Endeavour Silver Corp. - Exhibit 99.2 - Filed by newsfilecorp.com
| MANAGEMENT’S DISCUSSION AND ANALYSIS
|
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
This Management’s Discussion and Analysis (“MD&A”) should
be read in conjunction with the condensed consolidated interim financial
statements of Endeavour Silver Corp. (“Endeavour” or “the Company”) for the
three months ended March 31, 2015 and 2014 and the related notes contained
therein, which are prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). In addition, the following should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2014
and the related MD&A. We use certain non-IFRS financial measures in this
MD&A. For a description of each of the non-IFRS measures used in this
MD&A, please see the discussion under “Non-IFRS Measures”. Additional
information relating to the Company, including the most recent Annual
Information Form, is available on SEDAR at www.sedar.com, and the Company’s most
recent annual report on Form 40-F has been filed with the US Securities and
Exchange Commission (the “SEC”). This MD&A contains “forward-looking
statements” that are subject to risk factors set out in a cautionary note
contained herein. All dollar amounts are expressed in United States (“US”)
dollars and tabular amounts are expressed in thousands of U S dollars unless
otherwise indicated. This MD&A is dated as of May 5, 2015 and all
information contained is current as of May 5, 2015 unless otherwise stated.
Cautionary Note to US Investors concerning Estimates of
Reserves and Measured, Indicated and Inferred Resources:
This MD&A has been prepared in accordance with the
requirements of the securities laws in effect in Canada, which differ from the
requirements of US 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 US Securities Act
of 1933, 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.
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 MD&A contains
descriptions of Endeavour’s mineral deposits that may not be
comparable to similar information made public by US companies subject to the
reporting and disclosure requirements under the US federal securities laws and
the rules and regulations thereunder.
| |
| |
| 700 West Pender Street, Suite 301, Vancouver, B.C.,
Canada V6C 1G8 |
| Phone: 604.685.9775 | Fax: 604.685.9744| Toll Free:
1.877.685.9775 | Email: info@edrsilver.com
|
| www.edrsilver.com
|
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
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 Endeavour’s anticipated performance
in 2015, 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.
Forward-looking statements are frequently characterized by words such as
“plan”, “expect”,
“forecast”, “project”,
”intend”, ”believe”,
”anticipate”, “outlook” and other similar words, or
statements that certain events or conditions “may” or
“will” occur. Forward- looking statements are based on the
opinions and estimates of management at the dates the statements are made, and
are subject to a variety of risks and uncertainties and other factors that could
cause actual events or results to differ materially from those projected in the
forward-looking statements.
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 the Company
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 Company’s
title to properties; as well as those factors described in the section “risk
factors” contained in the Company’s Annual Information Form filed
with the Canadian securities regulatory authorities and as filed with the
SEC in our Annual Report on Form 40-F. 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.
Table of Contents
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
| |
Three Months Ended March 31
|
| Q1 2015 Highlights |
2015 |
2014 |
% Change |
| Production |
|
|
|
| Silver ounces produced |
1,820,050 |
1,898,999 |
(4%) |
| Gold ounces produced |
15,808 |
18,519 |
(15%) |
| Payable silver ounces produced |
1,769,924 |
1,844,165 |
(4%) |
| Payable gold ounces produced |
15,429 |
17,796 |
(13%) |
| Silver equivalent ounces produced (1) |
2,926,610 |
3,195,329 |
(8%) |
| Cash costs per silver ounce(2)(3) |
7.17 |
4.87 |
47% |
| Total production costs per ounce(2)(4) |
12.97 |
13.07 |
(1%) |
| All-in sustaining costs per ounce(2)(5) |
13.32 |
12.15 |
10% |
| Processed tonnes |
380,792 |
346,525 |
10% |
| Direct production costs per tonne(2)(6) |
82.67 |
92.93 |
(11%) |
| Silver co-product cash costs (7) |
10.68 |
10.46 |
2% |
| Gold co-product
cash costs (7) |
762 |
666 |
14% |
| Financial |
|
|
|
| Revenue ($ millions) |
51.1 |
53.0 |
(4%) |
| Silver ounces sold |
1,861,975 |
1,537,665 |
21% |
| Gold ounces sold |
15,799 |
16,445 |
(4%) |
| Realized silver price per ounce |
17.11 |
20.50 |
(17%) |
| Realized gold price per ounce |
1,221 |
1,306 |
(7%) |
| Net earnings (loss) ($ millions) |
1.4 |
4.0 |
(66%) |
| Adjusted net earnings (8) ($ millions) |
1.4 |
5.5 |
(75%) |
| Mine operating earnings ($ millions) |
9.1 |
11.3 |
(20%) |
| Mine operating cash flow(9) ($ millions) |
19.6 |
25.4 |
(23%) |
| Operating cash flow before working capital changes
(10) |
13.8 |
18.3 |
(25%) |
| Earnings before ITDA (11) |
16.4 |
19.3 |
(15%) |
| Working capital ($
millions) |
25.8 |
46.4 |
(44%) |
| Shareholders |
|
|
|
| Earnings per share – basic |
0.01 |
0.04 |
(75%) |
| Adjusted earnings per share – basic (8) |
0.01 |
0.05 |
(76%) |
| Operating cash flow before working capital changes per
share (10) |
0.14 |
0.18 |
(26%) |
| Weighted average
shares outstanding |
101,976,901 |
100,494,157 |
1% |
| (1) |
Silver equivalents are calculated using a 70:1
ratio. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 12. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 15. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 15. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 16. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 15. |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page 16 |
| (8) |
Adjusted earnings are calculated by adding back the
mark-to-market impact of derivative equities held as a liability on the
Company’s balance sheet and impairment charges net of tax. See
Reconciliation to IFRS on page 13. |
| (9) |
Mine operating cash flow is calculated by adding back
amortization, depletion, inventory write downs and share-based
compensation to mine operating earnings. Mine operating earnings and mine
operating cash flow are before taxes. See Reconciliation to IFRS on page
13. |
| (10) |
See Reconciliation to IFRS on page 13 for the
reconciliation of operating cash flow before working capital changes and
page 14 for the operating cash flow before working capital changes per
share. |
| (11) |
See Reconciliation of Earnings before interest, taxes,
depreciation and amortization on page 14. |
The above highlights are key measures used by management,
however they should not be the sole measures used in determining the performance
of the Company’s operations.
HISTORY AND STRATEGY
The Company is engaged in silver mining in Mexico and related
activities including property acquisition, exploration, development, mineral
extraction, processing, refining and reclamation. The Company is also engaged in
exploration activities in Chile.
Historically, the business philosophy was to acquire and
explore early-stage mineral prospects in Canada and the US. 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 under-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 Guanaceví 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 was quickly met with encouraging results. By September 2004,
sufficient high-grade silver mineralization had been outlined to justify the
development of an access ramp into the newly discovered North Porvenir ore-body.
In December 2004, the Company commenced the mining and processing of ore from
the new North Porvenir mine to produce silver doré bars.
In 2007, the Company replicated the success of Guanaceví with
the acquisition of the Bolañitos (formerly described as “Guanajuato”) mines
project in Guanajuato State. Bolañitos was very similar in that there was a
fully built and permitted processing plant, and the mines were running out of
ore, so the operation was for sale. The acquisition was finalized in May 2007
and as a result of the successful mine rehabilitation and subsequent exploration
work, silver production, reserves and resources are growing rapidly and
Bolañitos is now an integral part of the Company’s asset base.
Both Guanaceví and Bolañitos are good examples of Endeavour’s
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 ore-bodies, Endeavour has successfully re-opened and expanded
these mines to develop their full potential. The benefit of acquiring fully
built and permitted mining and milling 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.
In 2012, the Company acquired the El Cubo silver-gold mine
located in Guanajuato, Mexico. El Cubo had similar challenges to Endeavour’s
past acquisitions, but with two significant exceptions; the property came with
substantial reserves and resources, and the mine was already operating at 1,100
tonnes per day (tpd). After acquisition, Endeavour initiated a two year
operational turn-around program aimed at increasing throughput, grade and
productivity in order to reduce operating costs and return the operation to
profitability. Endeavour also completed a capital reconstruction program of the
plant and surface infrastructure, and invested in accelerated mine exploration
and development to unfold the full potential of El Cubo.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
The Company has historically funded its exploration and
development activities through equity financings and convertible debentures.
Equity financings also facilitated the acquisition and development of the
Guanaceví and Bolañitos 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. In 2012 the Company
obtained a credit facility to help support its acquisition, exploration and
capital investment programs. The Company may choose to engage in equity, debt,
convertible debt or other financings, on an as-needed basis, in order to
facilitate its growth.
REVIEW OF OPERATING RESULTS
Consolidated Production Results for the Three Months Ended
March 31, 2015 and 2014
| CONSOLIDATED |
Three Months Ended March 31
|
| |
2015
|
2014
|
%
Change |
| Ore tonnes processed |
380,792 |
346,525 |
10% |
| Average silver grade (gpt) |
174 |
198 |
(12%) |
| Silver recovery (%) |
85.2 |
86.1 |
(1%) |
| Total silver ounces produced |
1,820,050 |
1,898,999 |
(4%) |
| Payable silver ounces produced |
1,769,924 |
1,844,165 |
(4%) |
| Average gold grade (gpt) |
1.53 |
1.92 |
(20%) |
| Gold recovery (%) |
84.5 |
86.6 |
(2%) |
| Total gold ounces produced |
15,808 |
18,519 |
(15%) |
| Payable gold ounces produced |
15,429 |
17,796 |
(13%) |
| Silver equivalent ounces produced (1)
|
2,926,610 |
3,195,329 |
(8%) |
| Cash costs per silver ounce(2)(3) |
7.17 |
4.87 |
47% |
| Total production costs per ounce(2)(4)
|
12.97 |
13.07 |
(1%) |
| All in sustaining cost per ounce (2)(5) |
13.32 |
12.15 |
10% |
| Direct production costs per
tonne(2)(6) |
82.67 |
92.93 |
(11%) |
| Silver co-product cash costs (7) |
10.68 |
10.46 |
2% |
| Gold co-product cash costs (7) |
761.97 |
666.31 |
14% |
| (1) |
Silver equivalents are calculated using a 70:1
ratio. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-product on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 12. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 15. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 15. |
| (5) |
All-in sustaining costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 16. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 15. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
16. |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Consolidated Production
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
Consolidated silver production during Q1,
2015 was 1,820,050 ounces, a decrease of 4% compared to 1,898,999 oz in Q1,
2014, and gold production was 15,808 oz, a decrease of 15% compared to 18,519 oz
in Q1, 2014. Plant throughput was 380,792 tonnes at average grades of 174 grams
per tonne (gpt) silver and 1.53 gpt gold compared to 346,525 tonnes grading 198
gpt silver and 1.92 gpt gold in Q1, 2014. Metal production fell due to lower
grades, offset by the higher throughput. The increased throughput of the El Cubo
operation, which has lower grades than the other operations, is the primary
driver of this variation from 2014.
Consolidated Operating Costs
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
The falling Mexican peso and continued
focus on cost reductions resulted in lower consolidated costs per tonne, which
fell 11% to $82.67 in Q1, 2015. Lower gold grades resulted in rising cash costs,
net of by-product credits (a non-IFRS measure and a standard of the Silver
Institute), which increased 47% to $7.17 per oz of payable silver compared to
$4.87 per oz in Q1, 2014. Similarly the lower gold grades offset by lower
exploration and development expenditures resulted in all-in-sustaining costs
(also a non-IFRS measure) increasing 10% to $13.32 per oz compared to Q1, 2014.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Guanaceví Operations
Production Results for the Three Months Ended March 31,
2015 and 2014
| GUANACEVÍ |
Three Months Ended March 31
|
| |
2015
|
2014
|
%
Change |
| Ore tonnes processed |
106,106 |
106,813 |
(1%) |
| Average silver grade (g/t) |
300 |
350 |
(14%) |
| Silver recovery (%) |
83.4 |
83.7 |
(0%) |
| Total silver ounces produced |
853,106 |
1,005,781 |
(15%) |
| Payable silver ounces produced |
844,575 |
995,723 |
(15%) |
| Average gold grade (g/t) |
0.63 |
0.77 |
(18%) |
| Gold recovery (%) |
87.3 |
86.0 |
2% |
| Total gold ounces produced |
1,877 |
2,273 |
(17%) |
| Payable gold ounces produced |
1,858 |
2,250 |
(17%) |
| Silver equivalent ounces produced (1)
|
984,496 |
1,164,891 |
(15%) |
| Cash costs per silver ounce(2)(3) |
8.23 |
8.30 |
(1%) |
| Total production costs per ounce(2)(4)
|
11.16 |
10.72 |
4% |
| All in sustaining cost per ounce (2)(5) |
11.16 |
11.94 |
(7%) |
| Direct production costs per
tonne(2)(6) |
87.34 |
103.90 |
(16%) |
| Silver co-product cash costs (7) |
9.36 |
9.65 |
(3%) |
| Gold co-product cash costs (7) |
682 |
614 |
11% |
| (1) |
Silver equivalents are calculated using a 70:1
ratio. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-product on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 12. |
| (3) |
Cash costs net of by-product per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 15. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 15. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 16. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 15. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
16. |
Guanaceví has produced more than 22 million ounces of silver
and 52,000 ounces of gold since Endeavour acquired it in 2004. Although the
historic mine was closed and the plant was struggling to process 100 tpd of old
tailings in 2004, Guanaceví is now producing 1,200 tpd of high-grade ore. The
Company has discovered five high-grade silver-gold ore bodies along a five
kilometre length of the prolific Santa Cruz vein and developed four new mines,
one of which is now mined out. The Guanaceví operation currently includes three
underground silver-gold mines, a cyanidation leach plant, mining camp, and
administration and housing facilities. Guanaceví provides steady employment for
540 people and engages 100 contractors.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Guanaceví Production Results
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
Silver production at the Guanaceví mine
during Q1, 2015 was 853,106 oz, a decrease of 15% compared to 1,005,781 oz in
Q1, 2014, and gold production was 1,877 oz, a decrease of 17% compared to 2,273
oz in Q1, 2014. Plant throughput was 106,106 tonnes at average grades of 300 gpt
silver and 0.63 gpt gold compared to 106,813 tonnes grading 350 gpt silver and
0.70 gpt gold in Q1, 2014. The lower ore grades were due to variations within
and between the different ore bodies resulting in lower silver and gold
production compared to Q1, 2014. The ore grades exceeded plan grades for Q1,
2015 due to variations within and between the different ore bodies and the
processing of stockpiled higher grade ore.
Guanaceví Operating Costs
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
Per-tonne costs fell 16% to $87.34 in Q1,
2015 compared to Q1, 2014 due to the falling peso and the Company’s focus on
reducing costs. The lower costs per tonne were offset by lower grades resulting
flat cash costs per ounce, net of by-product credits (a non-IFRS measure and a
standard of the Silver Institute), which decreased 1% to $8.23 per oz of payable
silver compared to $8.30 per oz in Q1, 2014. All-in-sustaining costs (also a
non-IFRS measure) fell 7% to $11.16 per oz compared to Q1, 2014 due to lower
mine development and exploration expenditures. Exploration and mine development
is a function of the maturity of the individual mines at the Guanaceví operation
and can fluctuate quarter to quarter, declining in the mature mines but
increasing when new mines are developed.
Bolañitos Operations
Production Results for the Three Months Ended March 31,
2015 and 2014
| BOLAÑITOS |
Three Months Ended March 31
|
| |
2015 |
2014 |
% Change |
| Ore tonnes processed |
136,076 |
142,412 |
(4%) |
| Average silver grade (g/t) |
139 |
144 |
(3%) |
| Silver recovery (%) |
85.7 |
87.1 |
(2%) |
| Total silver ounces produced |
521,117 |
572,851 |
(9%) |
| Payable silver ounces produced |
498,393 |
544,029 |
(8%) |
| Average gold grade (g/t) |
2.30 |
2.72 |
(15%) |
| Gold recovery (%) |
83.7 |
85.4 |
(2%) |
| Total gold ounces produced |
8,421 |
10,640 |
(21%) |
| Payable gold ounces produced |
8,215 |
10,170 |
(19%) |
| Silver equivalent ounces produced (1)
|
1,110,587 |
1,317,651 |
(16%) |
| Cash costs per silver ounce(2)(3) |
0.17 |
(2.21) |
108% |
| Total production costs per ounce(2)(4)
|
5.81 |
9.39 |
(38%) |
| All in sustaining cost per ounce (2)(5) |
5.74 |
3.85 |
49% |
| Direct production costs per
tonne(2)(6) |
74.00 |
85.27 |
(13%) |
| Silver co-product cash costs (7) |
8.87 |
9.71 |
(9%) |
| Gold co-product cash costs (7) |
647 |
619 |
5% |
| (1) |
Silver equivalents are calculated using a 70:1
ratio. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 12. |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
| (3) |
Cash costs net of by-product per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 15. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 15. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 16. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 15. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
16. |
The Bolañitos mine encompasses three operating silver-gold
mines and a floatation plant and is located 10 kilometres from the city of
Guanajuato in the state of Guanajuato. Following Endeavour’s acquisition in
2007, cash costs of production were as high as $32 per oz and the operation was
struggling to produce 300,000 ounces of silver per year. Following the execution
of management’s business strategy, cash costs of production became negative due
to economies of scale and the rising gold credits as production grew. Bolañitos’
processing plant was expanded in phases from 500 tpd in 2007 to 1,600 tpd in
2012. In 2013 additional mine output was processed at the El Cubo facilities
allowing production to exceed plant capacity, whereas in 2014, production
reverted to the 1,600 tpd Bolañitos plant capacity. Since acquisition, the
Bolañitos operation has produced over 10 million ounces of silver and over
93,000 ounces of gold.
Bolañitos Production Results
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
Silver production at the Bolañitos mine was
521,117 oz during Q1, 2015, a decrease of 9% compared to 572,851 oz in Q1, 2014,
and gold production was 8,421 oz, a decrease of 21% compared to 10,640 oz in Q1,
2014. Plant throughput in Q1, 2015 was 136,076 tonnes at average grades of 139
gpt silver and 2.30 gpt gold, compared to 142,412 tonnes grading 144 gpt silver
and 2.72 gpt gold in Q1, 2014. Metal production was down due to lower throughput
and lower grades.
Going forward, Bolañitos production will contract as operations
focus on developing the LL-Asunción ore body. Bolañitos operated at its existing
capacity of 1,600 tpd in the first quarter, but will expected to gradually drop
to 1,000 tpd until the LL- Asunción deposit is sufficiently developed.
Bolañitos Operating Costs
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
In Q1, 2015, per tonne costs fell due to
the falling Mexican peso and management’s focus on reducing costs. The lower
costs per tonne were offset by lower grade material, increasing cash costs per
oz, net of by-product credits (which is a non-IFRS measure and a standard of the
Silver Institute), to $0.17 per oz of payable silver compared to negative $2.21
per oz in the same period in 2014. Similarly all-in sustaining costs (also a
non-IFRS measure) rose for the same reasons, and were offset by decreased mine
development and exploration expenditures in Q1, 2015 compared to Q1, 2014.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
El Cubo Operations
Production Results for the Three Months Ended March 31,
2015 and 2014
| EL CUBO |
Three Months Ended March 31
|
| |
2015 |
2014 |
% Change |
| Ore tonnes processed |
138,610 |
97,300 |
42% |
| Average silver grade (g/t) |
113 |
110 |
3% |
| Silver recovery (%) |
88.5 |
92.7 |
(4%) |
| Total silver ounces produced |
445,827 |
320,367 |
39% |
| Payable silver ounces produced |
426,956 |
304,413 |
40% |
| Average gold grade (g/t) |
1.46 |
2.01 |
(27%) |
| Gold recovery (%) |
84.7 |
89.0 |
(5%) |
| Total gold ounces produced |
5,510 |
5,606 |
(2%) |
| Payable gold ounces produced |
5,356 |
5,376 |
(0%) |
| Silver equivalent ounces
produced (1) |
831,527 |
712,787 |
17% |
| Cash costs per silver ounce(2)(3)
|
13.24 |
6.27 |
111% |
| Total production costs per
ounce(2)(4) |
24.92 |
27.30 |
(9%) |
| All in sustaining cost per ounce (2)(5)
|
26.44 |
27.66 |
(4%) |
| Direct production costs per
tonne(2)(6) |
87.61 |
92.08 |
(5%) |
| Silver co-product cash costs (7)
|
14.33 |
13.22 |
8% |
| Gold co-product cash costs (7) |
1,044 |
842 |
24% |
| (1) |
Silver equivalents are calculated using a 70:1
ratio. |
| (2) |
The Company reports non-IFRS measures which include cash
costs net of by-products on a payable silver basis, total production costs
per ounce, all-in sustaining costs per ounce and direct production costs
per tonne, in order to manage and evaluate operating performance at each
of the Company’s mines. These measures, some established by the Silver
Institute (Production Cost Standards, June 2011), are widely used in the
silver mining industry as a benchmark for performance, but do not have a
standardized meaning. These measures are reported on a production basis.
See Reconciliation to IFRS on page 12. |
| (3) |
Cash costs net of by-products per payable silver ounce
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead, net of gold credits. See
Reconciliation to IFRS on page 15. |
| (4) |
Total production costs per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, amortization, depletion and amortization at the
operation sites. See Reconciliation to IFRS on page 15. |
| (5) |
All-in sustaining cost per ounce include mining,
processing (including smelting, refining, transportation and selling
costs), direct overhead, corporate general and administration, on-site
exploration, share-based compensation, reclamation and sustaining capital
net of gold credits. See Reconciliation to IFRS on page 16. |
| (6) |
Direct production costs per tonne include mining,
processing (including smelting, refining, transportation and selling
costs) and direct overhead at the operation sites. See Reconciliation to
IFRS on page 15. |
| (7) |
Silver co-product cash cost and gold co-product cash cost
include mining, processing (including smelting, refining, transportation
and selling costs), and direct overhead allocated on pro-rated basis of
realized metal value. See Reconciliation to IFRS on page
16. |
Endeavour’s third mine, El Cubo, was acquired in July 2012. El
Cubo was a good fit with Endeavour's business strategy of buying and
rejuvenating struggling old mines in historic mining districts. However, unlike
Guanaceví and Bolañitos, which had low throughputs and no reserves, El Cubo
offered the potential to quickly become a core asset for Endeavour, by already
having throughput of 1,100 tpd output and a reasonable reserve/resource mine
life. Located in the southeastern part of the historic Guanajuato mining
district, the producing El Cubo silver and gold mine is only 15 kilometres from
Endeavour’s Bolañitos project, and included many mine adits, ramps, and shafts,
as well as a 400 tpd leach plant. It also held a lease (until July 2013) on the
adjacent Las Torres mine and 1,800 tpd flotation plant owned by Fresnillo PLC.
Subsequent to the acquisition in Q3, 2012, Endeavour launched a $67-million,
18-month capital investment program at El Cubo to explore and develop the mine
and to rebuild and expand the plant, tailings facility, water supply, electrical
supply, surface buildings, and surface infrastructure. The plant and surface
infrastructure program was completed in Q2 2013 on time and within budget.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
El Cubo Production Results
Endeavour's 2014 mine plan focused on increasing throughput at
El Cubo to 1,500 tpd by year end and increasing production grades by opening up
new higher grade areas and reducing ore dilution. The Company reorganized the
mine operations team, improved supervision and operating efficiencies, improved
safety policies, programs and training and created a mine rescue team for a
safer environment. The Company also acquired new mining equipment,
accelerated mine development and commenced underground drilling. In Q2,
2015, the Company plans to ramp up mine output from 1,550 tonnes per day – the
current El Cubo plant capacity – to 2,200 tpd. The additional 650 tpd of mine
production at El Cubo will come primarily from the V-Asunción mine area, which
has thicker mineralized zones amenable to long hole mining, and the Santa
Cecilia mine area, which has narrower but higher grade veins, and will be
processed at Endeavour’s Bolañitos plant, located 18 kilometres away, which has
available capacity and comparable circuits to El Cubo.
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
Silver production at the El Cubo mine was
445,827 ounce in Q1, 2015, an increase of 39% compared to 372,124 oz in Q1, 2014
and gold production was 5,510 oz in Q1, 2015, a decrease of 2% compared to 5,606
oz in Q1, 2014. Plant throughput in Q1, 2015 was 138,610 tonnes at average
grades of 113 gpt silver and 1.46 gpt gold, compared to 97,300 tonnes grading
110 gpt silver and 2.01 gpt gold in Q1, 2014.
El Cubo Operating Costs
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
In Q1, 2015, cash costs net of by-product
credits, (a non-IFRS measure and a standard of the Silver Institute), rose to
$13.24 per oz of payable silver compared to $6.27 per oz in the same period in
2014 as lower gold grade material was mined. Cost per tonne fell 5% primarily
due to the falling Mexican peso. All-in sustaining costs decreased by 4% to
$26.44 per oz compared to Q1, 2014 due to lower mine development and exploration
expenditures. During Q1, 2015, El Cubo spent $4.6 million on three kilometres of
mine development and improved ventilation systems as the V-Asunción discovery
continues to be developed.
Exploration Results
In 2015, Endeavour plans to spend $6.9 million on exploration,
including $0.9 million required for property payments. A total of 26,000 metres
of drilling in approximately 150 holes are budgeted to test multiple exploration
targets in addition to the underground mine exploration drilling.
For the three months ended March 31, 2015, the Company
primarily focused on mapping and sampling in preparation of the 2015 drill
programs. The Company mobilized drills at the end of the quarter to focus on
brownfields exploration around the three operating mines in order to replenish
resources as well as infill and condemnation drilling needed for engineering the
emerging new high grade silver-gold discovery at Terronera (formerly known as
San Sebastián) in Jalisco State. The Company plans to release a preliminary
economic assessment for a small, high grade mine at the Terronera project in Q2,
2015 while continuing to explore and prepare a pre-feasibility study for release
later in 2015.
Consolidated Financial Results
Three months ended March 31, 2015 (compared to the three
months ended March 31, 2014)
For the three-month period ended March 31, 2015, the Company’s
mine operating earnings were $9.1 million (Q1, 2014: $11.3 million) on sales of
$51.1 million (Q1, 2014: $53.0 million) with cost of sales of $42.0 million (Q1,
2014: $41.7 million).
Operating earnings were $6.2 million (Q1, 2014: $6.7 million)
after exploration costs of $1.1 million (Q1, 2014: $2.2 million) and general and
administrative costs of $1.8 million (Q1, 2014: $2.4 million).
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Earnings before taxes in Q1, 2015 were $5.5 million (Q1, 2014:
$4.7 million) after finance costs of $0.3 million (Q1, 20143: $0.2 million), a
foreign exchange loss of $0.7 million (Q1, 2014: $0.3 million) and investment
and other income of $0.3 million (Q1, 2014: $0.2 million). In Q1 2014 the
company also recognized a mark-to-market loss on derivative liabilities of $1.4
million and a mark-to-market loss on contingent liabilities of $0.1 million,
which do not have comparatives in the current year as the Company no longer has
any derivative or significant contingent liabilities.
Sales of $51.1 million in Q1, 2015 represented a 4% decrease
over the $53.0 million for the same period in 2014. There was a 21% increase in
silver ounces sold and a 17% decrease in the realized silver price resulting in
a 1% increase in silver sales, and there was a 4% decrease in gold ounces sold
and a 7% decrease in realized gold prices resulting in a 10% decrease in gold
sales. During the period, the Company sold 1,861,975 oz silver and 15,779 oz
gold, for realized prices of $17.11 and $1,221 per oz respectively, compared to
sales of 1,537,665 oz silver and 16,445 oz gold, for realized prices of $20.50
and $1,306 per oz respectively, in the same period of 2014. The realized prices
of silver and gold during the period were within 2% of the average silver and
gold spot prices during the period of $16.71 per ounce and $1,218 per ounce,
respectively, with differences due to the timing of sales and the mark-to-market
adjustments for the concentrate sales that are pending finalization.
The Company decreased its finished goods silver inventory to
414,955 oz and decreased its finished goods gold inventory to 2,006 oz at March
31, 2015 compared to 507,081 oz silver and 2,378 oz gold at December 31, 2014.
The cost allocated to these finished goods was $5.9 million, compared to $7.0
million at December 31, 2014. As of March 31, 2015, the finished goods inventory
fair market value was $9.3 million compared to the fair value of $11.0 million
at December 31, 2014.
Cost of sales for Q1, 2015 was $42.0 million, an increase of 1%
over the cost of sales of $41.70 million for the same period of 2014. The 1%
increase in cost of sales was primarily due to the increase in throughput
ounces, specifically at Cubo, offset the weakening of the Mexican peso against
the US dollar.
Exploration expenses decreased in Q1, 2015 to $1.1 million from
$2.2 million in the same period of 2014 based on the timing of the exploration
activities and the prioritization of focusing on brownfields exploration to
increase mine lives at all three operations. General and administrative expenses
decreased to $1.8 million for the period compared to $2.4 million in the same
period of 2014 primarily due to decreased corporate development costs and to
increased strength of the US dollar against the Canadian dollar as a significant
portion of the general and administrative expenses are in Canadian dollars.
The Company experienced a foreign exchange loss of $0.7 million
during the period compared to a loss of $0.3 million for the same period of
2014. The $0.7 million loss was primarily due to the strengthening of the US
dollar against the Canadian dollar and Mexican peso during the period, which
resulted in lower valuations on the Canadian dollar and Mexican peso cash and
receivable amounts.
There was an income tax expense of $4.1 million during the
period compared to $0.7 million for the same period of 2014. The $4.1 million
tax expense is comprised of $3.1 million in current income tax expense (Q1,
2014: $2.9 million) and $1.0 million in deferred income tax expense (Q1, 2014:
$2.2 million deferred income tax recovery). The increase in the income tax
expense was primarily due to the impact of the depreciating Mexican peso on the
Company’s deferred income tax liability. The Company recognized
a $1.0 million deferred income tax expense as a result of the falling Mexican
peso, where as in 2014 a deferred income tax recovery was recognized.
Non-IFRS Measures
Adjusted
earnings and adjusted earnings per share (“EPS”) are non-IFRS measures that do
not have standardized meanings prescribed by IFRS and therefore, may not be
comparable to similar measures presented by other issuers. The Company
previously issued share purchase warrants that had an exercise price denominated
in a currency (Canadian dollar) different from the functional currency of the
Company (US dollar). Under IFRS, the warrants are classified and accounted for
as a financial liability at fair value with adjustments recognized through net
earnings. These adjustments fluctuate significantly quarter to quarter primarily
based on the change in the Company’s quoted share price and have a significant
effect on reported earnings, while the dilutive impact remains unchanged.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
The Company incurred impairments on non-current assets that
have a significant one time effect on reported earnings. Adjusted earnings and
adjusted EPS are measures used by management to assess the performance of the
operations prior to the impact of the mark-to-market changes and impairment
amounts to appropriately compare to past performance and are provided to
investors as a measure of the Company’s operating performance.
| Expressed in thousands US dollars |
Three Months Ended March 31
|
| |
2015 |
2014 |
| Net earnings (loss) for the period |
$1,357 |
$4,037 |
| Mark-to-market
loss/(gain) on derivative liabilities |
- |
1,434 |
| Adjusted net earnings (loss) |
$1,357 |
$5,471 |
| Basic weighted average share outstanding |
101,976,901 |
100,494,157 |
| Adjusted net earnings (loss) per share |
$0.01 |
$0.05 |
Mine operating cash flow is a non-IFRS measure that does not
have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. Mine operating cash
flow is calculated as revenues minus direct production costs and royalties. Mine
operating cash flow is used by management to assess the performance of the mine
operations, excluding corporate and exploration activities and is provided to
investors as a measure of the Company’s operating performance.
| Expressed in thousands US
dollars |
Three Months Ended
March 31 |
| |
2015 |
2014 |
| Mine operating earnings (loss) |
$9,065 |
$11,305 |
| Share-based compensation |
73 |
68 |
| Amortization and depletion |
10,454 |
14,073 |
| Mine operating cash flow before taxes |
$19,592 |
$25,446 |
Operating cash flow before working capital adjustment is a
non-IFRS measure that does not have a standardized meaning prescribed by IFRS
and therefore may not be comparable to similar measures presented by other
issuers. Operating cash flow before working capital (“WC”) adjustments is
calculated as operating cash flow minus working capital adjustment. Operating
cash flow before working capital adjustments is used by management to assess
operating performance irrespective of working capital changes and is provided to
investors as a measure of the Company’s operating performance.
| Expressed in thousands US
dollars |
Three Months Ended
March 31 |
| |
2015 |
2014 |
| Cash from operating activities |
$4,285 |
$17,107 |
| Net changes in non-cash working capital |
(9,519) |
(1,178) |
| Operating cash
flow before working capital adjustments |
$13,804 |
$18,285 |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Operating cash flow per share is a non-IFRS measure that does
not have a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. Operating cash flow
per share is calculated by dividing cash from operating activities by the
weighted average shares outstanding. Operating cash flow per share is used by
management to assess operating performance irrespective of working capital
changes and is provided to investors as a measure of the Company’s operating
performance.
| Expressed in thousands US dollars
|
Three Months Ended March 31
|
| |
2015 |
2014 |
| Operating cash flow before working capital
adjustments |
$13,664 |
$18,285 |
| Weighted average shares outstanding |
101,976,901 |
100,494,157 |
| Operating cash flow before WC changes per share |
$0.13 |
$0.18 |
EBITDA is a non-IFRS financial measure, which excludes the
following from net earnings:
- Income tax expense;
- Finance costs;
- Amortization and depletion
Management believes EBITDA is a valuable indicator of the
Company’s ability to generate liquidity by producing operating cash flow to fund
working capital needs, service debt obligations, and fund capital expenditures.
Management uses EBITDA for this purpose. EBITDA is also frequently used by
investors and analysts for valuation purposes whereby EBITDA is multiplied by a
factor or “EBITDA multiple” based on an observed or inferred relationship
between EBITDA and market values to determine the approximate total enterprise
value of a Company.
EBITDA is intended to provide additional information to
investors and analysts and does not have any standardized definition under IFRS
and should not be considered in isolation or as a substitute for measures of
operating performance prepared in accordance with IFRS. EBITDA excludes the
impact of cash costs of financing activities and taxes, and the effects of
changes in operating working capital balances, and therefore is not necessarily
indicative of operating profit or cash flow from operations as determined by
IFRS. Other companies may calculate EBITDA differently.
| Expressed in thousands US dollars
|
Three Months Ended March 31
|
| |
2015 |
2014 |
| Net earnings (loss) for the period |
$1,357 |
$4,037 |
| Amortization and depletion –
cost of sales |
10,454 |
14,073 |
| Amortization and depletion – exploration |
25 |
35 |
| Amortization and depletion –
general & admin |
39 |
38 |
| Finance costs |
313 |
446 |
| Current income tax expense |
3,176 |
2,942 |
| Deferred income tax expense (recovery) |
1,003 |
(2,274) |
| Earnings before interest, taxes, depletion and amortization |
$16,367 |
$19,297 |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Cash costs per ounce, total production costs per ounce and
direct production costs per tonne are measures developed by precious metals
companies in an effort to provide a comparable standard; however, there can be
no assurance that Endeavour’s reporting of these non-IFRS measures are similar
to those reported by other mining companies. Cash costs per ounce, production
costs per ounce and direct production costs per tonne are measures used by the
Company to manage and evaluate operating performance at each of the Company’s
operating mining units, and are widely reported in the silver mining industry as
a benchmark for performance, but do not have a standardized meaning and are
disclosed in addition to IFRS measures. The following tables provide a detailed
reconciliation of these measures to Endeavour’s cost of sales, as reported in
the Company’s consolidated financial statements.
| Expressed in thousands US dollars |
Three Months Ended March 31,
2015 |
Three Months Ended March 31,
2014 |
| |
Guanacevi |
Bolanitos |
El Cubo |
Total |
Guanacevi |
Bolanitos |
El Cubo |
Total |
| Direct production costs |
$9,509 |
$9,361 |
$12,398 |
$31,268 |
$8,474 |
$11,344 |
$7,402 |
$27,220 |
| Royalties |
102 |
79 |
67 |
248 |
146 |
120 |
68 |
334 |
| Special mining duty (1) |
394 |
515 |
- |
909 |
344 |
680 |
57 |
1,081 |
| Opening finished goods |
(4,033) |
(441) |
(1,042) |
(5,516) |
(650) |
0 |
(60) |
(710) |
| NRV cost adjustment |
- |
- |
0 |
0 |
- |
- |
0 |
0 |
| Closing finished goods |
3,295 |
555 |
720 |
4,570 |
2,784 |
- |
1,492 |
4,276 |
| Direct production costs |
9,267 |
10,069 |
12,143 |
31,479 |
11,098 |
12,144 |
8,959 |
32,201 |
| By-product gold sales |
(2,302) |
(10,105) |
(6,856) |
(19,263) |
(2,380) |
(13,344) |
(5,755) |
(21,479) |
| Opening gold inventory fair market value |
1,262 |
726 |
865 |
2,853 |
94 |
- |
144 |
238 |
| Closing gold inventory fair market value |
(1,273) |
(606) |
(501) |
(2,380) |
(544) |
- |
(1,438) |
(1,982) |
| Cash costs net of
by-product |
6,954 |
84 |
5,651 |
12,689 |
8,268 |
(1,200) |
1,910 |
8,978 |
| Amortization and depletion |
2,213 |
2,718 |
5,423 |
10,354 |
2,340 |
6,287 |
5,446 |
14,073 |
| Stock-based compensation |
25 |
24 |
25 |
74 |
23 |
23 |
22 |
68 |
| Opening finished goods depletion |
(635) |
(115) |
(698) |
(1,448) |
(220) |
0 |
(92) |
(312) |
| NRV cost adjustment |
- |
- |
- |
- |
- |
- |
- |
- |
| Closing finished goods depletion |
868 |
187 |
238 |
1,293 |
265 |
- |
1,024 |
1,289 |
| Total production
costs |
$9,425 |
$2,898 |
$10,639 |
$22,962 |
$10,676 |
$5,110 |
$8,310 |
$24,096 |
| |
|
|
|
|
|
|
|
|
| Throughput tonnes |
106,106 |
136,076 |
138,610 |
380,792 |
106,813 |
142,412 |
97,300 |
346,525 |
| Payable silver ounces |
844,575 |
498,393 |
426,956 |
1,769,924 |
995,723 |
544,029 |
304,413 |
1,844,165 |
| |
|
|
|
|
|
|
|
|
| Cash costs per ounce |
$8.23 |
$0.17 |
$13.24 |
$7.17 |
$8.30 |
($2.21) |
$6.27 |
$4.87 |
| Total production costs per oz |
$11.16 |
$5.81 |
$24.92 |
$12.97 |
$10.72 |
$9.39 |
$27.30 |
$13.07 |
| Direct production costs per tonne |
$87.34 |
$74.00 |
$87.61 |
$82.67 |
$103.90 |
$85.27 |
$92.08 |
$92.93 |
(1) Special mining duty is an EBITDA royalty tax
presented as a current income tax in accordance with IFRS. The Company incurred
$1.6 million expense related to deferred revenues for tax purposes from prior
year’s production which was excluded from 2014 production costs.
All-in sustaining costs per ounce and all-in costs per ounce
are measures developed by the World Gold Council (and used as a standard of the
Silver Institute) in an effort to provide a comparable standard within the
precious metal industry; however, there can be no assurance that Endeavour’s
reporting of these non-IFRS measures are similar to those reported by other
mining companies. These measures are used by the Company to manage and evaluate
operating performance at each of the Company’s operating mining units and
consolidated group, and are widely reported in the silver mining industry as a
benchmark for performance, but do not have a standardized meaning and are
disclosed in addition to IFRS measures. The following tables provide a detailed
reconciliation of these measures to Endeavour’s cost of sales, as reported in
the Company’s consolidated financial statements.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
| Expressed in thousands US dollars |
Three Months Ended March 31,
2015 |
Three Months Ended March 31,
2014 |
| |
Guanacevi |
Bolanitos |
El Cubo |
Total |
Guanacevi |
Bolanitos |
El Cubo |
Total |
| Cash costs net of by-product |
$6,954 |
$84 |
$5,651 |
$12,689 |
$8,268 |
($1,200) |
$1,910 |
$8,978 |
| Operations stock based compensation |
25 |
24 |
25 |
74 |
23 |
23 |
22 |
68 |
| Corporate general and administrative |
678 |
400 |
343 |
1,420 |
1,119 |
611 |
342 |
2,072 |
| Corporate stock based compensation |
177 |
104 |
89 |
370 |
198 |
108 |
60 |
366 |
| Reclamation - amortization/accretion |
5 |
3 |
18 |
26 |
4 |
1 |
5 |
10 |
| Mine site expensed exploration |
170 |
241 |
195 |
606 |
79 |
708 |
948 |
1,735 |
| Capital
expenditures sustaining |
1,420 |
2,007 |
4,967 |
8,394 |
2,199 |
1,842 |
5,132 |
9,173 |
| All In Sustaining Costs |
$9,428 |
$2,863 |
$11,288 |
$23,579 |
$11,889 |
$2,093 |
$8,419 |
$22,402 |
| Growth exploration |
|
|
|
443 |
|
|
|
433 |
| Growth capital expenditures |
|
|
|
192 |
|
|
|
142 |
| All In Costs |
|
|
|
$24,214 |
|
|
|
$22,977 |
| |
|
|
|
|
|
|
|
|
| Throughput tonnes |
106,106 |
136,076 |
138,610 |
380,792 |
106,813 |
142,412 |
97,300 |
346,525 |
| Payable silver ounces |
844,575 |
498,393 |
426,956 |
1,769,924 |
995,723 |
544,029 |
304,413 |
1,844,165 |
| |
|
|
|
|
|
|
|
|
| Sustaining cost per ounce |
$11.16 |
$5.74 |
$26.44 |
$13.32 |
$11.94 |
$3.85 |
$27.66 |
$12.15 |
| All In costs per
ounce |
|
|
|
$13.68 |
|
|
|
$12.46 |
Silver co-product cash costs and gold co-product cash costs are
measures used by the Company to manage and evaluate operating performance at
each of the Company’s operating mining units and consolidated group, but do not
have a standardized meaning and are disclosed in addition to IFRS measures. The
following tables provide a detailed reconciliation of these measures to
Endeavour’s cost of sales, as reported in the Company’s consolidated financial
statements.
| Expressed in thousands US dollars |
Three Months Ended March 31,
2015 |
Three Months Ended March 31,
2014 |
| |
Guanacevi |
Bolanitos |
El Cubo |
Total |
Guanacevi |
Bolanitos |
El Cubo |
Total |
| Direct production costs |
$9,509 |
$9,361 |
$12,398 |
$31,268 |
$8,474 |
$11,344 |
$7,402 |
$27,220 |
| Royalties |
102 |
79 |
67 |
248 |
146 |
120 |
68 |
334 |
| Special mining duty (1) |
394 |
515 |
- |
909 |
344 |
680 |
57 |
1,081 |
| Opening finished goods |
(4,033) |
(441) |
(1,042) |
(5,516) |
(650) |
- |
(60) |
(710) |
| NRV cost adjustment |
- |
- |
0 |
0 |
- |
- |
0 |
0 |
| Closing finished goods |
3,295 |
555 |
720 |
4,570 |
2,784 |
- |
1,492 |
4,276 |
| Direct production
costs |
9,267 |
10,069 |
12,143 |
31,479 |
11,098 |
12,144 |
8,959 |
32,201 |
| |
|
|
|
|
|
|
|
|
| Silver production |
853,106 |
521,117 |
445,827 |
1,820,050 |
1,005,781 |
572,851 |
320,367 |
1,898,999 |
| Average realized silver price |
16.71 |
16.71 |
16.71 |
16.71 |
20.50 |
20.50 |
20.50 |
20.50 |
| Silver value |
14,255,401 |
8,707,865 |
7,449,769 |
30,413,036 |
20,618,511 |
11,743,446 |
6,567,524 |
38,929,480 |
| |
|
|
|
|
|
|
|
|
| Gold production |
1,877 |
8,421 |
5,510 |
15,808 |
2,273 |
10,640 |
5,606 |
18,519 |
| Average realized gold price |
1,218 |
1,218 |
1,218 |
1,218 |
1,306 |
1,306 |
1,306 |
1,306 |
| Gold value |
2,286,186 |
10,256,778 |
6,711,180 |
19,254,144 |
2,968,538 |
13,895,840 |
7,321,436 |
24,185,814 |
| |
|
|
|
|
|
|
|
|
| Total metal value |
16,541,587 |
18,964,643 |
14,160,949 |
49,667,180 |
23,587,049 |
25,639,286 |
13,888,960 |
63,115,294 |
| Pro-rated silver costs |
86% |
46% |
53% |
61% |
87% |
46% |
47% |
62% |
| Pro-rated gold costs |
14% |
54% |
47% |
39% |
13% |
54% |
53% |
38% |
| |
|
|
|
|
|
|
|
|
| Silver co-product cash costs |
$9.36 |
$8.87 |
$14.33 |
$10.59 |
$9.65 |
$9.71 |
$13.22 |
$10.46 |
| Gold co-product cash costs |
$682 |
$647 |
$1,044 |
$772 |
$614 |
$619 |
$842 |
$666 |
(1) Special mining duty is an EBITDA royalty tax
presented as a current income tax in accordance with IFRS.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Quarterly Results and Trends
The following table presents selected financial
information for each of the most recent eight quarters:
(tables in thousands of US dollars except per share amounts)
|
|
2015
|
|
2014 |
|
|
2013 |
|
| Quarterly
Results |
Q1
|
Q4 |
Q3 |
Q2 |
Q1
|
Q4 |
Q3 |
Q2
|
| Revenue |
$51,109 |
$48,677 |
$40,477 |
$54,774 |
$53,000 |
$67,857 |
$67,803 |
$71,250 |
| Direct cost |
31,269 |
34,400 |
28,840 |
34,849 |
27,220 |
41,210 |
35,739 |
44,746 |
| Royalties |
248 |
359 |
175 |
278 |
334 |
235 |
287 |
356 |
| Mine operating cash flow |
19,592 |
13,918 |
11,462 |
19,647 |
25,446 |
26,412 |
31,777 |
26,148 |
| Share-based compensation |
73 |
110 |
140 |
219 |
68 |
107 |
131 |
202 |
| Amortization and depletion |
10,454 |
11,144 |
14,386 |
14,709 |
14,073 |
15,780 |
12,566 |
13,149 |
| Write down on inventory |
- |
363 |
527 |
365 |
- |
664 |
(2,668) |
6,383 |
| Mine operating earnings |
$9,065 |
$2,301 |
($3,591) |
$4,354 |
$11,305 |
$9,861 |
$21,748 |
$6,414 |
| |
|
|
|
|
|
|
|
|
| Net earnings (loss) |
$1,357 |
($66,895) |
($11,386) |
($289) |
$4,037 |
($115,758) |
$12,297 |
($361) |
| Impairment charge, net of tax |
- |
55,858 |
- |
- |
- |
104,283 |
- |
- |
| (Gain) Loss on derivative
liability |
- |
- |
- |
- |
1,434 |
(591) |
679 |
(2,386) |
| Adjusted earnings (loss) |
$1,357 |
($11,037) |
($11,386) |
($289) |
$5,471 |
($12,066) |
$12,976 |
($2,747) |
| |
|
|
|
|
|
|
|
|
| Basic earnings (loss) per share |
$0.01 |
($0.67) |
($0.11) |
$0.00 |
$0.04 |
($1.16) |
$0.12 |
$0.00 |
| Diluted earnings (loss) per share |
$0.01 |
($0.67) |
($0.11) |
$0.00 |
$0.04 |
($1.17) |
$0.12 |
$0.00 |
| Adjusted earnings (loss) per share |
$0.01 |
($0.11) |
($0.11) |
$0.00 |
$0.05 |
($0.35) |
$0.13 |
($0.03) |
| Weighted shares outstanding |
101,976,801 |
101,881,133 |
101,527,951 |
101,336,743 |
100,494,157 |
99,720,704 |
99,741,010 |
99,710,933 |
| |
|
|
|
|
|
|
|
|
| Net earnings (loss) |
$1,357 |
($66,895) |
($11,386) |
($289) |
$4,037 |
($115,758) |
$12,297 |
($361) |
| Amortization and depletion |
10,518 |
11,257 |
14,471 |
14,785 |
14,146 |
15,874 |
12,648 |
13,228 |
| Finance costs |
313 |
321 |
359 |
256 |
446 |
422 |
313 |
531 |
| Current income tax |
3,176 |
14,865 |
(171) |
3,250 |
2,942 |
5,042 |
2,729 |
4,363 |
| Deferred income tax |
1,003 |
(34,870) |
(1,039) |
(4,644) |
(2,274) |
(23,100) |
1,341 |
(1,158) |
| Impairment charges |
- |
83,000 |
- |
- |
- |
135,060 |
- |
- |
| EBITDA |
$16,367 |
$7,678 |
$2,234 |
$13,358 |
$19,297 |
$17,540 |
$29,328 |
$16,603 |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
The following table presents selected production
information for each of the most recent eight quarters:
| Highlights |
2015
|
|
2014 |
|
|
2013 |
|
|
|
Q1
|
Q4 |
Q3 |
Q2 |
Q1
|
Q4 |
Q3 |
Q2
|
| Processed tonnes |
380,792 |
374,212 |
344,393 |
339,276 |
346,255 |
379,480 |
389,090 |
393,070 |
| Guanaceví |
106,106 |
102,375 |
105,241 |
108,822 |
106,813 |
121,008 |
107,480 |
100,781 |
| Bolañitos |
136,076 |
145,408 |
137,683 |
142,370 |
142,142 |
159,294 |
181,442 |
202,472 |
| El Cubo |
138,610 |
126,429 |
101,469 |
88,084 |
97,300 |
99,178 |
100,168 |
89,817 |
| Silver ounces |
1,820,050 |
2,009,172 |
1,634,294 |
1,669,609 |
1,898,999 |
1,931,717 |
1,855,846 |
1,535,873 |
| Guanaceví |
853,106 |
1,024,762 |
761,272 |
795,824 |
1,005,781 |
861,495 |
715,080 |
555,036 |
| Bolañitos |
521,117 |
611,271 |
588,159 |
623,898 |
572,851 |
698,098 |
794,734 |
810,414 |
| El Cubo |
445,827 |
373,139 |
284,863 |
249,887 |
320,367 |
372,124 |
346,032 |
170,423 |
| Silver grade |
174 |
191 |
175 |
178 |
198 |
181 |
171 |
165 |
| Guanaceví |
300 |
358 |
278 |
272 |
350 |
272 |
265 |
240 |
| Bolañitos |
139 |
148 |
149 |
152 |
144 |
152 |
147 |
160 |
| El Cubo |
113 |
106 |
102 |
103 |
110 |
118 |
112 |
93 |
| Silver recovery |
85.2 |
87.3 |
84.5 |
86.1 |
86.1 |
87.3 |
86.7 |
73.6 |
| Guanaceví |
83.4 |
87.0 |
81.0 |
83.6 |
83.7 |
81.5 |
78.0 |
71.3 |
| Bolañitos |
85.7 |
88.3 |
89.2 |
83.1 |
87.1 |
89.5 |
92.5 |
77.8 |
| El Cubo |
88.5 |
86.6 |
85.6 |
85.7 |
92.7 |
99.1 |
95.6 |
63.5 |
| Gold ounces |
15,808 |
15,127 |
14,118 |
15,131 |
18,519 |
17,686 |
22,947 |
19,914 |
| Guanaceví |
1,877 |
2,085 |
1,627 |
1,656 |
2,273 |
2,275 |
1,977 |
1,590 |
| Bolañitos |
8,421 |
7,900 |
8,588 |
9,980 |
10,640 |
10,142 |
15,869 |
15,751 |
| El Cubo |
5,510 |
5,142 |
3,903 |
3,495 |
5,606 |
5,269 |
5,101 |
2,574 |
| Gold grade |
1.53 |
1.49 |
1.48 |
1.59 |
1.92 |
1.78 |
1.89 |
1.96 |
| Guanaceví |
0.63 |
0.70 |
0.59 |
0.55 |
0.77 |
0.69 |
0.70 |
0.68 |
| Bolañitos |
2.30 |
2.03 |
2.20 |
2.47 |
2.72 |
2.61 |
2.75 |
2.84 |
| El Cubo |
1.46 |
1.51 |
1.42 |
1.44 |
2.01 |
1.77 |
1.62 |
1.41 |
| Gold recovery |
84.5 |
84.4 |
86.3 |
87.4 |
86.6 |
82.1 |
96.9 |
80.4 |
| Guanaceví |
87.3 |
90.1 |
82.1 |
86.1 |
86.0 |
85.2 |
82.1 |
72.6 |
| Bolañitos |
83.7 |
83.2 |
88.2 |
82.5 |
85.4 |
75.8 |
98.9 |
85.2 |
| El Cubo |
84.7 |
83.8 |
84.3 |
85.7 |
89.0 |
93.2 |
97.8 |
63.2 |
| Cash costs per oz |
$7.17 |
$8.33 |
$10.70 |
$9.87 |
$4.87 |
$7.46 |
$5.14 |
$10.53 |
| Guanaceví |
$8.23 |
$7.28 |
$11.99 |
$12.51 |
$8.30 |
$13.09 |
$12.98 |
$16.59 |
| Bolañitos |
$0.17 |
$5.64 |
$2.93 |
$1.20 |
($2.21) |
$0.60 |
($8.10) |
($2.74) |
| El Cubo |
$13.24 |
$15.73 |
$23.10 |
$22.71 |
$6.27 |
$6.65 |
$18.61 |
$52.41 |
| Total cost per oz(1) |
$12.97 |
$14.36 |
$19.86 |
$19.19 |
$13.07 |
$14.59 |
$13.17 |
$18.18 |
| Guanaceví |
$11.16 |
$8.77 |
$13.22 |
$13.95 |
$10.72 |
$18.51 |
$18.76 |
$23.34 |
| Bolañitos |
$5.81 |
$12.74 |
$18.36 |
$16.57 |
$9.39 |
$4.35 |
($3.66) |
$1.28 |
| El Cubo |
$24.92 |
$33.02 |
$41.38 |
$43.00 |
$27.30 |
$24.58 |
$39.54 |
$80.16 |
| Costs per tonne |
$82.67 |
$89.63 |
$99.02 |
$103.58 |
$92.93 |
$90.72 |
$104.06 |
$96.45 |
| Guanaceví |
$87.34 |
$96.91 |
$105.23 |
$109.83 |
$103.90 |
$114.55 |
$111.06 |
$111.21 |
| Bolañitos |
$74.00 |
$83.58 |
$87.98 |
$93.04 |
$85.27 |
$72.78 |
$84.57 |
$75.50 |
| El Cubo |
$87.61 |
$90.70 |
$107.56 |
$112.88 |
$92.08 |
$90.44 |
$131.83 |
$127.11 |
(1) Total Production Cost per ounce
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Key Economic Trends
Precious Metal Price Trends
The prices of silver and gold are the largest single factor in
determining profitability and cash flow from operations, therefore, the
financial performance of the Company has been, and is expected to continue to
be, closely linked to the prices of silver and gold. During Q1, 2015, the
average price of silver was $16.71 per ounce, with silver trading between a
range of $15.47 and $18.23 per ounce based on the London Fix silver price. This
compares to an average of $20.48 per ounce during Q1, 2014, with a low of $19.27
and a high of $22.05 per ounce. During Q1, 2015, the Company realized an average
price of $16.71 per silver ounce compared with $20.50 for the corresponding
period in 2014.
During Q1, 2015, the average price of gold was $1,218 per
ounce, with gold trading between a range of $1,147 and $1,295 per ounce based on
the London Fix PM gold price. This compares to an average of $1,293 per ounce
during Q1, 2014, with a low of $1,221 and a high of $1,385 per ounce. During Q1,
2015, the Company realized an average price of $1,218 per ounce compared with
$1,306 for the corresponding period in 2014.
The major influences on precious metals prices in the past
eight quarters included weaker investment demand, selling from precious metal
exchange traded funds, as well as strong US equity and bond markets that pulled
investments from other asset classes, including precious metals. In addition,
precious metal prices were also affected by an expectation of improving economic
conditions, which led to the reduction of the US Federal Reserve’s quantitative
easing program in 2014.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Currency Fluctuations
The Company’s
operations are located in Mexico and therefore a significant portion of
operating costs and capital expenditures are denominated in Mexican pesos. The
corporate activities are based in Vancouver, Canada with the significant portion
of these expenditures being denominated in Canadian dollars. Generally, as the
US dollar strengthens, these currencies weaken, and as the US dollar weakens,
these foreign currencies strengthen.
During Q1, 2015 the Mexican peso depreciated against the US
dollar with volatility increasing at the end of the quarter. During Q1, 2015,
the average foreign exchange rate was $14.94 Mexican pesos per US dollar, with
the peso trading within a range of $14.52 and $15.58. This compares to an
average of $13.23 during Q1, 2014, with a range of $12.96 and $13.45 Mexican
pesos per U.S. dollar.
During Q1, 2015, the Canadian dollar continued to depreciate
relative to the US dollar. During Q1, 2015, the average foreign exchange rate
was $1.238 Canadian dollar per US dollar, with the Canadian dollar trading
within a range of $1.160 and $1.278. This compares to an average of $1.102
during Q1, 2014, within a range of $1.063 and $1.125 Canadian dollar per U.S.
dollar.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Cost Trends
The Company’s profitability is subject to industry wide cost
pressures on development and operating costs with respect to labour, energy,
consumables and capital expenditures. Underground mining is labour intensive and
33% of Endeavour’s production costs are directly tied to labour. In
order to mitigate the impact of higher labour and consumable costs, the Company
focuses on continuous improvement, both by promoting more efficient use of
materials and supplies, and by pursuing more advantageous pricing, while
increasing performance and without compromising operational integrity.
2015 Outlook
Production
Endeavour estimates annual silver production of 6.3 -7.0
million oz in fiscal 2015 compared to the 7.2 million oz silver it produced in
2014. Gold production is expected to be in the 60,000-66,000 oz range and silver
equivalent production is anticipated to be 10.4 -11.6 million oz (at a
silver:gold ratio of 70:1). The decrease compared to 2014 is due to lower
throughput at Bolañitos as new ore bodies are developed partially offset by
increased El Cubo production.
| Mine |
Ag (M oz)
|
Au (K oz)
|
Ag Eq (M
oz) |
Tonnes/Day
(tpd) |
| Guanacevi |
3.1-3.3 |
6.0-7.0 |
3.5-3.8 |
1,200-1,300 |
| Bolanitos |
1.1-1.3 |
22.0-24.0 |
2.6-3.0 |
1,100-1,200 |
| El Cubo |
2.1-2.4 |
32.0-35.0 |
4.3-4.8 |
1,350-2,200 |
| Total |
6.3-7.0 |
60.0-66.0 |
10.4-11.6 |
3,650-4,700 |
At Guanaceví, production will continue primarily from the
Porvenir Norte, Porvenir Cuatro and Santa Cruz veins. Underground development of
the new Milache and Santa Cruz Sur discoveries are awaiting permitting, while
economic assessments are refined with a likely decision to develop access in
2015 to begin development and production to start in 2016.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Bolañitos production will contract as operations focus on
developing in the LL-Asunción ore body. Bolañitos operated at its existing
capacity of 1,600 tpd in Q1, 2015, but will now gradually drop to 1,000 tpd
until the La Luz- Asunción deposit is sufficiently developed.
At El Cubo production continues to be sourced primarily from
the Dolores, Villalpando, San Nicolas and Santa Cecilia veins. The Company plans
to ramp up mine output in Q2, 2015 from 1,550 tpd – the current El Cubo plant
capacity – to 2,200 tpd. The additional 650 tpd of mine production at El Cubo
will come primarily from the V-Asunción mine area, which has thicker mineralized
zones amenable to long hole mining, and the Santa Cecilia mine area, which has
narrower but higher grade veins, and will be processed at Endeavour’s Bolañitos
plant, located 18 kilometres away in the same district, which has available
capacity and comparable circuits to El Cubo. Management continues to focus on
accelerated mine development and operational training needed to make
improvements sustainable over the longer term.
Operating Costs
Annual direct operating costs are
estimated to be in the $87-$90 per tonne range with the annual consolidated cash
costs of production, net of gold by-product credits, expected to be in the range
of $9-10 per oz of silver in 2015. The increase is largely due to the rising
contribution of the higher cost El Cubo mine and reduced gold production at the
Bolañitos mine. Consolidated cash costs for silver and gold on a co-product
basis are anticipated to be around $13-$14 per oz and $900-$975 per oz
respectively.
The annual all-in sustaining costs (AISC), net of gold
by-product credits, in accordance with the World Gold Council standard, are
estimated to be $16.00 -$17.50 per oz of silver. When non-cash items such as
stock based compensation are excluded, AISC, net of gold by-product credits, is
estimated to be in the $15.50 -$17.00 per oz range.
Capital Investments
Endeavour plans to invest $36.5
million on capital projects in 2015, including $30.0 million on mine
development, infrastructure and exploration, $4.3 million on plant
infrastructure, equipment and tailings and $2.2 million on miscellaneous items.
The mine development capital is for accessing reserves for mining and replacing
reserves by converting measured and indicated resources. Endeavour does not
estimate reserves based on drill holes, only based on underground workings.
The Company has budgeted US$18.7 million at El Cubo, $4.9
million at Bolañitos, $12.5 million at Guanaceví and $0.4 million for corporate
items, all of which will be covered by the Company’s anticipated 2015 cash flow
and cash on hand.
Exploration Expenditures
In 2015, Endeavour plans to
spend $6.9 million on exploration, including $0.9 million required for property
payments. A total of 26,000 metres of drilling in approximately 150 holes is
planned to test multiple exploration targets at the three mines plus the
Terronera project in addition to the underground mine exploration drilling.
The Company will continue to focus on brownfields exploration
around the three operating mines in order to replenish resources as well as
infill and condemnation drilling needed for engineering the emerging new high
grade silver-gold discovery at Terronera in Jalisco State.
Liquidity and Capital Resources
Cash and cash equivalents decreased from $31.0 million at
December 31, 2014 to $26.3 million at March 31, 2015, while the draw on the
revolving credit facility was unchanged at $29.0 million. The Company had
working capital of $25.8 million at March 31, 2015 (December 31, 2014 - $21.2
million). The $4.6 million increase in working capital was primarily generated
from operating activities.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Operating activities provided cash of $4.3 million during Q1,
2015 compared to $17.1 million during the same period in 2014. The significant
non-cash adjustments to the net income of $1.4 million were amortization and
depletion of $10.5 million, share-based compensation of $0.5 million, a deferred
income tax expense of $1.05 million, finance costs of $0.3 million and a change
in non-cash working capital of $9.5 million. The change in non-cash working
capital was primarily due to payment of income taxes and special mining duty
during the quarter, while value added tax receivable from the Mexican government
continue to accumulate. The Company has been in discussions with the government
to expedite the process to collect the outstanding value added tax.
Investing activities during the period used $8.6 million
compared to $9.2 million in the same period of 2014. The investments in 2015
primarily relate to significant mine development at each operation. In 2014, the
Company invested similarly at each operation.
Capital spending totalled $8.6 million in property, plant and
equipment during Q1, 2015. $1.4 million was invested at Guanaceví, with $1.3
million spent on 0.9 kilometres of mine development and $0.1 million spent on
the tailings dam and various equipment. At Bolañitos, the Company invested $1.6
million on underground development, development of 1.3 kilometres to access the
LL-Ascunción ore body, $0.3 million on tailings expansion and $0.1 million on
various mine equipment. At El Cubo, the Company invested $5.0 million, with $4.5
million on development of 3.3 kilometres underground and improving the
ventilation system. $0.5 million was spent on various equipment as the mine
prepares to increase output to 2,200 tpd. The Company spent $0.2 million on
corporate equipment.
As at March 31, 2015, the Company held $1.1 million in
available for sale investments consisting of marketable securities (December 31,
2014 - $0.8 million).
Financing activities during Q1, 2015 reduced cash by $0.2
million, compared to generating cash of $1.4 million during Q1, 2014. During Q1,
2015 the Company paid $0.2 million in interest, by comparison, during Q1, 2014,
the Company drew $1.0 million from its credit facility, incurred $0.3 million of
interest, and realized $2.7 million from the exercise of stock options and
warrants.
As at March 31, 2015 and December 31, 2014, the Company’s
issued share capital was $367.9 million, representing 101,976,901 common shares.
As at March 31, 2015, the Company had options outstanding to
purchase 4,830,950 common shares with a weighted average exercise price of CAN
$4.38.
On July 24, 2012, the Company entered into a $75 million
revolving credit facility (“the Facility”) that was reduced to $50 million in
July 2013 and will reduce to $25 million in July 2015. The purpose of the
Facility is for general corporate purposes and is principally secured by a
pledge of the Company’s equity interests in its material operating subsidiaries,
including Refinadora Plata Guanaceví S.A de C.V., Minas Bolañitos S.A. de C.V.
and Compania Minera del Cubo S.A. de C.V. The interest rate margin on the
Facility ranges from 2.75% to 4.25% over LIBOR based on the
Company’s net debt to EBITDA ratio, where EBITDA is adjusted
for gains or losses on derivative liabilities and any extraordinary items. The
Company agreed to pay a commitment fee of between 0.69% and 1.05% on undrawn
amounts under the facility based on the Company’s net debt to EBITDA ratio. The
Facility is subject to various qualitative and quantitative covenants, including
EBITDA leverage ratio, interest service coverage ratio and tangible net worth
calculation. At March 31, 2015, the Company had drawn $29.0 million on this
Facility. The Company expects to reduce the outstanding balance dependent on the
metal price environment to $25 million by July 2015. The Company was in
compliance with all financial covenants under the Facility as at March 31, 2015.
| Facility
Financial Covenants |
Facility Financial
Requirements |
2015 |
2014 |
| Leverage ratio |
< 3.00:1 |
0.71 |
0.64 |
| Interest service coverage ratio |
> 4.00:1 |
42 |
40 |
| Tangible net worth
(000's) |
>168,155 |
198,367 |
197,031 |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Contingencies
Minera Santa Cruz y Garibaldi SA de CV, a subsidiary of the
Company, received a $238 million Mexican pesos (US$16.1 million) assessment on
October 12, 2010 by Mexican fiscal authorities for failure to provide the
appropriate support for certain expense deductions taken in the entity’s 2006
tax return. During the audit process, the Company retained an international
accounting firm and external counsel to expedite the audit process and to ensure
the delivery of the appropriate documentation. Based on the advice of tax
advisors and legal counsel, it is the Company’s view that it had provided the
appropriate documentation and support for the expenses and that the tax
assessment has no legal merit; however, as a result of a detailed review by the
Company of its accounting records and available information to support the
deductions taken, the Company has estimated a potential tax exposure of $40,000,
plus additional interest and penalties of $40,000, for which the Company has
made a provision in the consolidated financial statements. The Company has
appealed the assessment and anticipates a favorable resolution. Resolution of
this process is expected in 2015.
Capital Requirements
Endeavour plans to invest $36.5 million on capital projects in
2015, including $30.0 million on mine development, infrastructure and
exploration, $4.3 million on plant infrastructure, equipment and tailings and
$2.2 million on miscellaneous items. The mine development capital is for
accessing reserves for mining and replacing reserves by converting measured and
indicated resources. Endeavour does not estimate reserves based on drill holes,
only based on underground workings.
For 2015, the Company budgeted US$18.7 million at El Cubo, $4.9
million at Bolañitos, $12.5 million at Guanaceví and $0.4 million for corporate
items, all of which will be covered by the Company’s anticipated 2015 cash flow.
Capital spending totalled $8.6 million in property, plant and
equipment during Q1, 2015. $1.4 million was invested at Guanaceví, with $1.3
million spent on 0.9 kilometres of mine development and $0.1 million on the
tailings dam and various equipment. At Bolañitos, the Company invested $1.6
million on underground development, development of 1.3 kilometres to access the
LL-Ascunción ore body, $0.3 million on tailings expansion and $0.1 million on
various mine equipment. At El Cubo, the Company invested $5.0 million, with $4.5
million incurred developing 3.3 kilometres underground and improving the
ventilation system. $0.5 million was spent on various equipment as the mine
prepares to increase output to 2,200 tpd. The Company spent $0.2 million on
corporate equipment.
Contractual Obligations
The Company had the following contractual obligations at March
31, 2015:
| 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 |
|
| Capital Assets purchases |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| Operating lease |
|
532 |
|
|
228 |
|
|
304 |
|
|
- |
|
|
- |
|
| Revolving credit facility |
|
29,000 |
|
|
29,000 |
|
|
- |
|
|
|
|
|
|
|
| Other Long-Term Liabilities |
|
6,522 |
|
|
- |
|
|
- |
|
|
2,855 |
|
|
3,667 |
|
| Total |
$ |
36,054 |
|
$ |
29,228 |
|
$ |
304 |
|
$ |
2,855 |
|
$ |
3,667 |
|
Transactions with Related Parties
The Company shares common administrative services and office
space with Canarc Resource Corp. and Aztec Metals Corp., which are related party
companies by virtue of having Bradford Cooke as a common director. From time to
time, Endeavour incurs third-party costs on behalf of the related parties which
are charged on a full cost recovery basis. The Company had a $155,000 net
receivable related to administration costs outstanding as at March 31, 2015
(December 31, 2014 – $188,000).
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
During 2015, the Company was charged $52,000 (March 31, 2014 -
$28,000) for legal services by Koffman Kalef LLP, a firm in which the Company’s
Corporate Secretary is a partner. As of March 31, 2015, the Company had a
payable outstanding of $20,000 relating to these legal services (December 31,
2014 - $3,000).
Financial Assets and Liabilities
As at March 31, 2015, the carrying and fair values of
Endeavour’s financial instruments by category were as follows:
| |
|
As at March 31, 2015 |
|
|
As at December 31, 2014
|
|
| Expressed in thousands US
dollars |
|
Carrying value
|
|
|
Estimated Fair
value |
|
|
Carrying value
|
|
|
Estimated Fair
value |
|
| Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
$ |
26,300 |
|
$ |
26,300 |
|
$ |
31,045 |
|
$ |
31,045 |
|
| Available for sale securities |
|
1,190 |
|
|
1,190 |
|
|
786 |
|
|
786 |
|
| Trade receivables |
|
8,077 |
|
|
8,077 |
|
|
7,394 |
|
|
7,394 |
|
| Other receivables |
|
14,985 |
|
|
14,985 |
|
|
12,321 |
|
|
12,321 |
|
| Total financial assets |
$ |
50,552 |
|
$ |
50,552 |
|
$ |
51,546 |
|
$ |
51,546 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabiities |
$ |
15,658 |
|
$ |
15,658 |
|
$ |
17,408 |
|
$ |
17,408 |
|
| Revolving credit facility |
|
29,000 |
|
|
29,000 |
|
|
29,000 |
|
|
29,000 |
|
| Contingent
liabiities |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Total financial liabilities |
$ |
44,658 |
|
$ |
44,658 |
|
$ |
46,408 |
|
$ |
46,408 |
|
Fair value hierarchy:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy establishes three
levels to classify the inputs to valuation techniques used to measure fair
value. Level 1 inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities. Level 2 inputs are quoted prices in markets
that are not active, quoted prices for similar assets or liabilities in active
markets, inputs other than quoted prices that are observable for the asset or
liability (for example, interest rate and yield curves observable at commonly
quoted intervals, forward pricing curves used to value currency and commodity
contracts and volatility measurements used to value option contracts), or inputs
that are derived principally from or corroborated by observable market data or
other means. Level 3 inputs are unobservable (supported by no or little market
activity). The fair value hierarchy gives the highest priority to Level 1 inputs
and the lowest priority to Level 3 inputs.
Financial assets and liabilities measured at fair value on a
recurring basis include:
| As at March 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
| Expressed in thousands US
dollars |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
| Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Available for sale securities |
$ |
1,190 |
|
$ |
1,190 |
|
$ |
- |
|
$ |
- |
|
| Trade receivables
|
|
8,077
|
|
|
8,077
|
|
|
- |
|
|
- |
|
| Total financial assets |
$ |
9,267 |
|
$ |
9,267 |
|
$ |
- |
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Contingent
liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Available for sale securities
The Company holds marketable securities classified as Level 1
in the fair value hierarchy and as available for sale financial assets. The fair
values of available for sale investments are determined based on a market
approach reflecting the closing price of each particular security at the
reporting date. The closing price is a quoted market price obtained from the
stock exchange that is the principal active market for the particular security,
being the market with the greatest volume and level of activity for the assets.
Trade receivables
The trade receivables consist of receivables from provisional
silver and gold sales from the Bolañitos and El Cubo mine. The fair value of
receivables arising from concentrate sales contracts that contain provisional
pricing mechanisms is determined using the appropriate quoted closing price on
the measurement date from the exchange that is the principal active market for
the particular metal. As such, these receivables, which meet the definition of
an embedded derivative, are classified within Level 1 of the fair value
hierarchy.
Contingent liability
On July 13, 2012, the Company completed the acquisition of 100%
of the issued and outstanding shares of Mexgold
Resources Inc. (“Mexgold”) and its three wholly owned
subsidiaries: Compania Minera del Cubo, S.A. de C.V., AuRico Gold GYC, S.A. de
C.V. and Metales Interamericanos, S.A. de C.V. from AuRico Gold Inc. (“AuRico”).
As a result of the acquisition, the Company owns the El Cubo
silver-gold mine located in Guanajuato, Mexico and the Guadalupe y Calvo
silver-gold exploration project located in Chihuahua, Mexico. The total
estimated consideration of $203,487 included a contingent consideration based on
the gold price.
AuRico will be entitled to receive up to an additional $30
million in cash payments from the Company upon the occurrence of certain events
as follows:
| a) |
$10 million upon the simple average of the daily London
Metals Exchange closing prices for gold exceeding $1,900.00 per ounce for
a period of twelve consecutive months at any time until July 13,
2015; |
| |
|
| b) |
$10 million upon the simple average of the daily London
Metals Exchange closing prices for gold exceeding $2,000.00 per ounce for
a period of twelve consecutive months at any time until July 13, 2015;
and |
| |
|
| c) |
$10 million upon the simple average of the daily London
Metals Exchange closing prices for gold exceeding $2,100.00 per ounce for
a period of twelve consecutive months at any time until July 13,
2015. |
The contingent consideration based on the performance of gold
prices was valued using a Monte Carlo simulation resulting in a valuation of
$7.9 million at the acquisition date. Monte Carlo simulation approaches are a
class of computational algorithms that rely on repeated random sampling to
compute their results. Gold price paths were developed using a mathematical
formula based on a stochastic process with mean reversion to a long term trend
line.
The fair value of the contingent consideration as at March 31,
2015 was determined to be $nil (December 31, 2014 - $nil).
Under the terms of the acquired Las Torres lease, the Company
was required to provide financial guarantees to the owner of the Las Torres
Facility as security against any environmental damages. As at March 31, 2015,
there was a $1.0 million letter of credit provided by the Company as security to
the owner of the Las Torres facility.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
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, investments and accounts receivable. Credit risk exposure on
bank accounts and short term investments is limited through maintaining the
Company’s balances with high-credit quality financial institutions, maintaining
investment policies, assessing institutional exposure and continual discussion
with external advisors. Value added tax (“IVA”) receivables are generated on the
purchase of supplies and services to produce silver which are refundable from
the Mexican government. Trade receivables are generated on the sale of
concentrate inventory to reputable metal traders.
Liquidity Risk
The Company ensures that there is
sufficient capital in order to meet short term business requirements. The
Company’s policy is to invest cash at floating rates of
interest, while cash reserves are to be maintained in cash equivalents in order
to maintain liquidity after taking into account the Company’s holdings of cash
equivalents, money market investments, marketable securities, receivables and
available cash under the revolving credit facility. The Company believes that
these sources, operating cash flow and its policies 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 currency risk, interest rate risk, and
commodity price risk.
Foreign Currency Risk – The Company’s operations in
Mexico and Canada make it subject to foreign currency fluctuations. Certain of
the Company’s operating expenses are incurred in Mexican pesos and Canadian
dollars; therefore 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 Company’s assets and the amount of
shareholders’ equity. The Company has not entered into any agreements or
purchased any instruments to hedge possible currency risks.
Interest Rate Risk – In respect of financial assets, the
Company’s 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.
The Facility is subject to interest rate risk as amounts outstanding are subject
to charges at a LIBOR-based rate (plus 2.75% to 4.25% depending on financial and
operating measures) payable according to the quoted rate term. The interest rate
charge for the year was approximately 3.2%. As at December 31, 2014, with other
variables unchanged, a 10% increase in the LIBOR rate would be result in
additional interest expense of $290,000.
Commodity Price Risk – Gold and silver prices have
historically fluctuated significantly and are affected by numerous factors
outside of the Company’s 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 not
engaged in any hedging activities, other than short term metal derivative
transactions less than 90 days, to reduce its exposure to commodity price risk.
At December 31, 2014 there are 355,880 ounces of silver and 4,900 ounces of gold
which do not have a final settlement price and the estimated revenues have been
recognized at current market prices. As at March 31, 2015, with other variables
unchanged, a 10% decrease in the market value of silver and gold would result in
a reduction of revenue of $1.2 million.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Outstanding Share Data
As of May 5, 2015, the
Company had the following securities issued and outstanding:
- 101,976,901 common shares
- 4,830,950 common shares issuable under stock options with a weighted
average exercise price of CAN$4.38 per share expiring between May 26, 2015 and
May 13, 2019.
The Company considers the items included in the consolidated
statement of shareholders’ equity as capital. The Company’s 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, prospectus offerings,
convertible debentures, asset acquisitions or return capital to shareholders.
The Company is not subject to externally imposed capital requirements.
Changes in Accounting Policies and Critical
Accounting Estimates
Changes in Accounting Policies
The Company has not adopted any new standards or consequential
amendments during the period.
New standards and amendments have been proposed; however, they
do not impact the condensed consolidated interim financial statements and are
not anticipated to impact the Company’s annual consolidated financial
statements. The nature and impact of each new standard and amendment applicable
to the Company are described below:
IFRS 9, Financial Instruments
In November 2009, the
IASB issued IFRS 9, Financial Instruments, as the first step in its
project to replace IAS 39 Financial Instruments: Recognition and
Measurement. On July 24, 2014 the IASB issued the complete IFRS 9. IFRS 9
retains but simplifies the mixed measurement model and establishes two primary
measurement categories for financial assets: amortized cost and fair value. The
basis of classification depends on an entity’s business model and the
contractual cash flows of the financial asset. Classification is made at the
time the financial asset is initially recognized, namely when the entity becomes
a party to the contractual provisions of the instrument.
IFRS 9 amends some of the requirements of IFRS 7, Financial
Instruments: Disclosures, including added disclosures about investments in
equity instruments measured at fair value in OCI, and guidance on the
measurement of financial liabilities and derecognition of financial instruments.
The mandatory effective date of IFRS 9 is for annual periods beginning on or
after January 1, 2018 with early adoption permitted. The Company is currently
assessing the impact of adopting IFRS 9 on its consolidated financial
statements, including the applicability of early adoption.
IFRS 15, Revenue from Contracts with Customers
On
May 28, 2014, the IASB issued IFRS 15. The new standard is effective for annual
periods beginning on or after January 1, 2017 with early adoption permitted.
IFRS 15 will replace IAS 11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15
Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
Assets from Customers and SIC 31 Revenue – Barter Transactions
Involving Advertising Services.
The standard contains a single model that applies to contracts
with customers and two approaches to recognizing revenue: at a point in time or
over time. The model features a contract-based five-step analysis of
transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have also been introduced, which may affect
the amount and/or timing of revenue recognized.
The Company intends to adopt IFRS 15 in its consolidated
financial statements for the annual period beginning on January 1, 2017. The
extent of the impact of adoption of the standard has not yet been determined.
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
| FOR THE PERIOD ENDED MARCH 31, 2015 |
| |
Amendments to IAS 1, Presentation of Financial Statements
On December 18, 2014, the IASB issued amendments to IAS 1 as part of its
major initiative to improve presentation and disclosure in financial reports.
The amendments are effective for annual periods beginning on or after January 1,
2016 with early adoption permitted. The Company intends to adopt these
amendments in its financial statements for the annual period beginning on
January 1, 2016. The extent of the impact of adoption of the amendments has not
yet been determined.
The Company has not early adopted any other standard,
interpretation or amendment in the condensed consolidated interim financial
statements that have been issued, but not yet effective.
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 management judgement relate to the determination of
mineralized reserves, plant and equipment lives, estimating the fair values of
financial instruments and derivatives, estimating the fair value of convertible
debenture components, impairment of long-lived assets, reclamation and
rehabilitation provisions, recognition of deferred tax assets, and assumptions
used in determining the fair value of non-cash share-based compensation.
See “Critical Accounting Estimates” in the Company’s
annual MD&A for a detailed discussion of the areas in which critical
accounting estimates are made.
CONTROLS AND PROCEDURES
Endeavour’s management, including the Chief Executive Officer
and Chief Financial Officer, has evaluated the Company’s internal controls over
financial reporting to determine whether any changes occurred during the period
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting. During quarter, the
Company enhanced its internal control system by implementing a policy to consult
with a professional valuation company with experience and knowledge assessing
the financial impact of any future impairments of long-lived assets. Other than
the change described, there have been no other changes that occurred during the
three month period ended March 31, 2015 that have materially affected, or are
reasonably likely to materially affect, Endeavour’s internal controls over
financial reporting.
