cometa. During the year, the Company
made the 2008 payments on the properties totalling $130,000 and has paid
$250,000 to date. The Company continues to explore the property and has option
payments totalling $100,000 in August 2009 to acquire the concession rights.
Arroyo Seco
In October 2006, the Company acquired an option to purchase the
Arroyo Seco property in Michoacan, Mexico for $229,000 over 5 years. In 2007,
the Company carried out a Phase 1 exploration program on the property consisting
of geological mapping, soil and rock sampling, geophysical surveys and diamond
drilling totaling 7 holes.
During 2008, exploration activities on the Companys 1,215
hectare Arroyo Seco project included approximately 10-line kilometers of grid
surveying followed by a ground magnetic geophysical survey and a geochemical
soil sampling program. As this project currently has a lower priority, a Phase 2
diamond drilling program will be considered in 2010. The Company paid $92,000
during the 2008 fiscal year and has paid $184,000 of the total option
agreement.
12
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
RESERVES AND RESOURCES
The updated NI 43-101 reserve and resource estimates to
December 31, 2008 include the Companys three active silver mining and
exploration projects in Mexico, the Guanacevi Mines project in Durango State,
the Guanajuato Mines project in Guanajuato State and the Parral Exploration
project in Chihuahua State.
The Company retained Micon International Ltd (“Micon”),
to audit the updated reserves and resources to December 31, 2008 for the Guanacevi
and Guanajuato projects. The Qualified Person for reporting the reserves is
Robert J. Leader, P.Eng., an, employee of Micon. The Qualified Persons for reporting
the Guanacevi and Guanajuato resources, respectively are William Lewis, B.Sc.,
P.Geo, Charley Murahwi, M.Sc., P.Geo, MAusIMM and Dibya Kanti Mukhopadhyay,
Member AusIMM also Micon employees.
The Companys exploration personnel prepared the updated
resources to December 31, 2008 based on current metal prices for the Parral
project because the resources did not materially change compared to the previous
reserve/resource estimate prepared by SRK Consulting (UK) Limited in April 2008.
The Qualified Person for reporting the resources at cometa is Barry Devlin,
M.Sc., P.Geo., Vice President Exploration for the Company.
The reserve and resource statements for the Guanacevi,
Guanajuato and Parral projects were classified using the definitions and
guidelines of the Canadian Institute of Mining, Metallurgy and Petroleum CIM
standards on Mineral Resources and Reserves (CIM Standards) and the guidelines
of NI 43-101. The information should be read in conjunction with corresponding
technical reports filed on Sedar March 31, 2009.
Reserves
Proven & Probable |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq g/t |
Ag
ounces |
Au
ounces |
Ag-Eq |
Proven
|
|
|
|
|
|
|
|
|
Guanacevi |
57,000 |
361 |
0.49 |
398 |
661,600 |
900
|
729,100 |
Total
Proven |
57,000 |
361 |
0.49 |
398 |
661,600 |
900
|
729,100 |
Probable
|
|
|
|
|
|
|
|
|
Guanacevi |
478,000 |
352 |
0.49 |
389 |
5,410,200 |
7,500
|
5,972,700 |
|
Guanajuato |
214,000 |
251 |
2.20 |
416 |
1,727,100 |
15,100 |
2,859,600 |
Total
Probable |
692,000 |
321 |
1.02 |
397 |
7,137,300 |
22,600 |
8,832,300 |
Total
Proven & Probable |
749,000 |
324 |
0.98
|
397 |
7,798,900 |
23,500 |
9,561,400 |
* Cut-off grade for Proven & Probable Reserves is 270 g/t
Ag for Guanacevi & 230 Ag-Equivalent for Guanajuato
**
Silver-Equivalencies are calcuated using a 75:1 ratio based on prices of USD$ 12
per ounce of silver and USD$900 per ounce of gold; no base metal credits are
used for calculating silver-Equivalencies
13
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Resources
Indicated |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq g/t |
Ag
ounces |
Au
ounces |
Ag-Eq Ounces |
Resources
Indicated |
|
|
Guanacevi |
1,710,000 |
290 |
0.53 |
330 |
15,957,900 |
28,900 |
18,125,400 |
|
Guanajuato |
288,000 |
202 |
1.60 |
322 |
1,872,700 |
14,800 |
2,982,700 |
Total
Indicated |
1,998,000 |
278 |
0.68 |
329
|
17,830,600 |
43,700 |
21,108,100 |
Resources
Inferred |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq g/t |
Ag
ounces |
Au
ounces |
Ag-Eq Ounces |
|
Guanacevi |
1,563,000 |
240 |
0.37 |
268 |
12,069,800 |
18,800 |
13,479,800 |
|
Guanajuato |
782,000 |
229 |
2.00 |
379 |
5,751,000 |
50,300 |
9,523,500 |
Total
Inferred |
2,345,000 |
236 |
0.92 |
305
|
17,820,800 |
69,100 |
23,003,300 |
* Cut-off grade for Indicated & Inferred Resources for Guanacevi
is 200 g/t Ag for Porvenir and 100 g/t Ag for Alex Breccia, Santa Cruz, Porvenir
Dos and Noche Buena
** Cut-off grade for Indicated & Inferred Resources for Guanajuato is 200
g/t Ag-equivalents
*** Silver-Equivalencies are calculated using a 75:1 ratio based on prices of
USD$ 12 per ounce of silver and USD$900 per ounce of gold; no base metal credits
are used for calculating silver-Equivalencies
Silver -Gold-Lead-Zinc Resources -
Guanacevi
Resources
Indicated |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq
g/t |
Ag
ounces |
Au
ounces |
Ag-Eq
Ounces |
Zn
(%) |
Pb
(%) |
|
Guanacevi |
85,000 |
66 |
0.18 |
80
|
179,500 |
500 |
217,000 |
2.2
|
3.6
|
Total
Indicated |
85,000 |
66 |
0.18 |
79
|
179,500 |
500 |
217,000 |
3.1 |
3.2 |
Resources
Inferred |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq
g/t |
Ag
ounces |
Au
ounces |
Ag-Eq
Ounces |
Zn
(%) |
Pb
(%) |
|
Guanacevi |
260,000 |
72 |
0.15
|
83 |
604,300 |
1,300 |
701,800 |
2.1
|
3.4
|
Total
Inferred |
260,000 |
72 |
0.16 |
84 |
604,300 |
1,300 |
701,800 |
2.7 |
3.0 |
* Cut-off grade for Indicated & Inferred Resources for
Guanacevi is 50 g/t Ag plus 3.5% combined Pb-Zn
** Silver-Equivalencies are calculated using a 75:1 ratio based
on prices of USD$ 12 per ounce of silver and USD$900 per ounce of gold; no base
metal credits are used for calculating silver-Equivalencies
Silver -Gold-Lead-Zinc Resources -
Cometa
Resources
Indicated |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq
g/t |
Ag
ounces |
Au
ounces |
Ag-Eq
Ounces |
Zn
(%) |
Pb
(%) |
|
Cometa |
934,000 |
49 |
1.46
|
159
|
1,471,400 |
43,800
|
4,756,400 |
3.2 |
3.2
|
Total
Indicated |
934,000 |
49 |
1.46 |
158
|
1,471,400 |
43,800 |
4,756,400 |
3.1 |
3.2 |
Resources
Inferred |
|
Description |
|
Tonnes |
Ag
g/t |
Au
g/t |
Ag-Eq
g/t |
Ag
ounces |
Au
ounces |
Ag-Eq
Ounces |
Zn
(%) |
Pb
(%) |
|
Cometa |
528,000 |
61 |
1.45
|
170 |
1,035,500 |
24,600 |
2,880,500 |
3.0 |
2.7
|
Total
Inferred |
528,000 |
61 |
1.45 |
170 |
1,035,500 |
24,600 |
2,880,500 |
2.7 |
3.0 |
* Cut-off grade for Indicated & Inferred Resources for
Cometa is USD$40 NSR based on metal prices of USD$12 per ounce of silver,
USD$900 per ounce of gold, USD$0.50 per pound of lead, USD$0.50 per pound of
zinc; metallurgical recoveries used were 71% for silver, 75% for gold, 80% for
lead and 74% for zinc.
** Silver-Equivalencies are calculated using a 75:1
ratio based on prices of USD$ 12 per ounce of silver and USD$900 per ounce of
gold; no base metal credits are used for calculating silver-Equivalencies
14
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
FINANCIAL RESULTS
Selected Annual Information
Selected annual information for the Company for each of the
three fiscal years ended December 31, 2008, December 31, 2007 and December 31,
2006 are as follows:
|
|
Year
Ended |
|
|
Year
Ended |
|
|
Year
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Sales Revenue |
$ |
39,302 |
|
$ |
32,319 |
|
$ |
15,671 |
|
|
|
|
|
|
|
|
|
|
|
Net loss : |
|
|
|
|
|
|
|
|
|
(i) Total |
$ |
(18,004 |
) |
$ |
(12,202 |
) |
$ |
(3,948 |
) |
(ii) Bas ic per share |
$ |
(0.37 |
) |
$ |
(0.27 |
) |
$ |
(0.10 |
) |
(iii) Diluted per share |
$ |
(0.37 |
) |
$ |
(0.27 |
) |
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
Dividends per share |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Total assets |
$ |
67,292 |
|
$ |
82,151 |
|
$ |
62,729 |
|
Total long-term liabilities |
$ |
5,481 |
|
$ |
6,646 |
|
$ |
3,922 |
|
Figures in thousands of U.S.$, except per share amounts
Review of Consolidated Financial Results
Year ended December 31, 2008 with the year ended December
31, 2007
For the year ended December 31, 2008, the Company realized Mine
Operating Earnings of $3.1 million (2007 $3.3 million) from its mining and
milling operations on sales of $39.3 million (2007 - $32.3 million) with cost of
sales of $27.8 million (2007 - $24.3 million) and depreciation and depletion
$8.4 million (2007 - $4.7 million).
The Operating Loss for the years ended December 31, 2008 was
$12.9 million (2007 - $12.2 million) after Exploration costs of $8.6 million
(2007 - $6.0 million), General and Administrative costs of $5.1 million (2007 -
$4.8 million) and Stock Based Compensation costs of $2.3 million (2007 - $4.7
million).
The Loss Before Taxes for the year ended December 31, 2008 was
$17 million (2007 - $9.5 million) after Foreign Exchange Loss of $1.5 million
(2007 Gain of $2.4 million), a Loss on Marketable Securities of $0.6 million
(2007 Gain of $0.7 million), an Impairment on Asset Backed Commercial Paper of
$1.4 million (2007 - $1.3 million), an allowance for IVA receivable of $0.8
million (2007 Nil) a write off of uncollectible IVA of $0.1 million (2007
Nil) and Investment and Other Income and Expenses of $0.3 million (2007 - $0.9
million). The Company incurred a Net Loss for the year ended December 31, 2008
of $18 million (2007 - $12.2 million) after Income Tax Provision of $1 million
(2007 - $1.2 million).
Sales were $39.3 million for 2008, an increase of 22% over the
sales of $32.3 million for 2007 due to increased production and higher average
realized price per ounce. Cost of sales for the year was $27.8 million, an
increase of 14% over the cost of sales of $24.3 million for 2007. The increase
in the cost of sales is a result of the costs associated with an increase in
production and rising costs for labour, fuel, power, parts, equipment and
supplies. The Company also experienced additional costs during the year related
to the expansion and upgrade programs.
15
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Depreciation, depletion and accretion was $8.4 million, an
increase of 79% as compared to 2007, primarily due to increased capital asset
balances resulting from the buy-out of the remaining 49% of Minera Santa Cruz SA
de CV and additional capital expenditures to date.
Exploration expenses increased by 44% in 2008 to $8.6 million
from $6.0 million in 2007, due to a more aggressive exploration program in 2008.
General and administrative cost experienced an increase of 5% to $5.1 million in
2008 as compared to $4.8 million in 2007 primarily due to increased corporate
development activities.
The Company experienced a foreign exchange loss during 2008 of
$1.5 million as compared to a foreign exchange gain of $2.4 million in 2007.
During 2008 there was a weakening of both the Canadian Dollar and the Mexican
Peso against the U.S. Dollar resulting in a lower valuation of Canadian Dollar
and Mexican Peso cash accounts and realized foreign exchanges losses on Canadian
denominated marketable securities disposed of during the year. During 2007 there
was a strengthening of the Canadian dollar to the U.S. dollar and the Company
held more Canadian dollars at that time. The Company realized a loss on
marketable securities during the period of $0.6 million as compared to a gain of
$0.7 million in the same period of 2007 as a result of general market conditions
experienced in 2008 and the Companys liquidation of marketable securities
during that time to meet operating needs. Investment income and other expenses
decreased from $0.9 million in 2007 to $0.3 million in 2008 as a result of less
cash earning interest income and a reduction in the interest rates received on
cash during 2008. The income tax provision was $1 million for 2008, as compared
to an income tax provision of $1.2 for 2007.
During 2008, the Company took an additional impairment of $1.4
million (2007 - $1.3 million) on asset backed commercial paper ABCP held by
the Company. (see Liquidity and Capital Resources section for full disclosure)
and took an allowance against IVA receivable of $0.9 million (2007 - $Nil) on
balances relating to 2006.
Fourth quarter 2008
For the three months ended December 31, 2008, the Company
realized a Mine Operating Loss of $1.8 million (2007 Mine Operating Earnings-
$0.7 million) from its mining and milling operations on sales of $7.9 million
(2007 - $11.0 million) with cost of sales of $7.2 million (2007 - $8.8 million)
and depreciation and depletion $2.5 million (2007 - $1.5 million).
The Operating Loss for the three months ended December 31, 2008
was $3.6 million (2007 - $2.8 million) after Exploration costs of $0.7 million
(2007 - $1.7 million), General and Administrative costs of $1.0 million (2007 -
$1.4 million) and Stock Based Compensation costs of $0.1 million (2007 - $0.4
million).
The Loss Before Taxes for the three months ended December 31,
2008 was $6.3 million (2007 - $3.1 million) after Foreign Exchange Loss of $1.0
million (2007 $0.1 million), a realized loss on marketable securities of $0.8
million (2007 gain of $0.2 million), an allowance for IVA receivable of $0.8
million (2007 Nil), a write down of IVA receivable of $0.1 (2007 - $Nil), an
impairment on asset backed commercial paper of $Nil (2007 - $0.7) and Investment
and Other Income and Expenses of $0.2 million (2007 - $0.3 million).
The Company incurred a Net Loss for the three months ended
December 31, 2008 of $5.2 million (2007 - $4.2 million) after a reduction of the
Income Tax Provision of $1.1 million (2007 increase in provision of $1.1
million).
Sales were $7.9 million for the final quarter of 2008, a
decrease of 28% over the sales of $11.0 million for the last three months of
2007. The decrease in sales is due to the significant decrease in the price of
silver during the last quarter of 2008 as compared to the last quarter of 2007.
Cost of sales for the period was $7.2 million, a decrease of 18% over the cost
of sales of $8.8 million for the same period in 2007. The decrease in the cost
of sales is primarily attributed to the devaluation of the Mexican Peso.
Depreciation, depletion and accretion was $2.5 million during the quarter, an
increase of 71% as compared to 2007, due to increased production, increased
capital asset balances resulting from the buy-out of the remaining 49% of Minera
Santa Cruz SA de CV and additional capital expenditures to date.
16
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Exploration expenses decreased by 60% to $0.7 million during
the three months ended December 31, 2008 from $1.7 million in 2007 due to a
reduction in exploration activity towards the end of the year. General and
administrative decreased by 28% to $1.0 million during 2008 as compared to $1.4
million in 2007 primarily due to the devaluation of the Canadian dollar against
the US Dollar, Stock-based compensation decreased by $0.3 million in 2008 from
$0.4 million in 2007. The decrease in stock-based compensation is due to the
current years option grants having a two year vesting period whereas the
previous years options granted vested immediately.
The Company experienced a foreign exchange loss during the
three months ended December 31, 2008 of $1.0 million as compared to a foreign
exchange gain of $0.1 million in the same period in 2007. The loss during the
current period is a result of a weakening of both the Canadian Dollar and the
Mexican Peso against the U.S. Dollar resulting in a lower valuation of Canadian
Dollar and Mexican Peso cash accounts, Canadian denominated asset backed
commercial paper and realized foreign exchanges losses on Canadian denominated
marketable securities disposed of during the period. During 2007 there was a
strengthening of the Canadian dollar to the U.S. dollar and the Company held
more Canadian dollars at that time.
The Company realized a loss on marketable securities during the
period of $0.8 million as compared to a gain of $0.2 million in the same period
of 2007. The loss during Q4 2008 is a result of the selling of marketable
securities to meet ongoing cash requirements while the overall market has been
very weak. Investment income and other expenses decreased by $0.2 million in the
period from $0.3 million in 2007 due to the decreased cash balance in the
current year.
During the fourth quarter an assessment was done on IVA
receivable from prior years and the Company recognized an allowance of $0.8
million on the outstanding balance. In addition, $0.1 million was written off
relating to 2007 balances. The income tax provision was reduced by $1.1 million
for the period as compared to an increase in the income tax provision of $1.1
million during Q4 2007, due to improved tax planning and the impact of the new
Mexican flat tax regime.
Year ended December 31, 2007 with the year ended December
31, 2006
The Company realized Mine Operating Earnings of $3.3 million on
sales of $32.3 million for fiscal 2007 as compared to Mine Operating Earnings of
$3.9 million on sales of $15.7 million in fiscal 2006. Cost of sales was $24.3
million and depreciation and depletion $4.7 million in 2007 as compared to cost
of sales of $9.2 million and depreciation and depletion of $2.6 million in 2006.
The Operating Loss for the year was $12.2 million after
Exploration costs of $6.0 million, General and Administrative costs of $4.8
million and Stock Based Compensation costs of $4.7 million. This compares to an
Operating Loss for 2006 of $3.0 million after Exploration of $0.4 million,
General and Administrative costs of $3.0 million and Stock Based Compensation
costs of $3.4 million.
The Loss Before Taxes for 2007 was $9.6 million after Foreign
Exchange Gain of $2.4 million, a realized gain on marketable securities of $0.7
million, Investment and Other Income of $0.9 million and an Impairment on
Commercial Paper of $1.3 million. This compares to a Loss Before Taxes of $1.4
million after Foreign Exchange Gains of $0.5 million and Investment and other
income of $1.0 million in 2006.
The Company incurred a Net Loss for year of $12.2 million after
Income Tax Provision of $1.2 million compared to a loss of $3.9 million after an
Income Tax Provision of $1.4 million in 2006.
17
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Summary of Quarterly Results
|
Dec 31,
2008 |
Dec 31, 2007 |
|
(in US$000s |
Three
months ended |
Three months ended |
|
except per share amounts)
|
|
Dec 31
|
|
|
Sep 30
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Dec 31
|
|
|
Sep 30
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
$ |
7,900 |
|
$ |
10,613 |
|
$ |
10,060 |
|
$ |
10,729 |
|
$ |
11,018 |
|
$ |
7,686 |
|
$ |
6,385 |
|
$ |
7,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
$ |
7,226 |
|
$ |
7,648 |
|
$ |
6,361 |
|
$ |
6,567 |
|
$ |
8,804 |
|
$ |
6,872 |
|
$ |
5,092 |
|
$ |
3,567 |
|
Depreciation, Depletion
& Accretion |
$ |
2,551 |
|
$ |
2,558 |
|
$ |
1,769 |
|
$ |
1,505 |
|
$ |
1,493 |
|
$ |
1,621 |
|
$ |
609 |
|
$ |
959 |
|
Mine Operating Earnings / (Loss)* |
$ |
(1,877 |
) |
$ |
407 |
|
$ |
1,930 |
|
$ |
2,657 |
|
$ |
721 |
|
$ |
(807 |
) |
$ |
684 |
|
$ |
2,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Total |
$ |
(5,149 |
) |
$ |
(7,427 |
) |
$ |
(3,417 |
) |
$ |
(2,011 |
) |
$ |
(4,237 |
) |
$ |
(3,651 |
) |
$ |
(2,076 |
) |
$ |
(2,238 |
) |
(ii) Basic per share |
$ |
(0.11 |
) |
$ |
(0.15 |
) |
$ |
(0.07 |
) |
$ |
(0.04 |
) |
$ |
(0.09 |
) |
$ |
(0.08 |
) |
$ |
(0.05 |
) |
$ |
(0.05 |
) |
(iii) Diluted per share |
$ |
(0.11 |
) |
$ |
(0.15 |
) |
$ |
(0.07 |
) |
$ |
(0.04 |
) |
$ |
(0.09 |
) |
$ |
(0.08 |
) |
$ |
(0.05 |
) |
$ |
(0.05 |
) |
* Earnings from
mine operations is a non-GAAP measure used by the Company as a measure of
operating performance |
Quarterly Trends and Analysis
In the 1st Quarter of 2007 sale proceeds reflect the
commissioning of the 800 tpd ball mill at Guanacevi in late February. Compared
to the 4th quarter of 2006, the loss for the 1st Quarter
2007 reflects higher earnings from Mine Operations offset by a higher Non
Controlling Interest share in subsidiary profits, higher General and
Administration costs, lower Stock Based Compensation costs and higher
Exploration costs, which were written off as incurred.
In the 2nd Quarter of 2007 production and revenue
were adversely impacted by the processing of lower head grade ore from Guanacevi
partially offset by the initial contribution of Guanajuato. The higher loss for
the 2nd Quarter 2007 reflects lower earnings from Mine Operations,
Exploration costs and the required costing of non-cash Stock Based Compensation.
In the 3rd Quarter of 2007 sales were higher from
higher metal production partially offset by lower realized metal prices. The
higher loss in the 3rd Quarter 2007 reflects higher Mine Operating
costs and increased Depreciation.
In the 4th Quarter of 2007 the Company realized
higher production and revenue due to higher grade ore processed during the
quarter and a higher silver price. The higher loss for the 4th
Quarter 2007 reflects additional exploration and labour costs.
In the 1st Quarter of 2008 production decreased as
Guanajuato reduced output mid in order to facilitate the mine and shaft safety
upgrades to meet North American standards. The decreased production was partly
offset by higher silver prices, which surged to more than $20 per ounce in
March, averaging $17.68 during the quarter. The decreased costs were a function
of decreased production activity during the Guanajuato rehabilitation and safety
programs.
In the 2nd Quarter of 2008 the ramp up of Guanacevi
capital expansion program, including mine development reduced the production for
the quarter, while Guanajuato production ramped up in June resulting in
consistent production and costs quarter over quarter
In the 3rd Quarter of 2008 production increased
primarily due to the ramp up of production at Guanajuato, partially offsetting
the slide in silver prices which began in August. Costs increased due to the
ramp up of Guanajuato
18
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
operations and improved employee production bonuses which were
magnified by the slight appreciation of the Peso during the quarter, until late
September when the Peso began its significant fall.
In the 4th Quarter of 2008 the Company realized
higher production output due to improved grades and recoveries at Guanacevi and
greater output at Guanajuato. However the production increase was significantly
offset by the drop in the silver price during the fourth quarter. The decrease
in production costs is attributed to the significant depreciation of the Mexican
peso. The Companys largest production cost is labour, therefore any change in
the valuation of the local currency directly impacts our production costs.
Subsequent to December 31, 2008 the Peso continued its depreciation against the
US dollar, further reducing the US dollar production costs of both mines.
Transactions with Related Parties
The Company shares common administrative services and office
space with Canarc Resource Corp., Caza Gold Corp., and Aztec Metals Corp.
(Aztec), related party companies, and from time to time will incur third-party
costs on behalf of the related parties on a full cost recovery basis. The
Company has $21,000 receivable related to administration costs outstanding as of
December 31, 2008. (December 31, 2007 Nil).
During the year ended December 31, 2008 the Company paid
$155,000 in consulting fees to Canarc Resource Corp for engineering services.
During the year ended December 31, 2008, the Company has paid
$120,000 for legal services to Vector Corporate Finance Lawyers, a firm in which
the Companys Corporate Secretary is a partner.
On December 31, 2007 the Company signed option agreements with
Aztec, a non-public company with common directors, whereby Aztec had the right
to acquire unexplored properties (Rio Chico and Matehuala) for a cash payment of
$63,000 and issuance of 533,333 common shares of Aztec.
Aztec paid the Company $43,000 and delivered a signed silver
participation contract on June 30, 2008 to exercise the option on the Matehuala
property and cancelled the option to acquire the Rio Chico property during the
year. The common shares acquired by the Company have a estimated fair value of
$35,000 as of December 31, 2008, compared to cost of $160,000 at the time of the
agreement. The Company has $98,000 receivable related to 2008 property tax
payments and the initial Rio Chico option payment outstanding as of December 31,
2008.
In 2007, the Company paid $95,000 in performance bonus
compensation to terminated employees who are now employees of a company with
common directors and management. There were no such transactions during the
current fiscal year.
19
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents balance decreased from $16.6
million at December 31, 2007 to $3.6 million at December 31, 2008. Cash and cash
equivalents decreased for the period by $13 million primarily due to cash used
for capital investments made in property, plant and equipment of $12.6 million
and exploration activities costing $8.6 million offset by $2.1 million raised
through the issuance of special warrants and net proceeds of $2.0 million from
marketable securities sold during the period. Working capital decreased to $7.8
million from $25.3 million at December 31, 2007 primarily due to the reduction
in cash of $13 million, a decrease in marketable securities of $3.5 million, and
a decrease in accounts receivable and prepaid expenses of $1.0 million.
The Company has incurred significant operating losses to date.
Management recognizes that the Company will need to generate additional
financing resources in order to meet its planned business objectives in the near
and long term. The Company has historically financed its activities principally
by the sale of equity securities. The Companys ability to continue as a going
concern is dependent on the Companys ability to raise equity financing, debt
financing or the attainment of profitable operations. Subsequent to year end,
management completed a convertible debt financing for approximately CAN $14
million of five year 10% subordinated unsecured convertible redeemable
debentures. Management continues to pursue alternatives to improve the financial
position of the Company to remain as a going concern through 2009. Management
acknowledges the recent volatility in gold and silver prices and the
unprecedented disruptions in the current credit and financial markets. The poor
conditions in the US housing market and credit quality of mortgage backed
securities have continued and worsened, causing a loss of confidence in the
broader U.S. and global credit and financial markets and resulting in the
collapse of, and governmental intervention in, major banks, financial
institutions and insurers. This has created a climate of greater volatility,
less liquidity, widening of credit spreads, a lack of price transparency,
increased credit losses and tighter credit conditions. These disruptions could,
among other things, make it more difficult for the Company to obtain, or
increase the cost of obtaining, capital and financing for operations should it
be considered necessary. There can be no assurance that the Company will be able
to continue to obtain adequate additional financing and/or achieve profitability
or positive cash flows. Furthermore, failure to continue as a going concern
would require that the Companys assets and liabilities be restated on a
liquidation basis which would differ significantly from the going concern basis.
Operating activities used $4.6 million during the year ended
December 31, 2008 compared to using $2.4 million during the same period in 2007.
The major non-cash adjustments on the recorded loss of $18 million were non-cash
charges for depreciation, depletion and accretion of $8.4 million, stock-based
compensation of $2.3 million, a loss on marketable securities of $0.6 million,
an impairment of asset backed commercial paper of $1.4 million and a change in
non-cash working capital $0.3 million.
Investing activities during the year used $10.6 million as
compared to $22.8 million in 2007. The investments in property, plant and
equipment was $12.6 million compared to $17.6 million in 2007 and the Company
received proceeds from the sale of marketable securities of $6.0 million and
invested $3.9 million during the period in marketable securities.
As at December 31, 2008, the Companys issued share capital was
$87.6 million representing 49,080,478 common shares and $2.1 million
representing 2,311,540 in special warrants compared to $87.5 million
representing 48,982,146 common shares at December 31, 2007. During the year
ended December 31, 2008, the financing activities generated $2.2 million, net of
issue costs, through private placements and the issuance of 98,332 common shares
relating to share purchase options exercised.
In December 2008, the Company completed a brokered and non
brokered private placements of special warrants for 2,311,540 units at CAN$1.30
per unit for gross proceeds of CAN$3.0 million. Each special warrant is
exercisable into a unit comprised of one common share and one-half of a common
share purchase warrant. Each whole share purchase warrant is exercisable to
purchase one common share at an exercise price of CAN$1.90 until February 25,
20
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
2014. The agents received a cash commission of 6% totalling
$0.1 million and 131,792 agents warrants at an exercise price of CAN$1.51 until
February 25, 2014. The warrants issued to the agents have a deemed fair value of
$0.1 million and have been recorded in share capital on a net basis. The special
warrants are classified as a separate equity component at year end as the
Company had not yet received final approval from the provincial securities
regulator on the final prospectus. This was subsequently received on February
24, 2009 and the special warrants were exercised into units as described
above.
As at December 31, 2008, the Company had 4,263,400 options to
purchase common shares outstanding with a weighted average exercise price of
CAN$3.33 and had 1,597,562 share purchase warrants outstanding with a weighted
average exercise price of CAN$2.53.
The company invested $12.6 million in property, plant and
equipment during the year ended December 31, 2008 with the majority of the
expenditures at Guanacevi. Approximately $10.0 million was spent at Guanacevi
with $3.0 million spent on plant projects, $5.2 million on mine development,
$0.6 million spent on mine equipment and $1.2 million spent on buildings,
transportation and office equipment. Approximately $1.6 million was spent at
Guanajuato with $0.6 million spent on plant projects, $0.9 million on mine
development and $0.1 million spent on buildings, transportation and office
equipment.
Capital Requirements
The Company plans to invest $16.8 million in capital projects
in 2009, with the focus once again on Guanacevi. At Guanacevi $8.5 million will
be invested in further mine development, $4.9 million on related mining
equipment and facilities and a further $1.5 million on increasing the size of
the tailings facility. At Guanajuato $1.5 million will be invested to develop
some of the newly discovered mineralized zones and $0.4 million will be incurred
to expand the plant to 600 tonnes per day.
The mine development at Guanacevi will increase the access to
the Porvenir North area of the ore body and provide access to Alex Breccia,
Santa Cruz and Porvenir Dos ore bodies. This will allow the operation to have a
large selection of stopes to expand the daily tonnage sent to the mill, improve
management of cash flows and capitalize on the volatility of precious metal
prices.
The Company plans to meet capital requirements with mine
operating cash flows and proceeds from the convertible debt issued subsequent to
December 31, 2009. Management continues to pursue alternatives to improve the
financial position of the Company and ensure there are adequate resources to
meet ongoing capital requirements.
Financial Instruments and Other Instruments
Financial Assets and Liabilities
The Companys financial instruments consist of cash and cash
equivalents, receivables, marketable securities, accounts payable, accrued
liabilities and asset backed commercial paper (ABCP). Cash and cash
equivalents are designated as held for trading and therefore carried at fair
value, with the unrealized gain or loss recorded in income. Marketable
securities are available for sale with the unrealized gain or loss recorded in
other comprehensive income. Interest income and expense are both recorded in
income.
The fair values of cash and cash equivalents, accounts
receivables, accounts payable and accrued liabilities approximate carrying value
because of the short term nature of these instruments. The fair value of the
asset backed commercial paper is determined by discounting the stream of future
payment at the estimated prevailing market rates. There are no significant
differences between the carrying values and the fair values of any financial
assets or liabilities.
Financial Instrument Risk Exposure and Risk Management
21
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the risk
management process. The types of risk exposure and the way in which such
exposure is managed is provided as follows:
Credit Risk
The Company is exposed to credit risk on its bank accounts,
trade receivable and IVA receivable. Credit risk exposure on bank accounts is
limited through maintaining its cash and equivalents with high-credit quality
financial institutions, maintaining investment policy, assessing institutional
exposure and continual discussion with external advisors. Trade receivables are
generated on the sale of silver to a large Mexican refiner which the Company has
deemed to have a high credit rating. IVA receivables are generated on the
purchase of supplies and services to produce silver which are refundable from
the Mexican government.
Liquidity Risk
The Company ensures that there is sufficient capital in order
to meet short term business requirements. After taking into account the
Companys holdings of cash equivalents, marketable securities and receivables
the Company believes that these sources will be sufficient to cover the likely
short term cash requirements and commitments.
Market Risk
The significant market risk exposures to which the Company is
subject are foreign exchange risk, interest rate risk and commodity price
risk.
Foreign Currency Risk
The Companys operations in Mexico and Canada make it subject
to foreign currency fluctuations. The Companys operating expenses are primarily
incurred in Mexican pesos and Canadian dollars, and the fluctuation of the US
dollar in relation to these currencies will consequently have an impact upon the
profitability of the Company and may also affect the value of the Companys
assets and the amount of shareholders equity. The Company has not entered into
any agreements or purchased any instruments to hedge possible currency risks.
The US dollar equivalent of financial
assets and liabilities denominated in currencies other than the US dollar as at
December 31, 2008 are as follows:
|
|
|
|
|
Canadian Dollar |
|
|
Mexican Peso |
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
5,068 |
|
|
7,246 |
|
Financial Liabilities |
|
|
|
|
(870 |
) |
|
(5,414 |
)
|
Net Financial Assets |
|
|
|
|
4,198 |
|
|
1,832 |
|
As at December 31, 2008, with other
variables unchanged, a 20% strengthening of the US dollar against the Canadian
dollar would decrease net earnings by $0.6m due to these financial assets.
As at December 31, 2008, with other
variables unchanged, a 20% strengthening of the US dollar against the Mexican
peso would decrease net earnings by $0.4m due to these financial assets.
Interest Rate Risk
In respect of financial assets, the Companys policy is to
invest cash at floating rates of interest and cash reserves are to be maintained
in cash equivalents in order to maintain liquidity. Fluctuations in interest
rates impact the value of cash equivalents.
22
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Commodity Price Risk
The value of the Companys mineral resource properties is
related to the price of silver and gold, and the outlook for these minerals.
Silver and gold prices have historically fluctuated widely and are affected by
numerous factors outside of the Companys control, including, but not limited
to, industrial and retail demand, central bank lending, forward sales by
producers and speculators, levels of worldwide production, short-term changes in
supply and demand because of speculative hedging activities, and certain other
factors. The Company has elected not to actively manage our commodity risk at
this time.
The Company does not currently use derivative or hedging
instruments to reduce its exposure to fluctuations in foreign currency exchange
rates or commodity prices.
Asset Backed Commercial Paper
At December 31, 2008 the Company held Canadian Asset Backed
Commercial Paper ABCP purchased in a Canaccord Capital account in August 2007
with a par value $5.2 million. At the dates at which we acquired the
investments, the non-bank sponsored ABCP was rated RI (High) by Dominion Bond
Rating Services (DBRS), the highest credit rating issued for commercial paper.
In August 2007, the ABCP market experienced liquidity problems and was
subsequently frozen.
In September 2007, a Pan-Canadian Committee (the Committee)
consisting of a panel of major ABCP investors was formed to restructure the
affected ABCP trusts. A press release issued by the Committee on December 23,
2007 outlined a proposal to restructure ABCP for new notes that have maturities
based on the maturities of the assets of underlying ABCP.
As of December 31, 2007, based on the information available,
the Company estimated the fair values of our ABCP investments to be $3.9 million
calculated by taking a 20% impairment from the face value of the asset and
discounting the remaining value over a one year period using a discount rate of
prime + 1%, resulting in an $1.3 million impairment.
On March 20, 2008 the Committee issued an information statement
which provided details of the restructuring plan. The proposed restructuring
plan (the Restructuring Plan) was submitted under the Companies Creditors
Arrangement Act and approved by the majority of noteholders on April 25, 2008.
The Restructuring Plan was sanctioned by the Ontario Superior Court on June 5,
2008. Subsequent to the approval the court of appeal reviewed a group of
investors seeking relief including dismissal of the Restructuring Plan and as of
September 19, 2008 the Supreme Court of Canada denied the noteholders seeking
relief thereby allowing the implementation of the Restructuring Plan January 19,
2009.
The Company has assessed the estimated fair value of our ABCP
investments and based on the available information regarding current market
conditions, the underlying assets of our existing trusts and the indicative
values contained in the report issued by JP Morgan, we recorded an additional
impairment of $1.4 million on completion of the court process for implementation
of the Restructuring Plan. There is a significant amount of uncertainty in
estimating the amount of timing of cash flows associated with the ABCP. The
Company estimated the value of using a basic discounted cashflow model assuming
principal is repaid between 2013 and 2016 using a 12% discount rate. This
results in an estimated fair value of CAN$2.6 million.
The Company updated the valuation model to reflect the notes
that were distributed as a result of the restructuring. Subsequent to year end
the restructuring plan was executed as follows:
- The creation of three master asset vehicles (MAV).
- Within each MAV, the issuance of 5 different series of notes:
23
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
|
|
o |
Class A-1 Notes will be the senior notes, with the other
series of Notes subordinated to them. Class A-1 Notes are expected to
receive AA ratings, have maturities from 6 to 8 years and a coupon rate of
Bankers Acceptance (BA) Rate less 0.5%. |
|
|
o |
Class A-2 Notes will be senior to the Class B Notes, C
Notes and IA Tracking Notes. Class A-2 Notes are expected to receive AA
ratings, have maturity of 8 years and a coupon rate of BA Rate less
0.5% |
|
|
o |
Class B Notes will be senior to the Class C Notes and IA
Tracking Notes. Class B Notes will not be rated and are expected to have a
maturity of 8 years and a coupon rate BA Rate of less 0.5% |
|
|
o |
Class C Notes will be senior to the IA Tracking Notes.
Class C Notes will not be rated and are expected to have a maturity of 8
years and a coupon rate of 20%. It was stated by JP Morgan the Class C
Notes that investors should expect return closer to BA Rate less
0.5%. |
|
|
o |
IA Tracking Notes will not be rated. IA Tracking Notes
are expected to have a maturity of 8 years and a coupon rate equivalent to
the net rate of return generated by the specific underlying
assets. |
|
|
|
|
|
• |
The allocation of existing ABCP notes to the new notes
were based on a report issued by J.P. Morgan, financial advisor to the
Committee. The new notes were issued subsequent to year end based on the
relative contribution from the assets underlying the existing trusts based
on this report. |
|
|
|
|
• |
There is no market data on these notes and no formal
ratings have yet been issued by DBRS. |
Based on the Restructuring Plan:
|
• |
CAN $3,254,000 of our investments
were replaced with Class A-1 Notes |
|
• |
CAN $1,101,000 of our investments
were replaced with Class A-2 Notes |
|
• |
CAN $ 200,000 of our investments
were replaced with Class B Notes |
|
• |
CAN $ 141,000 of our investments
were replaced with Class C Notes |
|
• |
CAN $ 468,000 of our investments
were replaced with IA Tracking Notes |
Contractual Obligations
The Company had the following contractual obligations at
December 31, 2008:
Payments due by period (in thousands of dollars) |
Contractual Obligations |
|
Total |
|
|
Less
than 1 year |
|
|
1
3 years |
|
|
3
5 years |
|
|
More
than 5 years |
|
Operating Lease |
$ |
651 |
|
$ |
217 |
|
$ |
434 |
|
|
- |
|
|
- |
|
Other Long-Term Liabilities |
$ |
1,445
|
|
|
|
|
|
- |
|
$ |
534
|
|
$ |
911
|
|
Total |
$ |
2,096 |
|
$ |
217 |
|
$ |
434 |
|
$ |
534 |
|
$ |
911 |
|
Outstanding Share Data
As of March 31, 2009, the Company had the following items
issued and outstanding:
- 51,537,018 common shares
- 4,583,400 options to purchase common shares with a weighted average
exercise price of CAD$3.35 expiring between May 6, 2009 and June 14, 2017.
- 2,181,976 share purchase warrants with a weighted average exercise price
of CAD$2.29 expiring between May 30, 2009 and May 30, 2009.
- CAN$ 13,993,000 of five year 10% subordinated unsecured convertible
redeemable debentures with an exercise price of $1.90 per share.
24
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
The Company considers the items included in the consolidated
statement of shareholders equity as capital. The Companys objective when
managing capital is to safeguard its ability to continue as a going concern, so
that it can continue to provide returns for shareholders and benefits for other
stakeholders. The Company manages the capital structure and makes
adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the
capital structure, the Company may issue new shares through private placements,
convertible debentures, asset acquisitions or return capital to shareholders.
The Company is not subject to externally imposed capital requirements.
OUTLOOK
Production
In 2009, Endeavour expects to deliver its fifth consecutive
year of growing silver production, up by +20% to the 2.7 -2.9 million oz range,
with approximately 10,000 oz gold as a by-product. Similar to 2008, the first
two quarters of silver production is scheduled to be relatively flat, as we
focus labour on mine development and capital programs. However, silver
production is scheduled to increase in Q3 and Q4 of 2009, as the three new mines
under development during the first half of the year at Guanacevi are expected to
enter into production this year.
Upon completion of the 2009 capital expansion projects, the
Guanacevi mines production is scheduled to reach 1000 tonnes per day (tpd), and
the Guanajuato mines production is scheduled to reach 600 tonnes per day (tpd).
The next phase of organic growth for Guanacevi and Guanajuato should see the
mine and plant capacities rise to 1200 tonnes per day (tpd) at Guanacevi and 800
tonnes per day (tpd) at Guanajuato in 2010-2011.
Exploration
In 2009, the Company plans a two-phase exploration program
focused on following up several of the new discoveries made near the Companys
two mining operations and testing several new prospective targets within these
two districts.
The Phase 1 exploration program will include 8,500 meters of
core in 35 diamond drill holes to target extensions of several veins, mantos and
stock-works in the San Pedro area of Guancevi; as well as drilling at three of
the 2008 vein discoveries and two new vein prospect areas in the Cebada and
Bolanitos areas of Guanajuato.
In Guanacevi, drilling is proposed for the San Pedro area will
test both high grade veins as well as moderate grade mantos and one larger
stock-work zone of silver-lead-zinc mineralization, all within an area measuring
more than 1.5 kilometers in length and 500 meters across.
The Phase 2 exploration program will then focus on expanding
the highest priority discovery areas in order to prepare them for an updated
reserve/resource report at year end.
SUBSEQUENT EVENTS
In February 2009, the Company issued CAN$14 million in 10%
subordinated unsecured convertible redeembale debentures (the Debentures)
maturing February 2014. The interest is 10% annually, paid quarterly in arrears.
At any time after February 20, 2009, each Debenture may be converted by the
holder into units of the Company, each unit consisting of one common share of
the Company and one half of a common share purchase warrant at a conversion
price of CAN$1.90 per unit. Each full share purchase warrant will entitle the
holder to purchase one common share at an exercise price of CAN$2.05 for up to 5
years from conversion. A total of 7,364,736 common shares are issuable upon
conversion. Subsequent to July 26, 2010, each Debenture can be redeemed by the
Company for cash, plus a redemption fee of 7%, provided the closing share price
is greater than CAN$2.85 for thirty consecutive days. The Company incurred
placement fee totalling CAN$1,081,000 offsetting proceeds, and issued 644,414
share purchase warrants exercisable at CAN$1.90 for five years.
25
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
In February 2009, the Company signed an option agreement to
acquire Porvenir Cuatro concessions located in the Guanacevi district for
payments totalling $700,000 over two years. The Company paid $100,000 cash on
ratification of the option and will issue 136,426 shares equivalent to $200,000,
subject to regulatory approval. To acquire the property the Company is required
issue $240,000 worth of shares within 1 year of the agreement date and $160,000
in cash or shares within 2 years of the agreement date.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Critical Accounting Estimates
The preparation of financial statements requires the Company to
make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of estimates relate to the
determination of mineralized reserves, valuation of asset back commercial paper,
impairment of long-lived assets, determination of asset retirement obligations,
valuation allowances for future income taxes and assumptions used in determining
the fair value of non-cash based compensation.
Mineralized reserves and impairment on long lived assets
Management periodically reviews the carrying value of its mineral
properties with internal and external mining related professionals. A decision
to abandon, reduce or expand a specific project is based upon many factors
including general and specific assessments of reserves, anticipated future
prices, anticipated future costs of exploring, developing and operating a
producing mine, expiration term and ongoing expense of maintaining leased
mineral properties and the period for properties with unproven reserves.
However, properties which have not demonstrated suitable mineral concentrations
at the conclusion of each phase of an exploration program are reevaluated to
determine if future exploration is warranted and their carrying values are
appropriate.
If an area of interest is abandoned or it is determined that
its carrying value cannot be supported by future production or sale, the related
costs are charged against operations in the period of abandonment or
determination that the carrying value exceeds its fair value. The amounts
recorded as mineral properties represent costs incurred to date and do not
necessarily reflect present or future values.
The accumulated costs of mineral properties that are developed
to the stage of commercial production are amortized using the units of
production basis using proven and probable reserves (as defined by National
Instrument 43-101). Plant and equipment are recorded at cost and are amortized
using the straight-line method at rates varying from 5% to 30% annually.
Asset retirement obligations
Reclamation and
closure costs have been estimated based on the Companys interpretation of
current regulatory requirements, however changes in regulatory requirements and
new information may result in revisions to estimates. The Company recognized the
present value of liabilities for reclamation and closure costs in the period in
which they are incurred. These obligations are measured initially at fair value
and the resulting costs capitalized to the carrying value of the related asset.
In subsequent periods, the liability is adjusted for any changes in the amount
or timing and for the accretion of discounted underlying future cash flows. The
capitalized asset retirement cost is amortized to operations over the life of
the asset.
Future income taxes
The Company follows the
asset and liability method of accounting for income taxes. Under this method,
future tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and losses
carried forward. Future tax assets and liabilities are measured using
substantively enacted or enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled.
26
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
The effect on future tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the substantive
enactment date. Future tax assets are recognized to the extent that they are
considered more likely than not to be realized. The valuation of future income
tax assets is adjusted, if necessary, by the use of a valuation allowance to
reflect the estimated realizable amount. The future income tax provision also
incorporates managements estimates regarding the utilization of tax loss carry
forwards, which are dependent on future operating performance and transactions.
Please refer to Note 16 of the Companys consolidated financial statements for a
detailed description of our future income tax provision.
Stock-based compensation
The Company has a
share option plan which is described in Note 13(d) of the Companys consolidated
financial statements. The Company records all stock-based compensation for
options using the fair value method. The fair value of each option award is
estimated on the date of the grant using the Black-Scholes option pricing model,
with expected volatility based on historical volatility of our stock. We use
historical data to estimate the term of the option and the risk free rate for
the expected term of the option is based on the Government of Canada yield curve
in effect at the time of the grant.
Changes in Accounting Policies
On January 1, 2008, the Company adopted five new accounting
standards that were issued by the Canadian Institute of Chartered Accountants:
Handbook Section 1506, Accounting Changes; Handbook Section 1535,
Capital Disclosures; Handbook Section 3031, Inventories; Handbook
Section 3862, Financial Instruments Disclosure and Handbook Section
3863, Financial Instruments Presentation.
Effective January 1, 2008, the Company adopted the new CICA
guidelines of Section 1506, Accounting Changes, which establishes
criteria for changing accounting policies, together with the accounting
treatment and disclosure of changes in accounting policies, changes in estimates
and correction of errors. As a result of adopting this new standard, changes in
accounting policies are only permitted when required by a primary source of GAAP
or when the change will result in more reliable and more relevant information.
There were no changes in policies or estimates during the period, except for
those new standards adopted and noted below.
Effective January 1, 2008, the Company adopted the new CICA
guidelines of Section 1535, Capital Disclosures, which requires companies
to disclose their objectives, policies and processes for managing capital,
quantitative data about what the entity regards as capital, and whether
companies have complied with externally imposed capital requirements and, if not
in compliance, the consequences of such non-compliance. The Companys objective
when managing capital is to safeguard the Companys ability to continue as a
going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders. The Company considers the items included in the
consolidated statement of changes in shareholders equity as capital. The
Company manages the capital structure and makes adjustments to it in the light
of changes in economic conditions and the risk characteristics of the underlying
assets. In order to maintain or adjust the capital structure, the Company may
issue new shares through private placements, asset acquisitions or return
capital to shareholders. The Company is not subject to externally imposed
capital requirements.
Effective January 1, 2008, the Company adopted the CICA
guidelines of Section 3031, Inventories, which replaces Section 3030 of
the same name. This standard harmonizes accounting for inventories under
Canadian GAAP with International Financial Reporting Standards (IFRS). Under
this standard, inventories are measured at the lower of cost and net realizable
value. Similar inventories within a consolidated group are to be measured using
the same method, and the reversal of previous write-downs to net realizable
value are required when there is a subsequent increase in the value of
inventories. The Companys inventory balance consists of materials and supplies
inventory, stockpile inventory, finished goods inventory and work-in-process
inventory which are valued at the lower of cost and net realizable value. Cost
is measured using the weighted average method as applicable. There are no
write-
27
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
downs or reversals of past write-downs. The application of this
section did not have a significant impact on the Companys financial statements.
Effective January 1, 2008, the Company adopted the CICA
guidelines of Section 3862, Financial Instruments Disclosures, and
Section 3863, Financial Instruments Presentation. These standards
replace CICA 3861, Financial Instruments Disclosure and Presentation.
These standards increase the disclosures currently required, which will
enable users to evaluate the significance of financial instruments for an
entitys financial position and performance, including disclosures about fair
value. In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments, included
specified minimum disclosures about credit risk, liquidity risk, and market
risk. The quantitative disclosures must provide information about the extent to
which the company is exposed to such risk, based on information provided
internally to the entitys key management personnel.
On February 13, 2008, the Canadian Accounting Standards Board
confirmed that publicly accountable enterprises will be required to adopt
International Financial Reporting Standards (IFRS) in place of Canadian GAAP
for interim and annual reporting purposes for fiscal years beginning on or after
January 1, 2011. At this time, the impact on our future financial position and
results of operations is being assessed. The Company has and continues to
provide training seminars to its accounting staff and has hired additional
accounting staff to assist with the assessment of its current accounting
policies, systems and processes in order to identify differences between current
Canadian GAAP and IFRS GAAP treatment. The Company intends to update the
critical accounting policies and procedures to incorporate the changes required
by converting to IFRS and the impact of these changes on its financial
disclosure. Regular reporting will occur to senior executive management and to
the Audit Committee of our Board of Directors.
RISKS AND UNCERTAINTIES
Precious and Base Metal Price Fluctuations
The profitability of the precious and base metal operations in which
the Company has an interest will be significantly affected by changes in the
market prices of precious and base metals. Prices for precious and base metals
fluctuate on a daily basis, have historically been subject to wide fluctuations
and are affected by numerous factors beyond the control of the Company such as
the level of interest rates, the rate of inflation, central bank transactions,
world supply of the precious and base metals, foreign currency exchange rates,
international investments, monetary systems, speculative activities,
international economic conditions and political developments. The exact effect
of these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving adequate returns on invested
capital or the investments retaining their respective values. Declining market
prices for these metals could materially adversely affect the Companys
operations and profitability.
Passive Foreign Investment Company Consequences
The Company has not made a determination as to whether it is
considered a passive foreign investment company (a PFIC) as such term is
defined in the U.S. Internal Revenue Code of 1986, as amended (the Code), for
U.S. federal income tax purposes for the current tax year and any prior tax
years. A non-U.S. corporation generally will be considered a PFIC for any
taxable year if either (1) at least 75% of its gross income is passive income or
(2) at least 50% of the value of its assets (based on an average of the
quarterly values of the assets during a taxable year) is attributable to assets
that produce or are held for the production of passive income.
In general, if the Company is or becomes a PFIC, any gain
recognized on the sale of securities and any excess distributions (as
specifically defined in the Code) paid on the securities must be ratably
allocated to each day in a U.S. taxpayers holding period for the securities.
The amount of any such gain or excess distribution allocated to prior years of
such U.S. taxpayers holding period for the securities generally will be subject
to U.S. federal income tax at the highest tax applicable to ordinary income in
each such prior year, and the U.S. taxpayer will be required to
28
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
pay interest on the resulting tax liability for each such prior
year, calculated as if such tax liability had been due in each such prior year.
Fluctuations in the price of consumed commodities
Prices and availability of commodities consumed or used in
connection with exploration, development and mining, such as natural gas,
diesel, oil, electricity, cyanide and other reagents fluctuate affecting the
costs of production at our operations. These fluctuations can be unpredictable,
can occur over short periods of time and may have a materially adverse impact on
our operating costs or the timing and costs of various projects. Our general
policy is not to hedge our exposure to changes in prices of the commodities we
use in our business.
Competitive Conditions
Significant
competition exists for natural resource acquisition opportunities. As a result
of this competition, some of which is with large, well established mining
companies with substantial capabilities and significant financial and technical
resources, the Company may be unable to either compete for or acquire rights to
exploit additional attractive mining properties on terms it considers
acceptable. Accordingly, there can be no assurance that the Company will be able
to acquire any interest in additional projects that would yield reserves or
results for commercial mining operations.
Operating Hazards and Risks
Mining operations
generally involve a high degree of risk, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. These risks
include, but are not limited to, the following; environmental hazards,
industrial accidents, third party accidents, unusual or unexpected geological
structures or formations, fires, power outages, labour disruptions, floods,
explosions, cave-ins, land-slides, acts of God, periodic interruptions due to
inclement or hazardous weather conditions, earthquakes, war, rebellion,
revolution, delays in transportation, inaccessibility to property, restrictions
of courts and/or government authorities, other restrictive matters beyond the
reasonable control of the Company, and the inability to obtain suitable or
adequate machinery, equipment or labour and other risks involved in the
operation of mines.
Operations in which the Company has a direct or indirect
interest will be subject to all the hazards and risks normally incidental to
exploration, development and production of precious and base metals, any of
which could result in work stoppages, delayed production and resultant losses,
increased production costs, asset write downs, damage to or destruction of mines
and other producing facilities, damage to life and property, environmental
damage and possible legal liability for any or all damages. The Company may
become subject to liability for pollution, cave-ins or hazards against which it
cannot insure or against which it may elect not to insure. Any compensation for
such liabilities may have a material, adverse effect on the Companys financial
position.
Our property, business interruption and liability insurance may
not provide sufficient coverage for losses related to these or other hazards.
Insurance against certain risks, including certain liabilities for environmental
pollution, may not be available to us or to other companies within the industry
at reasonable terms or at all. In addition, our insurance coverage may not
continue to be available at economically feasible premiums, or at all. Any such
event could have a material adverse affect on our business.
Exploration and Development
There is no
assurance given by the Company that its exploration and development programs and
properties will result in the discovery, development or production of a
commercially viable ore body or yield new reserves to replace or expand current
reserves.
The business of exploration for minerals and mining involves a
high degree of risk. Few properties that are explored are ultimately developed
into producing mines. At this time, apart from the mineral reserves on the
Companys Guanacevi Mines Project and Guanajuato Mines Project, none of the
Companys properties have any defined ore-bodies with proven reserves.
29
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
The economics of developing silver, gold and other mineral
properties are affected by many factors including capital and operating costs,
variations of the tonnage and grade of ore mined, fluctuating mineral markets,
and such other factors as government regulations, including regulations relating
to royalties, allowable production, importing and exporting of minerals and
environmental protection. Depending on the prices of silver, gold or other
minerals produced, the Company may determine that it is impractical to commence
or continue commercial production. Substantial expenditures are required to
discover an ore-body, to establish reserves, to identify the appropriate
metallurgical processes to extract metal from ore, and to develop the mining and
processing facilities and infrastructure. The marketability of any minerals
acquired or discovered may be affected by numerous factors which are beyond the
Companys control and which cannot be accurately foreseen or predicted, such as
market fluctuations, conditions for precious and base metals, the proximity and
capacity of milling and smelting facilities, and such other factors as
government regulations, including regulations relating to royalties, allowable
production, importing and exporting minerals and environmental protection. In
order to commence exploitation of certain properties presently held under
exploration concessions, it is necessary for the Company to apply for an
exploitation concession. There can be no guarantee that such a concession will
be granted. Unsuccessful exploration or development programs could have a
material adverse impact on the Companys operations and profitability.
Calculation of Reserves and Resources and Precious Metal
Recoveries
There is a degree of uncertainty attributable to the
calculation and estimates of reserves and resources and their corresponding
metal grades to be mined and recovered. Until reserves or resources are actually
mined and processed, the quantities of mineralization and metal grades must be
considered as estimates only. Any material change in the quantity of mineral
reserves, mineral resources, grades and recoveries may affect the economic
viability of the Companys properties.
Government Regulation
The Companys
operations, exploration and development activities are subject to extensive
foreign federal, state and local laws and regulations governing such matters as
environmental protection, management and use of toxic substances and explosives,
management of natural resources, health, exploration and development of mines,
production and post-closure reclamation, safety and labour, mining law reform,
price controls import and export laws, taxation, maintenance of claims, tenure,
government royalties and expropriation of property. There is no assurance that
future changes in such regulation, if any, will not adversely affect the
Companys operations. The activities of the Company require licenses and permits
from various governmental authorities.
The costs associated with compliance with these laws and
regulations are substantial and possible future laws and regulations, changes to
existing laws and regulations and more stringent enforcement of current laws and
regulations by governmental authorities, could cause additional expenses,
capital expenditures, restrictions on or suspensions of the Companys operations
and delays in the development of its properties. Moreover, these laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety practices of the Companys past and current
operations, or possibly even those actions of parties from whom the Company
acquired its mines or properties, and could lead to the imposition of
substantial fines, penalties or other civil or criminal sanctions. The Company
retains competent and well trained individuals and consultants in jurisdictions
in which it does business, however, even with the application of considerable
skill the Company may inadvertently fail to comply with certain laws. Such
events can lead to financial restatements, fines, penalties, and other material
negative impacts on the Company.
Obtaining and Renewing of Government Permits
In the ordinary course of business, the Company is required to
obtain and renew government permits for the operation and expansion of existing
operations or for the development, construction and commencement of new
operations. Obtaining or renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions and possibly
involving public hearings and costly undertakings on the Companys part. The
duration and success of the Companys efforts to obtain and renew permits are
contingent upon many variables not within its control including the
interpretation of applicable requirements implemented by the permitting
authority. The Company may not be able to obtain or renew permits that are
necessary to its operations,
30
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
or the cost to obtain or renew permits may exceed what the
Company believes it can recover from a given property once in production. Any
unexpected delays or costs associated with the permitting process could delay
the development or impede the operation of a mine, which could adversely impact
the Companys operations and profitability.
Environmental Factors
All phases of the
Companys operations are subject to environmental regulation in the various
jurisdictions in which it operates. Environmental legislation is evolving in a
manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. There is no assurance that any future
changes in environmental regulation, will not adversely affect the Companys
operations. The costs of compliance with changes in government regulations have
the potential to reduce the profitability of future operations. Environmental
hazards that may have been caused by previous or existing owners or operators
may exist on the Companys mineral properties, but are unknown to the Company at
the present.
Title to Assets
Although the Company has or
will receive title opinions for any properties in which it has a material
interest, there is no guarantee that title to such properties will not be
challenged or impugned. The Company has not conducted surveys of the claims in
which it holds direct or indirect interests and, therefore, the precise area and
location of such claims may be in doubt. The Companys claims may be subject to
prior unregistered agreements or transfers or native land claims and title may
be affected by unidentified or unknown defects. The Company has conducted as
thorough an investigation as possible on the title of properties that it has
acquired or will be acquiring to be certain that there are no other claims or
agreements that could affect its title to the concessions or claims. If title to
the Companys properties is disputed it may result in the Company paying
substantial costs to settle the dispute or clear title and could result in the
loss of the property, which events may affect the economic viability of the
Company.
Uncertainty of Funding
The Company has
limited financial resources, and the mineral claims in which the Company has an
interest or an option to acquire an interest require financial expenditures to
be made by the Company. There can be no assurance that adequate funding will be
available to the Company so as to exercise its option or to maintain its
interests once those options have been exercised. Further exploration work and
development of the properties in which the Company has an interest or option to
acquire depend upon the Companys ability to obtain financing through joint
venturing of projects, debt financing or equity financing or other means.
Failure to obtain financing on a timely basis could cause the Company to forfeit
all or parts of its interests in mineral properties or reduce or terminate its
operations.
Agreements with Other Parties
The Company has
entered into agreements with other parties relating to the exploration,
development and production of its properties.
The Company may, in the future, be unable to meet its share of
costs incurred under agreements to which it is a party, and the Company may have
its interest in the properties subject to such agreements reduced as a result.
Furthermore, if other parties to such agreements do not meet their share of such
costs, the Company may be unable to finance the costs required to complete
recommended programs.
Employee Recruitment, Retention and Human Error
Recruiting and retaining qualified personnel is critical to the
Companys success. The Company is dependent on the services of key executives
including the Companys President and Chief Executive Officer and other highly
skilled and experienced executives and personnel focused on managing the
Companys interests. The number of persons skilled in acquisition, exploration,
development and operation of mining properties are limited and competition for
such persons is intense. As the Companys business activity grows, the Company
will require additional key financial, administrative and mining personnel as
well as additional operations staff. We could experience increases
31
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
in our recruiting and training costs and decreases in our
operating efficiency, productivity and profit margins. If we are not able to
attract, hire and retain qualified personnel, the efficiency of our operations
could be impaired, which could have an adverse impact on the Companys future
cash flows, earnings, results of operations and financial condition.
Potential Conflicts of Interest
The directors
and officers of the Company may serve as directors and/or officers of other
public and private companies, and may devote a portion of their time to manage
other business interests. This may result in certain conflicts of interest. To
the extent that such other companies may participate in ventures in which the
Company is also participating, such directors and officers of the Company may
have a conflict of interest in negotiating and reaching an agreement with
respect to the extent of each companys participation. The laws of British
Columbia, Canada, require the directors and officers to act honestly, in good
faith, and in the best interests of the Company and its shareholders. However,
in conflict of interest situations, directors and officers of the Company may
owe the same duty to another company and will need to balance the competing
obligations and liabilities of their actions.
There is no assurance that the needs of the Company will
receive priority in all cases. From time to time, several companies may
participate together in the acquisition, exploration and development of natural
resource properties, thereby allowing these companies to: (i) participate in
larger properties and programs; (ii) acquire an interest in a greater number of
properties and programs; and (iii) reduce their financial exposure to any one
property or program. A particular company may assign, at its cost, all or a
portion of its interests in a particular program to another affiliated company
due to the financial position of the company making the assignment. In
determining whether or not the Company will participate in a particular program
and the interest therein to be acquired by it, it is expected that the directors
and officers of the Company will primarily consider the degree of risk to which
the Company may be exposed and its financial position at that time.
Foreign Countries and Regulatory Requirements
The Companys mining and exploration properties are located in
Mexico, and mineral exploration and mining activities may be affected in varying
degrees by political stability and government regulations relating to the mining
industry. Any changes in regulations or shifts in political attitudes may vary
from country to country and are beyond the control of the Company and may
adversely affect its business. Operations may be affected in varying degrees by
government regulations with respect to restrictions on production, price
controls, export controls, income and other taxes and duties, expropriation of
property, environmental legislation and mine safety. These uncertainties may
make it more difficult for the Company to obtain any required production
financing for its mineral properties.
Foreign Operations
The majority of the
Companys current operations are conducted by its subsidiaries in, and all of
the Companys current production and revenue is derived from its operations in,
Mexico. As the Companys business is carried on in a foreign country, it is
exposed to a number of risks and uncertainties including; labour unrest, high
rates of inflation, changes to tax regimes, extreme fluctuations in currency
exchange rates and difficulty obtaining key equipment and components for
equipment.
Third Party Reliance
The Companys rights to
acquire interests in certain mineral properties have been granted by third
parties who themselves may hold only an option to acquire such properties. As a
result, the Company may have no direct contractual relationship with the
underlying property holder.
Absolute Assurance on Financial Statements
We
prepare our financial reports in accordance with accounting policies and methods
prescribed by Canadian generally accepted accounting principles. In the
preparation of financial reports, management may need to rely upon assumptions,
make estimates or use their best judgment in determining the financial condition
of the Company. Significant accounting details are described in more detail in
the notes to our annual consolidated financial statements for the year ended
December 31, 2008. In order to have a reasonable level of assurance that
financial
32
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
transactions are properly authorized, assets are safeguarded
against unauthorized or improper use and transactions are properly recorded and
reported, we have implemented and continue to analyze our internal control
systems for financial reporting. Although we believe our financial reporting and
financial statements are prepared with reasonable safeguards to ensure
reliability, we cannot provide absolute assurance in that regard.
General economic conditions
The recent
unprecedented events in global financial markets have had a profound effect on
the global economy. Many industries, including the gold and silver mining
industry, are affected by these market conditions. Some of the key effects of
the current financial market turmoil include contraction in credit markets
resulting in a widening of credit risk, devaluations and high volatility in
global equity, commodity, foreign exchange and precious metal markets, and a
lack of market liquidity. A continued or worsened slowdown in the financial
markets or other economic conditions, including but not limited to, consumer
spending, employment rates, business conditions, inflation, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect the
Companys growth and profitability. Specifically:
|
• |
the global credit/liquidity crisis could affect the cost
and availability of financing and our overall liquidity; |
|
• |
the volatility of gold and silver prices affects our
revenues, profits and cash flow; |
|
• |
volatile energy prices, commodity and consumables prices
and currency exchange rates affect our production costs; and |
|
• |
the devaluation and volatility of global stock markets
affects the valuation of our equity securities. |
These factors could have a material adverse effect on the
Companys financial condition and results of operations.
Recent market events and conditions
In 2007
and into 2008, the U.S. credit markets began to experience serious disruption
due to a deterioration in residential property values, defaults and
delinquencies in the residential mortgage market (particularly, sub-prime and
non-prime mortgages) and a decline in the credit quality of mortgage backed
securities. These problems led to a slow-down in residential housing market
transactions, declining housing prices, delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence. These conditions continued
and worsened in 2008, causing a loss of confidence in the broader U.S. and
global credit and financial markets and resulting in the collapse of, and
government intervention in, major banks, financial institutions and insurers and
creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions. In addition, general economic indicators have deteriorated,
including declining consumer sentiment, increased unemployment and declining
economic growth and uncertainty about corporate earnings.
These unprecedented disruptions in the current credit and
financial markets have had a significant material adverse effect on a number of
financial institutions and have limited access to capital and credit for many
companies. These disruptions could, among other things, make it more difficult
for the Company to obtain, or increase its cost of obtaining, capital and
financing for its operations. The Companys access to additional capital may not
be available on terms acceptable to it or at all.
Substantial Volatility of Share Price
In
recent years, the securities markets in the United States and Canada have
experienced a high level of price and volume volatility, and the market price of
securities of many mineral exploration companies have experienced wide
fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. The price
of the Companys common shares is also likely to be significantly affected by
short-term changes in mineral prices or in the Companys financial condition or
results of operations as reflected in its quarterly financial reports. Other
factors unrelated to the Companys performance that may have an
33
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
effect on the price of its common shares include the following:
the extent of analytical coverage available to investors concerning the
Companys business may be limited if investment banks with research capabilities
do not follow the Companys securities; lessening in trading volume and general
market interest in the Companys securities may affect an investors ability to
trade significant numbers of the Companys common shares; the size of the
Companys public float may limit the ability of some institutions to invest in
the Companys securities; and a substantial decline in the price of the
Companys common shares that persists for a significant period of time could
cause the Companys securities to be delisted from the Toronto Stock Exchange
and NYSE Amex, further reducing market liquidity.
Differences in U.S. and Canadian reporting of reserves
and resources
The Companys reserve and resource estimates are not
directly comparable to those made in filings subject to SEC reporting and
disclosure requirements, as the Company generally reports reserves and resources
in accordance with Canadian practices. These practices are different from those
used to report reserve and resource estimates in reports and other materials
filed with the SEC. It is Canadian practice to report measured, indicated and
inferred resources, which are not permitted in disclosure filed with the SEC by
United States issuers. In the United States, mineralization may not be
classified as a "reserve" unless the determination has been made that the
mineralization could be economically and legally produced or extracted at the
time the reserve determination is made. United States investors are cautioned
not to assume that all or any part of measured or indicated resources will ever
be converted into reserves.
Further, "inferred resources" have a great amount of
uncertainty as to their existence and as to whether they can be mined legally or
economically. Disclosure of "contained ounces" is permitted disclosure under
Canadian regulations; however, the SEC permits issuers to report "resources"
only as in-place tonnage and grade without reference to unit of metal measures.
Accordingly, information concerning descriptions of
mineralization, reserves and resources contained in this MD&A, or in the
documents incorporated herein by reference, may not be comparable to information
made public by United States companies subject to the reporting and disclosure
requirements of the SEC.
Adequacy of internal control over financial reporting as
per the requirements of the U.S. Sarbanes-Oxley Act
The Company
documented and tested during its most recent fiscal year, its internal control
procedures in order to satisfy the requirements of Section 404 of the U.S.
Sarbanes-Oxley Act ("SOX"). SOX requires an annual assessment by management of
the effectiveness of the Companys internal control over financial reporting and
an attestation report by the Companys independent auditors addressing this
assessment. The Company may fail to achieve and maintain the adequacy of its
internal control over financial reporting as such standards are modified,
supplemented, or amended from time to time, and the Company may not be able to
ensure that it can conclude on an ongoing basis that it has effective internal
control over financial reporting in accordance with Section 404 of SOX. The
Companys failure to satisfy the requirements of Section 404 of SOX on an
ongoing, timely basis could result in the loss of investor confidence in the
reliability of its financial statements, which in turn could harm the Companys
business and negatively affect the trading price of its common shares or market
value of its other securities. In addition, any failure to implement required
new or improved controls, or difficulties encountered in their implementation,
could harm the Companys operating results or cause it to fail to meet its
reporting obligations. Future acquisitions of companies may provide the Company
with challenges in implementing the required processes, procedures and controls
in its acquired operations. Acquired companies may not have disclosure controls
and procedures or internal control over financial reporting that are as thorough
or effective as those required by securities laws currently applicable to the
Company.
No evaluation can provide complete assurance that the Companys
internal control over financial reporting will detect or uncover all failures of
persons within the Company to disclose material information required to be
reported. The effectiveness of the Companys control and procedures could also
be limited by simple errors or faulty judgments. In addition, as the Company
continues to expand, the challenges involved in implementing appropriate
internal control over financial reporting will increase and will require that
the Company continue to improve its
34
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
internal control over financial reporting. Although the Company
intends to devote substantial time and incur substantial costs, as necessary, to
ensure ongoing compliance, the Company cannot be certain that it will be
successful in complying with Section 404 of SOX.
Potential dilution of present and prospective
shareholdings
In order to finance future operations and development
efforts, the Company may raise funds through the issue of common shares or the
issue of securities convertible into common shares. The Company cannot predict
the size of future issues of common shares or the issue of securities
convertible into common shares or the effect, if any, that future issues and
sales of the Companys common shares will have on the market price of its common
shares. Any transaction involving the issue of previously authorized but
unissued shares, or securities convertible into shares, would result in
dilution, possibly substantial, to present and prospective holders of shares.
Lack of Dividends
No dividends on the
Companys common shares have been paid to date. The Company currently plans to
retain all future earnings and other cash resources, if any, for the future
operation and development of its business. Payment of any future dividends, if
any, will be at the discretion of the Board of Directors after taking into
account many factors, including the Companys operating results, financial
condition, and current and anticipated cash needs.
Future Sales of Common Shares by Existing Shareholders
Sales of a large number of the Companys common shares in the public
markets, or the potential for such sales, could decrease the trading price of
the common shares and could impair the Companys ability to raise capital
through future sales of common shares.
Claims Under U.S. Securities Laws
The
enforcement by investors of civil liabilities under the federal securities laws
of the United States may be affected adversely by the fact that the Company is
incorporated under the laws of British Columbia, Canada, that the independent
registered chartered accountants who have audited the Companys financial
statements and some or all of the Companys directors and officers may be
residents of Canada or elsewhere, and that all or a substantial portion of the
Companys assets and said persons are located outside the United States. As a
result, it may be difficult for holders of the Companys common shares to effect
service of process within the United States upon people who are not residents of
the United States or to realize in the United States upon judgments of courts of
the United States predicated upon civil liabilities under the federal securities
laws of the United States
35
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys officers and management are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Disclosure controls and procedures are designed to provide reasonable assurance
that material information required to be disclosed by the Company under
securities legislation is recorded, processed, summarized and reported within
the applicable time periods and to ensure that required information is gathered
and communicated to the Companys management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO) as is appropriate to permit
timely decisions regarding public disclosure. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives.
Management conducted an evaluation, including the CEO and CFO,
of the effectiveness of the Companys disclosure controls and procedures
pursuant to Rule 13a -15(b) of the Exchange Act. Based upon that evaluation, ,
the Companys Chief Executive Officer and Chief Financial Officer have concluded
that the disclosure controls and procedures were effective to give reasonable
assurance that the information required to be disclosed by the Company in
reports that it files for submits is (i) recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms, and (ii) accumulated and communicated to
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Managements Report on Internal Controls over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules
13a-15(f) under the Exchange Act). A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
A companys internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements. It should be noted that a control
system, no matter how well conceived or operated, can only provide reasonable
assurance, not absolute assurance, that the objectives of the control system are
met. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies and procedures may
deteriorate.
Management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of December 31, 2008. In making this assessment,
management used the criteria set forth in the Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its assessment, management has concluded that, as of
December 31, 2008, the Companys internal control over financial reporting is
effective. Also, management determined that there were no material weaknesses in
the Companys internal control over financial reporting as at December 31, 2008.
36
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
Changes in Internal Control over
Financial Reporting
Our management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated our internal control over financial reporting
to determine whether any changes occurred during the period that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. During the year ended December 31, 2008 management has
implemented the following initiatives to remediate the internal control
weaknesses identified as at December 31, 2007.
Control Environment
In 2007 the Companys control
environment did not sufficiently promote effective internal control over
financial reporting throughout the organization. Specifically, the Company did
not define nor communicate authority limits for entering into or approving
contracts, making capital expenditures, or approving invoices for purchases, or
develop policies and procedures to address the risk of management override. This
applied to both the Canadian head office and Mexican operations. Further, the
Company did not define nor communicate guidelines regarding investments in
marketable securities. None of these control deficiencies by themselves directly
resulted in a misstatement to the financial statements, however, deficiencies in
the control environment are pervasive in nature and this material weakness was a
contributing factor in other material weaknesses described below.
Information & Communication
In 2007 the Company did not maintain
adequate controls to facilitate the flow of information used in financial
reporting throughout the organization. Specifically, the Company did not
effectively communicate employees duties over financial reporting. In addition,
the Company does not have effective controls over the translation of all
contracts and communication of them to appropriate personnel for consideration
of financial reporting implications, in particular commitments and contingencies
and mineral property acquisition costs. These control deficiencies did not
result in adjustments to the financial statements, however, they are pervasive
in nature and create a reasonable possibility that a material misstatement of
the financial statements would not be prevented or detected on a timely basis.
Remediation of Control Environment and
Information & Communication Weakness
|
• |
During January 2008 management developed and implemented
an authority limit policy, a capital expenditure policy, an investment
policy and strengthened invoice approval controls. |
|
• |
During March 2008 appropriate segregation of duties to
reduce management override risks were addressed by implementing management
access restrictions in the Companys accounting systems. |
|
• |
During April 2008 management implemented more robust
weekly and monthly internal reporting, along with more frequent management
meetings and Company communications to ensure appropriate flow of
communication through out the organization. |
|
• |
During March 2008 the Company implemented controls so
that all Spanish language contracts will have certified English
translations, which will be maintained in the corporate office, that are
reviewed by either the Chief Executive Officer or Chief Operating Officer
and either the Chief Financial Officer or Controller.
|
Foreign Exchange
In 2007, the Companys controls over
foreign currency translation were not designed effectively. Specifically, a cash
account was not translated into the reporting currency and the Companys foreign
exchange account reconciliation control was insufficiently precise to detect the
error. This resulted in a material adjustment to
37
ENDEAVOUR SILVER CORP. |
|
Managements Discussion and Analysis |
|
For the Year Ended December 31, 2008 |
|
(Expressed in US
dollars unless otherwise noted) |
Date of Preparation: March 23, 2009 |
cash and foreign exchange gain and
creates a reasonable possibility that a material misstatement of the financial
statements would not be prevented or detected on a timely basis.
Remediation of Foreign Exchange
Weakness
|
• |
In April 2008, management designed and implemented a more
robust foreign exchange translation review process, including multiple
levels of review, embedded self checks within the process and improved
reasonability assessments. |
Income Tax Accounting
In 2007, the Company did not maintain
effective controls over accounting for Mexican income taxes. Specifically, the
Company did not have personnel with adequate expertise in accounting for Mexican
taxes. This deficiency resulted in material adjustments to current and future
income tax expense and recovery and current and future income taxes payable.
This deficiency results in a reasonable possibility that a material misstatement
of the financial statements would not be prevented or detected on a timely
basis.
Remediation of Income Tax Accounting
Weakness
- In May 2008, management engaged the services of international tax
consultants from one of the big four accounting firms to assist with the
review of monthly and annual Mexican tax returns, assist with transfer pricing
and international tax planning and preparation of the year end future income
tax provision information.
- Management hired an employee with adequate knowledge and skills to
effectively prepare and manage the Companys Mexican tax position.
- Management reviewed and discussed with advisors with regard to the annual
tax return and future income tax provision.
Except for the changes discussed above, there have been no
changes that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
The Companys independent auditor, KPMG LLP, the independent
registered public accounting firm that audited the financial statements, has
issued a report on the Companys internal control over financial reporting which
is included with the financial statements.
38
EX-99.4
5
exhibit99-4.htm
SECTION 302 CERTIFICATION
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 4
Exhibit 4
CERTIFICATION
I, Bradford Cooke, certify that:
1.
I have reviewed this annual report on Form 40-F of Endeavour Silver Corp.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer as of, and for,
the periods presented in this report;
4. The
issuers other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-5(f) for the issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the issuers disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d)
Disclosed in this report any change in the issuers internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
issuers internal control over financial reporting; and
5. The
issuers other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the issuers
auditors and the audit committee of the issuers board of directors (or persons
performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the issuers ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the
issuers internal control over financial reporting.
Date: March 31, 2009 |
By: |
/s/ Bradford Cooke |
|
|
|
|
|
Bradford Cooke |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer)
|
EX-99.5
6
exhibit99-5.htm
SECTION 302 CERTIFICATION
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 5
Exhibit 5
CERTIFICATION
I, Dan Dickson, certify that:
1.
I have reviewed this annual report on Form 40-F of Endeavour Silver Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer as of, and for,
the periods presented in this report;
4.
The issuers other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-5(f) for the issuer and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the issuers disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed
in this report any change in the issuers internal control over financial
reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the issuers
internal control over financial reporting; and
5. The
issuers other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the issuers
auditors and the audit committee of the issuers board of directors (or persons
performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the
issuers ability to record, process, summarize and report
financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the issuers internal control over financial
reporting.
Date: March 31, 2009 |
By: |
/s/ Dan Dickson |
|
|
|
|
|
Dan Dickson |
|
|
Chief Financial Officer |
|
|
(Principal Financial and
Accounting |
|
|
Officer) |
EX-99.6
7
exhibit99-6.htm
SECTION 906 CERTIFICATION
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 6
Exhibit 6
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Endeavour Silver Corp.
(the Company) on Form 40-F for the period ended December 31, 2008 as filed
with the Securities and Exchange Commission on the date hereof (the Report),
I, Bradford Cooke, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in this Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
March 31, 2009 |
/s/
Bradford Cooke |
|
|
|
Bradford Cooke |
|
Chief Executive Officer |
|
(Principal Executive Officer)
|
A signed original of this written statement required by Section
906 has been provided to Endeavour Silver Corp. and will be retained by
Endeavour Silver Corp. and furnished to the Securities and Exchange Commission
or its staff upon request.
EX-99.7
8
exhibit99-7.htm
SECTION 906 CERTIFICATION
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 7
Exhibit 7
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Endeavour Silver Corp.
(the Company) on Form 40-F for the period ended December 31, 2008 as filed
with the Securities and Exchange Commission on the date hereof (the Report),
I, W.R. (Bill) Franklin, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in this Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
March 31, 2009 |
/s/
Dan Dickson |
|
|
|
Dan Dickson |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer)
|
A signed original of this written statement required by Section
906 has been provided to Endeavour Silver Corp. and will be retained by
Endeavour Silver Corp. and furnished to the Securities and Exchange Commission
or its staff upon request.
EX-99.8
9
exhibit99-8.htm
CONSENTS OF WILLIAM LEWIS, B.SC., P.GEO.
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 8
CONSENT of AUTHOR
TO: |
British Columbia Securities
Commission |
|
Alberta Securities Commission
|
|
Ontario Securities Commission
|
|
Autorité des marchés financiers
|
|
U.S. Securities and Exchange
Commission |
|
TSX Toronto Stock Exchange
|
Dears Sirs/Mesdames:
I, William J. Lewis, BSc., P.Geo. consent to the public filing
of the technical report titled NI 43-101 Technical Report Audit of the
Resource and Reserve Estimates for the Guanacevi Project, Durango State,
Mexico, dated March 18, 2008 (the "Technical Report"), and to extracts from
or a summary of, the technical report in the Annual Information Form dated March
31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the Management
Discussion &Analysis dated March 23, 2009, of Endeavour Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the
technical report.
Dated this 31st day of March, 2009.
William J. Lewis
____________________
William J. Lewis, BSc., P.Geo.
Senior Geologist,
Micon
International Limited
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO,
CANADA M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1)
(416) 362 5763
CONSENT of AUTHOR
TO: |
British Columbia Securities Commission |
|
Alberta Securities Commission |
|
Ontario Securities Commission |
|
Autorité des marchés financiers |
|
U.S. Securities and Exchange Commission |
|
TSX Toronto Stock Exchange |
Dears Sirs/Mesdames:
I, William J. Lewis, BSc., P.Geo., consent to the public filing
of the technical report titled NI 43-101 Technical Report Audit of
the Resource and Reserve Estimates for the Guanajuato Mines Project, Guanajuato
State, Mexico, dated March 18, 2008 (the "Technical Report"), and
to extracts from or a summary of, the technical report in the Annual Information
Form dated March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009
and the Management Discussion &Analysis dated March 23, 2009, of Endeavour
Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the technical
report.
Dated this 31st day of March, 2009.
William J. Lewis
____________________
William J. Lewis, BSc., P.Geo.
Senior Geologist
Micon International Limited
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO, CANADA
M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1) (416) 362 5763
EX-99.9
10
exhibit99-9.htm
CONSENTS OF ROBERT J. LEADER, P.ENG
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 9
CONSENT of AUTHOR
TO: |
British Columbia Securities
Commission |
|
Alberta Securities Commission
|
|
Ontario Securities Commission
|
|
Autorité des marchés financiers
|
|
U.S. Securities and Exchange
Commission |
|
TSX Toronto Stock Exchange
|
Dears Sirs/Mesdames:
I, Robert J. Leader, M.Sc., P.Eng., consent to the public
filing of the technical report titled NI 43-101 Technical Report Audit of
the Resource and Reserve Estimates for the Guanacevi Project, Durango State,
Mexico, dated March 18, 2008 (the "Technical Report"), and to extracts from
or a summary of, the technical report in the Annual Information Form dated March
31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the Management
Discussion &Analysis dated March 23, 2009, of Endeavour Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the
technical report.
Dated this 31st day of March, 2009.
Robert J. Leader
________________________
Robert J. Leader, M.Sc., P.Eng.
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO,
CANADA M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1)
(416) 362 5763
CONSENT of AUTHOR
TO: |
British Columbia Securities Commission |
|
Alberta Securities Commission |
|
Ontario Securities Commission |
|
Autorité des marchés financiers |
|
U.S. Securities and Exchange Commission |
|
TSX Toronto Stock Exchange |
Dears Sirs/Mesdames:
I, Robert J. Leader, M.Sc., P.Eng., consent to the public filing
of the technical report titled NI 43-101 Technical Report Audit of
the Resource and Reserve Estimates for the Guanajuato Mines Project, Guanajuato
State, Mexico, dated March 18, 2008 (the "Technical Report"), and
to extracts from or a summary of, the technical report in the Annual Information
Form dated March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009
and the Management Discussion &Analysis dated March 23, 2009, of Endeavour
Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the technical
report.
Dated this 31st day of March, 2009.
Robert J. Leader
________________________
Robert J. Leader, M.Sc., P.Eng.
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO, CANADA
M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1) (416) 362 5763
EX-99.10
11
exhibit99-10.htm
CONSENT OF DIBYA KANTI MUKHOPADHYAY
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 10
CONSENT of AUTHOR
TO: |
British Columbia Securities
Commission |
|
Alberta Securities Commission
|
|
Ontario Securities Commission
|
|
Autorité des marchés financiers
|
|
U.S. Securities and Exchange
Commission |
|
TSX Toronto Stock Exchange
|
Dears Sirs/Mesdames:
"I, Dibya Kanti Mukhopadhyay, MAusIMM consent to the public
filing of the technical report titled “NI 43-101 Technical Report
Audit of the Resource and Reserve Estimates for the Guanacevi Project, Durango
State, Mexico”, dated March 18, 2008 (the "Technical Report"),
and to extracts from or a summary of, the technical report in the Annual Information
Form dated March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009
and the Management Discussion &Analysis dated March 23, 2009, of Endeavour
Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the technical
report.
Dated this 31st day of March, 2009.
Dibya Kanti Mukhopadhyay
____________________
Dibya Kanti Mukhopadhyay, MAusIMM
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO, CANADA
M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1) (416) 362 5763
EX-99.11
12
exhibit99-11.htm
CONSENTS OF CHARLEY MURAHWI, M.SC., P.GEO.
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 11
CONSENT of AUTHOR
TO: |
British Columbia Securities
Commission |
|
Alberta Securities Commission
|
|
Ontario Securities Commission
|
|
Autorité des marchés financiers
|
|
U.S. Securities and Exchange
Commission |
|
TSX Toronto Stock Exchange
|
Dears Sirs/Mesdames:
I, Charley Z. Murahwi, P.Geo., MAusIMM consent to the public
filing of the technical report titled NI 43-101 Technical Report Audit of
the Resource and Reserve Estimates for the Guanacevi Project, Durango State,
Mexico, dated March 18, 2008 (the "Technical Report"), and to extracts from
or a summary of, the technical report in the Annual Information Form dated March
31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the Management
Discussion &Analysis dated March 23, 2009, of Endeavour Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the
technical report.
Dated this 31st day of March, 2009.
Charley Z. Murahwi
____________________
Charley Z. Murahwi, M.Sc.,
P.Geo.,MAusIMM
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO,
CANADA M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1)
(416) 362 5763
CONSENT of AUTHOR
TO: |
British Columbia Securities Commission |
|
Alberta Securities Commission |
|
Ontario Securities Commission |
|
Autorité des marchés financiers |
|
U.S. Securities and Exchange Commission |
|
TSX Toronto Stock Exchange |
Dears Sirs/Mesdames:
I, Charley Murahwi, M.Sc., P.Geo., MAusIMM consent to the public
filing of the technical report titled NI 43-101 Technical Report Audit
of the Resource and Reserve Estimates for the Guanajuato Mines Project, Guanajuato
State, Mexico, dated March 18, 2008 (the "Technical Report"), and
to extracts from or a summary of, the technical report in the Annual Information
Form dated March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009
and the Management Discussion &Analysis dated March 23, 2009, of Endeavour
Silver Corp.
I confirm that I have read the Annual Information Form dated
March 31, 2009, the Annual Report on Form 40-F dated March 31, 2009 and the
Management Discussion &Analysis dated March 23, 2009 of Endeavour Silver
Corp and that they fairly and accurately represent the information in the technical
report.
Dated this 31st day of March, 2009.
Charley Z. Murahwi
___________________________________________
Charley Z. Murahwi, M.Sc., P.Geo.,MAusIMM
Micon International Limited
SUITE 900 - 390 BAY STREET, TORONTO ONTARIO, CANADA
M5H 2Y2
Telephone (1) (416) 362-5135 Fax (1) (416) 362 5763
EX-99.12
13
exhibit99-12.htm
CONSENT OF KPMG LLP
Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 99.12
![](kpmg.jpg)
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
|
Telephone
Fax
Internet |
(604) 691-3000
(604) 691-3031
www.kpmg.ca
|
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Endeavour Silver Corp.
We consent to the inclusion in this annual report on Form 40-F of:
– |
our auditors' report dated March 6, 2009 on the
consolidated balance sheets of Endeavour Silver Corp. (the Company) as
at December 31, 2008 and 2007, and the consolidated statements of operations
and comprehensive income, shareholders’ equity and deficit and cash
flows for each of the years in the three-year period ended December 31,
2008. |
|
|
– |
our Comments by Auditors for US Readers on Canada-US
Reporting Differences, dated March 6, 2009. |
|
|
– |
our Report of Independent Registered Public Accounting
Firm dated March 6, 2009 on the Company’s internal control over
financial reporting as of December 31, 2008. |
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
March 30, 2009
KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
GRAPHIC
14
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begin 644 endeavourlglogo.jpg
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