Endeavour Silver Corp. - Exhibit 99.1 - Filed by newsfilecorp.com
ANNUAL INFORMATION FORM
(“AIF”)
of
ENDEAVOUR SILVER CORP.
(the “Company” or “Endeavour”)
Suite #301 - 700 West Pender Street
Vancouver, British Columbia, Canada, V6C 1G8
Phone: (604) 685-9775
Fax: (604)
685-9744
Dated: March 8, 2016
TABLE OF CONTENTS
ITEM
1: PRELIMINARY NOTES
1.1
Incorporation of Documents by Reference
All financial information in this Annual Information Form
(“AIF”) has been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as prescribed by the International Accounting Standards
Board.
The information provided in the AIF is supplemented by
disclosure contained in the documents listed below which are incorporated by
reference into this AIF. These documents must be read together with the AIF in
order to provide full, true and plain disclosure of all material facts relating
to Endeavour. The documents listed below are not contained within, nor attached
to this document. The documents may be accessed by the reader at the following
locations:
Type of Document |
Effective Date /
Period Ended |
Date Filed /
Posted |
Document name which may be
viewed at the
SEDAR website at www.sedar.com |
| NI 43-101 Technical Report: Updated Mineral Resource and
Reserve Estimates for the Guanacevi Project, Durango State, Mexico |
December 31, 2015
|
March 9, 2016 |
Technical Report
(NI 43-101) – English Qualification Certificate(s) and Consent(s) |
| NI 43-101 Technical Report: Updated Mineral Resource and
Reserve Estimates for the Bolañitos Project Guanajuato State, Mexico |
December 31, 2015
|
March 9, 2016 |
Technical Report
(NI 43-101) – English Qualification Certificate(s) and Consent(s) |
| NI 43-101 Technical Report: Updated Mineral Resource and
Reserve Estimates for the El Cubo Project, Guanajuato State, Mexico |
December 31, 2015
|
March 9, 2016 |
Technical Report
(NI 43-101) – English Qualification Certificate(s) and Consent(s) |
| NI 43-101 Technical Report Preliminary Economic Assessment
for the Terronera Project, Jalisco State, Mexico |
March 25, 2015 |
May 13, 2015 |
Technical Report
(NI 43-101) – English Qualification Certificate(s) and Consent(s)
|
References to “the Company”, “Endeavour” or “Endeavour Silver”
are to Endeavour Silver Corp. and where applicable and as the context requires,
include its subsidiaries.
1.2
Date of Information
All information in this AIF is as of December 31, 2015 unless
otherwise indicated.
1.3
Forward-Looking Statements
This Annual Information Form contains “forward-looking
statements” within the meaning of applicable Canadian securities legislation.
Such forward-looking statements concern the Company’s anticipated results and
developments in the Company’s operations in future periods, planned exploration
and development of its properties, plans related to its business and other
matters that may occur in the future. These statements relate to analyses and
other information that are based on expectations of future performance,
including silver and gold production and planned work programs.
1
Endeavour Silver Corp.
Statements concerning reserves and mineral resource estimates
constitute forward-looking statements to the extent that they involve estimates
of the mineralization that will be encountered if the property is developed and,
in the case of mineral reserves, such statements reflect the conclusion based on
certain assumptions that the mineral deposit can be economically exploited.
Forward-looking statements are subject to a variety of known
and unknown risks, uncertainties and other factors which could cause actual
events or results to differ from those expressed or implied by the
forward-looking statements, including, without limitation:
| • |
risks related to precious and base metal price
fluctuations; |
| • |
risks related to fluctuations in the currency markets
(particularly the Mexican peso, Canadian dollar and United States dollar);
|
| • |
risks related to the inherently dangerous activity of
mining, including conditions or events beyond our control, and operating
or technical difficulties in mineral exploration, development and mining
activities; |
| • |
uncertainty in our ability to fund the development of our
mineral properties or the completion of further exploration programs;
|
| • |
uncertainty as to actual capital costs, operating costs,
production and economic returns, and uncertainty that our development
activities will result in profitable mining operations; |
| • |
risks related to our reserves and mineral resource
figures being estimates based on interpretations and assumptions which may
result in less mineral production under actual conditions than is
currently estimated and to diminishing quantities or grades of mineral
reserves as properties are mined; |
| • |
risks related to changes in governmental regulations, tax
and labour laws and obtaining necessary licenses and permits; |
| • |
risks related to our business being subject to
environmental laws and regulations which may increase our costs of doing
business and restrict our operations; |
| • |
risks related to our mineral properties being subject to
prior unregistered agreements, transfers, or claims and other defects in
title; |
| • |
risks relating to inadequate insurance or inability to
obtain insurance; |
| • |
risks related to our ability to successfully integrate
acquisitions; |
| • |
uncertainty in our ability to obtain necessary financing;
|
| • |
risks related to increased competition that could
adversely affect our ability to attract necessary capital funding or
acquire suitable producing properties for mineral exploration in the
future; |
| • |
risks related to many of our primary properties being
located in Mexico, including political, economic, and regulatory
instability; and |
| • |
risks related to our officers and directors becoming
associated with other natural resource companies which may give rise to
conflicts of interests. |
This list is not exhaustive of the factors that may affect our
forward-looking statements. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Company’s forward-looking statements are based on beliefs, expectations and
opinions of management on the date the statements are made and the Company does
not assume any obligation to update forward-looking statements if circumstances
or management’s beliefs, expectations or opinions change, except as required by
law. For the reasons set forth above, investors should not place undue reliance
on forward-looking statements.
2
Endeavour Silver Corp.
1.4
Currency and Exchange Rates
All dollar amounts in this AIF are expressed in U.S. dollars
unless otherwise indicated. References to “Cdn.$” are to Canadian dollars. On
March 8, 2016, the noon exchange rate for the United States dollar in terms of
Canadian dollars, as quoted by the Bank of Canada, was U.S.$1.00 = Cdn.$1.3389
(Cdn.$1.00 = U.S.$0.7469). On December 31, 2015, the noon exchange rate for the
United States dollar in terms of Canadian dollars, as quoted by the Bank of
Canada, was U.S.$1.00 = Cdn.$1.3840 (Cdn.$1.00 = U.S.$0.7225).
1.5
Classification of Mineral Reserves and Resources
In this AIF, the definitions of proven and probable mineral
reserves, and measured, indicated and inferred mineral resources are those used
by the Canadian provincial securities regulatory authorities and conform to the
definitions utilized by the Canadian Institute of Mining, Metallurgy and
Petroleum, as the CIM Definition Standards on Mineral Resources and Mineral
Reserves adopted by the CIM Council, as amended.
1.6
Cautionary Note to U.S. Investors concerning Estimates of Mineral
Reserves and Measured, Indicated and Inferred Mineral Resources
This AIF has been prepared in accordance with the requirements
of the securities laws in effect in Canada, which differ from the requirements
of United States securities laws. The terms “mineral reserve”, “proven mineral
reserve” and “probable mineral reserve” are Canadian mining terms as defined in
accordance with the Canadian Securities Administrators’ National Instrument
43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the
Canadian Institute of Mining, Metallurgy and Petroleum as the CIM Definition
Standards on Mineral Resources and Mineral Reserves adopted by the CIM Council,
as amended. These definitions differ from the definitions in SEC Industry Guide
7 under the United States Securities Act of 1933, as amended. 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 AIF contain
descriptions of our mineral deposits that may not be comparable to similar
information made public by U.S. companies subject to the reporting and
disclosure requirements under the United States federal securities laws and the
rules and regulations thereunder.
3
Endeavour Silver Corp.
ITEM
2: CORPORATE
STRUCTURE
2.1
Name, Address and Incorporation
The Company was incorporated under the laws of the Province of
British Columbia on March 11, 1981 under the name, “Levelland Energy &
Resources Ltd”. Effective August 27, 2002 the Company changed its name to
“Endeavour Gold Corp.”, consolidated its share capital on the basis of four old
common shares for one new common share and increased its share capital to
100,000,000 common shares without par value. On September 13, 2004, the Company
changed its name to “Endeavour Silver Corp.”, transitioned from the Company
Act (British Columbia) to the Business Corporations Act (British
Columbia) and increased its authorized share capital to unlimited common shares
without par value.
The Company’s principal business office is located at:
Suite 301 - 700 West Pender Street
Vancouver, British Columbia
Canada, V6C 1G8
and its registered and records office is located at:
19th Floor, 885 West Georgia
Street
Vancouver, British Columbia
Canada, V6C 3H4
2.2
Subsidiaries
The Company conducts its business primarily in Mexico through
subsidiary companies. The following table lists the material subsidiaries,
jurisdiction of incorporation and % ownership held.
| Name of Company |
Incorporated |
% held |
| |
|
|
|
Endeavour Gold Corporation, S.A.
de C.V. |
Mexico |
100 |
|
Minera Paola S.A. de C.V. SOFOM ENR |
Mexico |
100 |
|
Minera Plata Adelante, S.A. de
C.V. |
Mexico |
100 |
|
Minera Santa Cruz Garibaldi S.A. de C.V. |
Mexico |
100 |
|
Refinadora Plata Guanacevi, S.A.
de C.V. |
Mexico |
100 |
|
Mina Bolañitos S.A de C.V. |
Mexico |
100 |
|
Compa Minera del Cubo S.A. de C.V.
|
Mexico |
100 |
|
Minas Lupycal S.A. de C.V. |
Mexico |
100 |
|
Minera Plata Carina S.P.A. |
Chile |
100 |
|
MXRT Holdings Inc. |
Canada |
100 |
|
Endeavour Zilver S.A.R.L. |
Luxembourg |
100 |
ITEM
3: GENERAL
DEVELOPMENT OF THE BUSINESS
3.1
Three Year History
Overview
The Company is a Canadian mineral company engaged in the
evaluation, acquisition, exploration, development and exploitation of precious
metal properties in Mexico and Chile.
4
Endeavour Silver Corp.
Guanacevi Mines
In May 2004, Endeavour signed formal option agreements to
acquire up to a 100% interest in the producing Santa Cruz silver-gold mine,
certain other mining concessions and the Guanacevi mineral processing plant
(collectively, the “Guanacevi Mines Project”) in Durango, Mexico. The terms of
the agreements gave Endeavour the option to acquire an initial 51% interest in
these operating assets by paying a total of approximately $4 million to the
vendors and incurring $1 million in mine exploration and development within one
year. This was completed on January 28, 2006. The balance of the 49% interest
was purchased through the payment of a further $3 million by instalments. The
purchase of the remaining 49% of the mill facility was completed in July 2006
and the purchase of the remaining 49% of the mining assets was completed in
January 2008.
Under the option interest agreement, a scheduled January 28,
2007 payment of $638,000 was made with 176,201 shares of the Company in lieu of
cash. Further to a negotiated early buy-out of the minority shareholders, the
Company acquired the remaining shares of Minera Santa Cruz y Garibaldi S.A. de
C.V. (“Minera Santa Cruz”), which owned 49% of the Santa Cruz silver-gold mine
in May 2007 by the issue of 1,350,000 shares of the Company with a fair market
value of $5.04 per share.
The Company elected to accelerate the buy-out in order to
streamline the mining operations and facilitate additional capital investments
for the mine development program.
Bolañitos Mines
In February 2007, the Company acquired the right to
purchase the exploitation contracts to the producing Unidad Bolañitos silver
(gold) mines located in the northern parts of the Guanajuato and La Luz silver
districts in the state of Guanajuato, Mexico from Minas de la Luz SA de CV
("MdlL") for $3.4 million, comprised of $2.4 million in cash and $1.0 million in
common shares of the Company. On April 30, 2007 the Company completed the
acquisition by paying $2.4 million in cash and issuing 224,215 common shares
priced at $4.46 per share.
In April 2007 the Company entered into an agreement with two
subsidiaries of Industrial Peñoles S.A. de C.V. (“Peñoles”) to purchase all of
the Guanajuato property and plant assets for 800,000 common shares of the
Company and a share purchase warrant exercisable for an additional 250,000
common shares at Cdn.$5.50 per share within a two year period. The acquisition
was completed on May 30, 2007 and the Company has a 100% interest in the
Bolañitos Mines, free and clear of any royalties. The share purchase warrant
expired on May 30, 2009 unexercised.
El Cubo Mines
On July 13, 2012, the Company completed the acquisition of MXRT
Holdings Ltd (formerly Mexgold Resources Inc. (“Mexgold”)) and its three wholly
owned subsidiaries: Compania Minera del Cubo, S.A. de C.V., Minas Lupycal S.A.
de C.V (formerly 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.
El Cubo is a producing silver-gold mine located in the
southeast part of the historic Guanajuato mining district in central Mexico,
only 10 kilometres (km) from Endeavour's operating Bolañitos silver-gold mine in
the northwest part of the Guanajuato district.
5
Endeavour Silver Corp.
The El Cubo property consists of 61 mineral concessions
covering 8,144 hectares, including several historic and currently active mine
adits, ramps and shafts. Approximately 38 individual veins have been identified
on the El Cubo property. Veins typically strike northwest, dip 70 degrees
southwest and average nearly 2 metres wide.
Terronera Project (formerly San Sebastian Project)
San Sebastián del Oeste is an historic silver and gold mining
district in southwestern Jalisco state, approximately 155 kilometres southwest
of Guadalajara. One small high-grade underground silver and gold mine, Santa
Quitéria, is currently operating in the district, producing 100 tonnes of ore
per day. Our San Sebastián property surrounds the Santa Quitéria mine and
represents a new district-scale silver-and gold exploration and mining
opportunity for Endeavour.
The San Sebastián property displays a classic low-sulphidation
epithermal vein system with four mineralized subdistricts, each consisting of a
cluster of quartz veins (calcite, barite) bearing sulphide minerals (pyrite,
argentite, galena, and sphalerite). Historically, more than 50 small mines have
been developed within at least 20 veins. Although the San Sebastián silver mines
were first discovered in 1542 and there have been several periods of small-scale
mining over the last 450 years, little modern exploration was ever carried out
in the district.
Endeavour identified substantial potential for additional
high-grade mineralized zones within the several dozen kilometres of known veins
on the San Sebastián properties. In 2010, the Company signed an option to
purchase a 100% interest in the San Sebastian properties by paying a total of
$2.7 million over three years and paying a 2% NSR royalty on any future
production. The high-grade discovery in the Terronera vein confirmed our
opinion. Endeavour published an initial resource in 2014 and a Preliminary
Economic Assessment (“Terronera PEA”) in 2015.
The Terronera PEA results in an after-tax base case net present
value of $48.6 million using a 5% discount rate, which achieves a 20% rate of
return and a pay-back period of 3.7 years. Total operating revenue in the
Terronera PEA was estimated at $542 million from estimated sales of 20.4 million
ounces (oz) of silver and 138,500 oz of gold at $18 per oz silver and $1,260 per
oz gold. Mine-site cash operating costs were estimated at $3.93 per oz silver
net of gold credits based on $83 per tonne total operating costs or total
operating costs of $287 million. Additional total sustaining capital costs were
estimated at $75 million, including dry stack tailings and life of mine capital,
exploration and general and administrative expenditures at estimated mine-site
all-in sustaining costs of $7.60 per oz silver net of gold credits for the life
of the project.
The PEA economic analysis is preliminary in nature and is based
on production schedules that include Inferred Mineral Resources, which are
considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as Mineral Reserves.
There is no certainty that the preliminary economic assessment in the Terronera
PEA will be realized or that Inferred Mineral Resources will be upgraded to
Indicated Mineral Resources. Mineral Resources that are not Mineral Reserves do
not have demonstrated economic viability. See “Terronera Project, Jalisco State,
Mexico” under Item 4.4 Mineral Projects for further details of the Terronera
PEA, including the basis for the preliminary economic assessment therein and the
qualifications and assumptions made in connection with such assessment.
6
Endeavour Silver Corp.
Three Year History
2016 to Present
On March 9, 2016 the Company
released updated NI 43-101 Reserve and Resource estimates as at December 31,
2015 for its active silver mining and exploration projects in Mexico, being the
Guanacevi Mines, the Bolañitos Mines and the El Cubo Mines.
Endeavour’s 2016 strategy is to focus on minimizing all-in
sustaining costs and improving after-tax free cash flow rather than metal
output. Endeavour management expects that silver production will be the range of
4.9 -5.3 million oz, gold production will be in the range of 47,000-52,000 oz,
and silver equivalent production will be in the range of 7.9 -8.5 million oz
using a 75:1 silver:gold ratio.
At Guanaceví, production will continue at the 1,200 tonne per
day (tpd) plant capacity primarily from the Santa Cruz, Porvenir Norte, and
Porvenir Centro deposits. Underground exploration and mine development will
continue to be funded from cash flow, and additional mine development is
scheduled for permitting and development subject to financing from existing
sources.
At Bolañitos, mine production will continue at 850 tpd
primarily from the LL-Asunción deposit. The plant will operate closer to its
1,600 tpd capacity in the first half in order to process the 75,000 tonne ore
stockpile. No exploration or mine development is planned at the current metal
prices, but that could change during the year if prices improve.
At El Cubo, production will continue initially from the
V-Asunción, Dolores, Villalpando, San Nicolas and Santa Cecilia veins, but will
decline each month until only V-Asunción is producing prior to going on care and
maintenance in the fourth quarter. Investments on exploration and mine
development have been suspended until metal prices improve.
Subsequent to December 31, 2015, the Company issued an
additional 3,616,043 shares under at-the-market “ATM” facility at an average
price of $1.57 per share for net proceeds of $5.5 million. The common shares
were issued in at-the-market distributions on the New York Stock Exchange
pursuant to our effective registration statement on Form F-10, which registers
the offer and sale of the common shares under our ATM facility.
2015
In 2015, the Company delivered silver
production that was above announced guidance and gold production in line with
guidance. The Company produced 7,178,666 oz silver and 59,990 oz gold. Silver
equivalent production totaled 11.4 million ounces at a 70:1 silver:gold ratio.
With continued weakness in precious metal prices, the Company remained focused
on cost improvements and reductions, in particular at the El Cubo operation. The
El Cubo operation increased ore mined and processed by 64%, achieving a
production rate of 2,165 tpd in the fourth quarter, driving costs per tonne down
19%, cash costs down 36% and all-in-sustaining costs down 44% compared to 2014.
At the Bolañitos operation, the mine reduced output from 1,600 tpd to 1,000 tpd
as underground resources focused on the development of the LL-Asuncion ore body,
as the Lucero ore zone discovered in 2009 and 2010 was in its last year as the
primary source of the mined ore. Despite the lower throughput, Bolañitos
operating costs per tonne improved from the previous year, however, lower grade
material increased its cost metrics on a per ounce basis. The Guanaceví mine
continued to perform around its capacity of 1,200 tpd, while cost per tonne also
improved at this operation. Consolidated plant throughput was 1,565,507 tonnes
at average grades of 167 grams per tonne (gpt) silver and 1.41 gpt gold.
7
Endeavour Silver Corp.
In early 2015, the Company released an updated NI 43-101
Reserve and Resource estimate as at October 31, 2014 for its active silver mines
and the Terronera PEA. The Company continued to advance the Terronera project
with additional drilling and studies subsequent to the release of the Terronera
PEA.
On November 25, 2015, the Company entered into an ATM facility
with Cowen and Company, LLC, acting as sole agent. Under the terms of this ATM
facility, we may, from time to time, sell shares of our common stock having an
aggregate offering value of up to US$16.5 million on the New York Stock
Exchange. The Company determines, at its sole discretion, the timing and number
of shares to be sold under this ATM facility. A prospectus supplement to the
Base Shelf was filed on November 25, 2015 to qualify the shares to be sold under
the ATM facility up to a maximum of $16.5 million. During the year ended
December 31, 2015, the Company issued 799,569 common shares under the ATM
facility at an average price of $1.43 per share for net proceeds of $1.1
million.
2014
Endeavour delivered company records of
annual silver production from mining operations in 2014, led by record
performance of the Guanaceví mine. The Company beat the high end of its silver
production guidance by 5%, although gold production fell short of guidance by
3%. Consolidated silver production during 2014 was 7,212,074 ounces, an increase
of 6% compared to 2013, and gold production was 62,895 ounces. Plant throughput
was 1,404,406 tonnes at average grades of 185 grams per tonne silver and 1.62
gpt gold. Silver production increased due to higher grades and recoveries,
partially offset by the lower throughput. Gold production was lower due to lower
grades and throughput. The El Cubo mine output rose throughout 2014 in order to
fill the El Cubo plant to its 1,550 tpd capacity.
The Company continued in 2014 to focus its efforts on the
improvement of the El Cubo mine it acquired in 2012. Cost per tonne fell 13% to
$98.92 as cost cutting initiatives took effect and appeared to be sustainable.
The Company completed 28,000 metres of exploration drilling in 69 holes,
including the expansion and delineation of V-Asuncion ore body.
In early 2014, the Company released an updated NI 43-101
Reserve and Resource estimate as at December 31, 2013 for its active silver
mining and exploration projects in Mexico.
2013
Endeavour recorded its eighth
consecutive year of growing sales revenue in 2013. During 2013, increased
production drove sales 33% higher to $276.8 million and mine operating cash-flow
increased 2% to $116.9 million from the previous year due to slightly higher
margins. Direct operating costs rose as a result of the increased production,
while the Company incurred additional costs with employee layoffs to improve the
long term viability of its operations.
Endeavour reported its eighth consecutive year of growing
silver and gold production for 2013, increasing silver production by 52% to
6,813,069 oz silver and gold production by 95% to 75,578 oz gold compared to
2012. The Company focused its efforts on the improvement of the El Cubo mine it
acquired in 2012. The Company successfully reduced the El Cubo workforce from
980 employees to 576 employees as of December 31, 2013 while improving plant
throughput, ore grades and recoveries in 2013. The Company returned the leased
Las Torres facility to its owner, completely refurbished the El Cubo plant in
seven months and drove 10.6 kilometres of underground development. Furthermore
the Company continued to improve safety programs, site governance and community
initiatives.
Endeavour originally outlined 28 separate target areas in and
around the existing mines at El Cubo with near-term potential to delineate new
reserves and resources. In 2013, the Company drilled 18,450 metres in 47 holes
to discover new high-grade, gold-silver vein mineralization in the historic
Villalpando, V-Asuncion and Dolores veins. Drilling at Dolores helped to extend
and define the hanging-wall and footwall vein ore-bodies that are currently in
production. Drilling in the Villalpando and V-Asuncion veins, discovered in late
2012 and fast-tracked to production last year, successfully extended this newly
discovered mineralized zone over 900 m in strike length, still open for
expansion.
8
Endeavour Silver Corp.
In early 2013, the Company released an updated NI 43-101
Reserve and Resource estimate as at December 15, 2012 for its active silver
mining and exploration projects in Mexico. Endeavour achieved its eighth
consecutive year of combined reserve and resource growth.
3.2
Significant Acquisitions
No significant acquisitions for which disclosure is required
under Part 8 of National Instrument 51-102 were completed by the Company during
its most recently completed financial year.
ITEM
4: DESCRIPTION OF
THE BUSINESS
4.1
General Description
The Business of the Company
The Company’s principal business activities are the evaluation,
acquisition, exploration, development and exploitation of mineral properties.
The Company produces silver-gold from its underground mines at Guanacevi,
Bolañitos and El Cubo in Mexico. The Company also has interests in certain
exploration properties in Mexico and Chile.
The Company’s business is not materially affected by
intangibles such as licences, patents and trademarks, nor is it significantly
affected by seasonal changes. Other than as disclosed in this AIF, the Company
is not aware of any aspect of its business which may be affected in the current
financial year by renegotiation or termination of contracts.
Foreign Operations
As the Company’s producing mines and mineral exploration
interests are principally located in Mexico, the Company’s business is dependent
on foreign operations. As a developing economy, operating in Mexico has certain
risks. See “Risk Factors – Foreign Operations”.
Employees
As at December 31, 2015, the Company had approximately 14
employees based in its Vancouver corporate office and approximately 1,683 full
and part-time employees in Mexico. Additional consultants are also retained from
time to time for specific corporate activities, development and exploration
programs.
Environmental Protection
The Company’s environmental permit requires that it reclaim
certain land it disturbs during mining operations. Significant reclamation and
closure activities include land rehabilitation, decommissioning of buildings and
mine facilities, ongoing care and maintenance and other costs. Although the
ultimate amount of the reclamation and rehabilitation costs to be incurred
cannot be predicted with certainty, the total undiscounted amount of probability
weighted estimated cash flows required to settle the Company’s estimated
obligations is $2.1 million for the Guanacevi mine operations, $1.8 million for
the Bolañitos mine operations and $4.2 million for the El Cubo mine operations.
9
Endeavour Silver Corp.
Community, Environmental and Corporate Safety Policies
Endeavour is focused on the improvement of sustainability
programs for all stakeholders and understands that such programs contribute to
the long term benefit of the Company and society at large. Sustainability
programs implemented by the Company range from improving the Company’s safety
policies and practices; supporting health programs for the Company’s employees
and the local communities; enhancing environmental stewardship and reclamation;
sponsoring educational scholarships and job skills training programs; sponsoring
community cultural events and infrastructure improvements; and supporting
charitable causes.
4.2
Risk Factors
The Company’s ability to generate revenues and profits from its
mineral properties, or any other mineral property it may acquire, is dependent
upon a number of factors, including, without limitation, the following risk
factors.
Precious and Base Metal Price Fluctuations
The profitability of the precious metal operations in which the
Company has an interest will be significantly affected by changes in the market
prices of precious metals. Prices for precious metals fluctuate on a daily
basis, have historically been subject to wide fluctuations and are affected by
numerous factors beyond the control of the Company such as the level of interest
rates, the rate of inflation, central bank transactions, world supply of the
precious metals, foreign currency exchange rates, international investments,
monetary systems, speculative activities, international economic conditions and
political developments. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in the Company not
receiving adequate returns on invested capital or the investments retaining
their respective values. Declining market prices for these metals could
materially adversely affect the Company’s operations and profitability.
Fluctuations in the price of consumed commodities
Prices and availability of commodities consumed or used in
connection with exploration, development and mining, such as natural gas,
diesel, oil, electricity, cyanide and other re-agents fluctuate and affect the
costs of production at our operations. These fluctuations can be unpredictable,
can occur over short periods of time and may have a materially adverse impact on
our operating costs or the timing and costs of various projects. Our general
policy is not to hedge our exposure to changes in prices of the commodities that
we use in our business.
Foreign Exchange Rate Fluctuations
Operations
in Mexico and Canada are subject to foreign currency exchange fluctuations. The
Company raises its funds through equity issuances which are priced in Canadian
dollars, and the majority of the exploration costs of the Company are
denominated in United States dollars and Mexican pesos. The Company may suffer
losses due to adverse foreign currency fluctuations.
Competitive Conditions
Significant
competition exists for natural resource acquisition opportunities. As a result
of this competition, some of which is with large, well established mining
companies with substantial capabilities and significant financial and technical
resources, the Company may be unable to either compete for or acquire rights to
exploit additional attractive mining properties on terms it considers
acceptable. Accordingly, there can be no assurance that the Company will be able
to acquire any interest in additional projects that would yield reserves or
results for commercial mining operations.
10
Endeavour Silver Corp.
Operating Hazards and Risks
Mining operations
generally involve a high degree of risk, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. These risks
include, but are not limited to, the following: environmental hazards,
industrial accidents, third party accidents, unusual or unexpected geological
structures or formations, fires, power outages, labour disruptions, floods,
explosions, cave-ins, land-slides, acts of God, periodic interruptions due to
inclement or hazardous weather conditions, earthquakes, war, rebellion,
revolution, delays in transportation, inaccessibility to property, restrictions
of courts and/or government authorities, other restrictive matters beyond the
reasonable control of the Company, and the inability to obtain suitable or
adequate machinery, equipment or labour and other risks involved in the
operation of mines.
Operations in which the Company has a direct or indirect
interest will be subject to all the hazards and risks normally incidental to
exploration, development and production of precious and base metals, any of
which could result in work stoppages, delayed production and resultant losses,
increased production costs, asset write downs, damage to or destruction of mines
and other producing facilities, damage to life and property, environmental
damage and possible legal liability for any or all damages. The Company may
become subject to liability for pollution, cave-ins or hazards against which it
cannot insure or against which it may elect not to insure. Any compensation for
such liabilities may have a material, adverse effect on the Company’s financial
position.
Our property, business interruption and liability insurance may
not provide sufficient coverage for losses related to these or other hazards.
Insurance against certain risks, including certain liabilities for environmental
pollution, may not be available to us or to other companies within the industry
at reasonable terms or at all. In addition, our insurance coverage may not
continue to be available at economically feasible premiums, or at all. Any such
event could have a material adverse effect on our business.
Mining Operations
The capital costs required
by the Company’s projects may be significantly higher than anticipated. Capital
and operating costs, production and economic returns, and other estimates
contained in the Company’s current technical reports, may differ significantly
from those provided for in future studies and estimates and from management
guidance, and there can be no assurance that the Company’s actual capital and
operating costs will not be higher than currently anticipated. In addition,
delays to construction and exploration schedules may negatively impact the net
present value and internal rates of return of the Company’s mineral properties
as set forth in the applicable technical report. Similarly, there can be no
assurance that historical rates of production, grades of ore processed, rates of
recoveries or mining cash costs will not experience fluctuations or differ
significantly from current levels over the course of the mining operations
conducted by the Company.
In addition, there can be no assurance that the Company will be
able to continue to extend the production from its current operations through
exploration and drilling programs.
Infrastructure
Mining, processing,
development and exploration activities depend, to one degree or another, on
adequate infrastructure. Reliable roads, bridges, power sources and water supply
are important determinants, which affect capital and operating costs. The lack
of availability on acceptable terms or the delay in the availability of any one
or more of these items could prevent or delay exploitation or development of the
Company’s projects. If adequate infrastructure is not available in a timely
manner, there can be no assurance that the exploitation or development of the
Company’s projects will be commenced or completed on a timely basis, if at all;
the resulting operations will achieve the anticipated production volume, or the
construction costs and ongoing operating costs associated with the exploitation
and/or development of the Company’s advanced projects will not be higher than
anticipated. In addition, unusual or infrequent weather phenomena, sabotage,
government or other interference in the maintenance or provision of such
infrastructure could adversely affect the Company’s operations and
profitability.
11
Endeavour Silver Corp.
Exploration and Development
There is no
assurance given by the Company that its exploration and development programs and
properties will result in the discovery, development or production of a
commercially viable ore body or yield new reserves to replace or expand current
reserves.
The business of exploration for minerals and mining involves a
high degree of risk. Few properties that are explored are ultimately developed
into producing mines. At this time, other than the mineral reserves on the
Company’s Guanacevi Mines Project, Bolañitos Mines Project and El Cubo Mine,
none of the Company’s properties have any defined ore-bodies with proven
reserves.
The economics of developing silver, gold and other mineral
properties are affected by many factors including capital and operating costs,
variations of the tonnage and grade of ore mined, fluctuating mineral markets,
and such other factors as government regulations, including regulations relating
to royalties, allowable production, importing and exporting of minerals and
environmental protection. Depending on the prices of silver, gold or other
minerals produced, the Company may determine that it is impractical to commence
or continue commercial production.
Substantial expenditures are required to discover an ore-body,
to establish reserves, to identify the appropriate metallurgical processes to
extract metal from ore, and to develop the mining and processing facilities and
infrastructure. The marketability of any minerals acquired or discovered may be
affected by numerous factors which are beyond the Company’s control and which
cannot be accurately foreseen or predicted, such as market fluctuations,
conditions for precious and base metals, the proximity and capacity of milling
and smelting facilities, and such other factors as government regulations,
including regulations relating to royalties, allowable production, importing and
exporting minerals and environmental protection. In order to commence
exploitation of certain properties presently held under exploration concessions,
it is necessary for the Company to apply for an exploitation concession. There
can be no guarantee that such a concession will be granted. Unsuccessful
exploration or development programs could have a material adverse impact on the
Company’s operations and profitability.
Calculation of Reserves and Resources and Precious Metal
Recoveries
There is a degree of uncertainty attributable to the
calculation and estimation of reserves and resources and their corresponding
metal grades to be mined and recovered. Until reserves or resources are actually
mined and processed, the quantities of mineralization and metal grades must be
considered as estimates only. Any material change in the quantity of mineral
reserves, mineral resources, grades and recoveries may affect the economic
viability of the Company’s properties.
Decreases in the market price of silver or gold may
render the mining of reserves uneconomic.
The mineral resource and
reserve figures included in the AIF and the documents incorporated by reference
are estimates, which are, in part, based on forward-looking information, and no
assurance can be given that the indicated level of silver and gold will be
produced. Factors such as metal price fluctuations, increased production costs
and reduced recovery rates may render the present proven and probable reserves
unprofitable to develop at a particular site or sites for periods of time.
The NI 43-101 technical reports in respect of the Guanacevi
Mines, the Bolanitos Mines and the El Cubo Mine assume the following metal
prices: $16 per ounce for silver and $1,200 per ounce for gold. The Terronera
PEA assumes the following metal prices in the base case plan: $18 per ounce for
silver and $1,260 per ounce for gold. Mineral reserve and resource estimates
would be lower than estimated to the extent that actual metal prices are lower
than assumed.
12
Endeavour Silver Corp.
Replacement of Reserves and Resources
The
Guanaceví, Bolañitos and El Cubo mines are the Company’s only current sources of
mineral production. Current life-of-mine plans provide for a defined production
life for mining at the Company’s mines. The Bolañitos mine has an expected mine
life of less than two years based on current proven and probable reserves and
production levels. If the Company’s mineral reserves and resources are not
replaced either by the development or discovery of additional reserves and/or
extension of the life-of-mine at its current operating mines or through the
acquisition or development of an additional producing mine, this could have an
adverse impact on the Company’s future cash flows, earnings, financial
performance and financial condition, including as a result of requirements to
expend funds for reclamation and decommissioning.
Acquisition Strategy
As part of the Company’s
business strategy, it has sought and will continue to seek new mining and
development opportunities in the mining industry. In pursuit of such
opportunities, it may fail to select appropriate acquisition candidates,
negotiate appropriate acquisition terms, conduct sufficient due diligence to
determine all related liabilities or to negotiate favourable financing terms.
The Company may encounter difficulties in transitioning the business, including
issues with the integration of the acquired businesses or its personnel into the
Company. The Company cannot assure that it can complete any acquisition or
business arrangement that it pursues, or is pursuing, on favourable terms, or
that any acquisitions or business arrangements completed will ultimately benefit
its business.
Integration of New Acquisitions
The Company’s
success at completing any acquisitions will depend on a number of factors,
including, but not limited to: identifying acquisitions which fit the Company’s
strategy; negotiating acceptable terms with the seller of the business or
property to be acquired; and obtaining approval from regulatory authorities in
the jurisdictions of the business or property to be acquired.
The positive effect on the Company’s results arising from past
and future acquisitions will depend on a variety of factors, including, but not
limited to: assimilating the operations of an acquired business or property in a
timely and efficient manner including the existing work force, union
arrangements and existing contracts; maintaining the Company’s financial and
strategic focus while integrating the acquired business or property;
implementing uniform standards, controls, procedures and policies at the
acquired business, as appropriate; and to the extent that the Company makes an
acquisition outside of markets in which it has previously operated, conducting
and managing operations in a new operating environment and under a new
regulatory regime where it has no direct experience.
Past and future business or property acquisitions could place
increased pressure on the Company’s cash flow if such acquisitions involve cash
consideration or the assumption of obligations requiring cash payments. The
integration of the Company’s existing operations with any acquired business will
require significant expenditures of time, attention and funds. Achievement of
the benefits expected from consolidation would require the Company to incur
significant costs in connection with, among other things, implementing financial
and planning systems. The Company may not be able to integrate the operations of
a recently acquired business or restructure the Company’s previously existing
business operations without encountering difficulties and delays. In addition,
this integration may require significant attention from the Company’s management
team, which may detract attention from the Company’s day-to-day operations. Over
the short-term, difficulties associated with integration could have a material
adverse effect on the Company’s business, operating results, financial condition
and the price of the Company’s common shares. In addition, the acquisition of
mineral properties may subject the Company to unforeseen liabilities, including
environmental liabilities.
13
Endeavour Silver Corp.
Foreign Operations
The Company’s operations
are currently conducted through subsidiaries principally in Mexico and, as such,
its operations are exposed to various levels of political, economic and other
risks and uncertainties which could result in work stoppages, blockades of the
Company’s mining operations and appropriation of assets. Some of the Company’s
operations are located in areas where Mexican drug cartels operate. These risks
and uncertainties vary from region to region and include, but are not limited
to, terrorism; hostage taking; local drug gang activities; military repression;
expropriation; extreme fluctuations in currency exchange rates; high rates of
inflation; labour unrest; the risks of war or civil unrest; renegotiation or
nullification of existing concessions, licenses, permits and contracts; illegal
mining; changes in taxation policies; restrictions on foreign exchange and
repatriation; and changing political conditions, currency controls and
governmental regulations that favour or require the awarding of contracts to
local contractors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction.
Local opposition to mine development projects could arise in
Mexico, and such opposition could be violent. There can be no assurance that
such local opposition will not arise with respect to the Company’s Mexican
operations. If the Company were to experience resistance or unrest in connection
with its Mexican operations, it could have a material adverse effect on its
operations and profitability. To the extent the Company acquires mineral
properties in jurisdictions other than Mexico, it may be subject to similar and
additional risks with respect to its operations in those jurisdictions.
Government Regulation
The Company’s
operations, exploration and development activities are subject to extensive
foreign federal, state and local laws and regulations governing such matters as
environmental protection, management and use of toxic substances and explosives,
management of natural resources, health, exploration and development of mines,
production and post-closure reclamation, safety and labour, mining law reform,
price controls import and export laws, taxation, maintenance of claims, tenure,
government royalties and expropriation of property. There is no assurance that
future changes in such regulation, if any, will not adversely affect the
Company’s operations. The activities of the Company require licenses and permits
from various governmental authorities.
The costs associated with compliance with these laws and
regulations are substantial and possible future laws and regulations, changes to
existing laws and regulations and more stringent enforcement of current laws and
regulations by governmental authorities, could cause additional expenses,
capital expenditures, restrictions on or suspensions of the Company’s operations
and delays in the development of its properties. Moreover, these laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety practices of the Company’s past and current
operations, or possibly even those actions of parties from whom the Company
acquired its mines or properties, and could lead to the imposition of
substantial fines, penalties or other civil or criminal sanctions. The Company
retains competent and well trained individuals and consultants in jurisdictions
in which it does business, however, even with the application of considerable
skill the Company may inadvertently fail to comply with certain laws. Such
events can lead to financial restatements, fines, penalties, and other material
negative impacts on the Company.
Mexican Foreign Investment and Income Tax Laws
On October 31, 2013, the Mexican Tax Reform package was approved by
the Mexican Congress and it came into effect on January 1, 2014. This law
applies on a prospective basis and is expected to affect the future earnings of
the Company’s operations in Mexico. The Company has taken the position that the
7.5% mining royalty is an income tax in accordance with IFRS for financial
reporting purpose, as it is based on a measure of revenue less certain specified
costs. On substantial enactment, a taxable temporary difference arises, as
property, plant and equipment and exploration and evaluation assets have book
basis but no tax basis for purposes of the royalty.
14
Endeavour Silver Corp.
In December 2012, the Mexican government amended federal labour
laws with respect to the use of service companies, subcontracting arrangements
and the obligation to compensate employees with appropriate profit-sharing in
Mexico. While the Company believes it is probable that these amended labour laws
will not result in any material obligation or additional profit-sharing
entitlements for its Mexican employees, there can be no assurance that this will
continue to be the case.
Any developments or changes in such legal, regulatory or
governmental requirements as described above or otherwise are beyond the control
of the Company and may adversely affect its business.
Mexican Tax Assessments
As disclosed under
“Legal Proceedings” on page 54 and 55, a subsidiary of the Company in Mexico has
received a tax assessment from Mexican fiscal authorities.
In June 2015, the Superior Court ruled in favour of MSCG on a
number of the matters under appeal; however, the Superior Court ruled against
MSCG for failure to provide appropriate support for certain deductions taken in
MSCG’s 2006 tax return. An assessment by the Tax Court was made, however the Tax
Court did not follow the Superior Court directive as required by law. Therefore
the Company filed another Nullity action for the Tax Court to follow the
Superior Court directive during the year. The Company expects the Tax Court to
make a final assessment based on the Superior Court directive in 2017. The
Company estimates the impact of the Superior Court ruling will result in an
additional tax expense of MXN 31.7 million (~USD $1.8 million) to MSCG for
fiscal 2006 when the Tax Court rules on a final assessment. As of December 31,
2015, the Company estimates additional interest and penalties payable on overdue
taxes by MSCG to be MXN 65.7 million (~USD $3.8 million). If MSCG agrees to pay
the tax assessment, or a lesser settled amount, it is eligible to apply for
forgiveness of 100% of the penalties and 50% of the interest, with the latter
amounting to MXN 22.6 million (~USD $1.3 million) on the MXN 31.7 million
estimated tax assessment.
Included in the Company’s consolidated financial statements,
are net assets of $240,000, including $42,000 in cash, of MSCG. Following the
Tax Court’s rulings, MSCG is in discussions with the tax authorities with
regards to the shortfall of assets within MSCG to settle its estimated tax
liability. An alternative settlement option would be to transfer the shares and
assets of MSCG to the tax authorities. As of September 30, 2015, the Company
recognized an allowance for transferring the shares and assets of MSCG amounting
to $240,000. The Company is currently assessing MSCG’s settlement options,
however the Tax Court assessment must be received before any negotiation can be
finalized or a decision is made.
While the Company is of the view that the tax assessment has no
legal merit and is contesting it, there is no assurance that the Company will be
successful or that the Company will not have to pay the full amount of the
assessment plus interest and penalties. If the Company is unsuccessful this
could negatively impact the Company’s financial position and create difficulties
for the Company in dealing with Mexican fiscal authorities in the future. As a
result of a detailed review of the Company’s financial information and delivery
of appropriate requested documents to the Mexican fiscal authorities, the
Company has estimated that there is no material potential tax exposure arising
under the assessment.
Obtaining and Renewing of Government Permits
In the ordinary course of business, the Company is required to
obtain and renew government permits for the operation and expansion of existing
operations or for the development, construction and commencement of new
operations. Obtaining or renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions and possibly
involving public hearings and costly undertakings on the Company’s part. The
duration and success of the Company’s efforts to obtain and renew permits are
contingent upon many variables not within its control including the
interpretation of applicable requirements implemented by the permitting
authority.
15
Endeavour Silver Corp.
The Company may not be able to obtain or renew permits that are
necessary to its operations, or the cost to obtain or renew permits may exceed
what the Company believes it can recover from a given property once in
production. Any unexpected delays or costs associated with the permitting
process could delay the development or impede the operation of a mine, which
could adversely impact the Company’s operations and profitability.
Environmental Factors
All phases of the
Company’s operations are subject to environmental regulation in the various
jurisdictions in which it operates. Environmental legislation is evolving in a
manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. There is no assurance that any future
changes in environmental regulation will not adversely affect the Company’s
operations. The costs of compliance with changes in government regulations have
the potential to reduce the profitability of future operations. Environmental
hazards that may have been caused by previous or existing owners or operators
may exist on the Company’s mineral properties, but are unknown to the Company at
present.
Title to Assets
Although the Company has or
will receive title opinions for any properties in which it has a material
interest, there is no guarantee that title to such properties will not be
challenged or impugned. The Company has not conducted surveys of the claims in
which it holds direct or indirect interests and, therefore, the precise area and
location of such claims may be in doubt. The Company’s claims may be subject to
prior unregistered agreements or transfers or native land claims and title may
be affected by unidentified or unknown defects. The Company has conducted as
thorough an investigation as possible on the title of properties that it has
acquired or will be acquiring to be certain that there are no other claims or
agreements that could affect its title to the concessions or claims. If title to
the Company’s properties is disputed it may result in the Company paying
substantial costs to settle the dispute or clear title and could result in the
loss of the property, which events may affect the economic viability of the
Company.
Employee Recruitment and Retention
Recruiting
and retaining qualified personnel is critical to the Company’s success. The
Company is dependent on the services of key executives including the Company’s
President and Chief Executive Officer and other highly skilled and experienced
executives and personnel focused on managing the Company’s interests. The number
of persons skilled in acquisition, exploration, development and operation of
mining properties are limited and competition for such persons is intense. As
the Company’s business activity grows, the Company will require additional key
financial, administrative and mining personnel as well as additional operations
staff. We could experience increases in our recruiting and training costs and
decreases in our operating efficiency, productivity and profit margins. If we
are not able to attract, hire and retain qualified personnel, the efficiency of
our operations could be impaired, which could have an adverse impact on the
Company’s future cash flows, earnings, financial performance and financial
condition.
Potential Conflicts of Interest
The directors
and officers of the Company may serve as directors and/or officers of other
public and private companies, and may devote a portion of their time to manage
other business interests. This may result in certain conflicts of interest.
To the extent that such other companies may participate in
ventures in which the Company is also participating, such directors and officers
of the Company may have a conflict of interest in negotiating and reaching an
agreement with respect to the extent of each company’s participation. The laws
of British Columbia, Canada, require the directors and officers to act honestly,
in good faith, and in the best interests of the Company and its shareholders.
However, in conflict of interest situations, directors and officers of the
Company may owe the same duty to another company and will need to balance the
competing obligations and liabilities of their actions.
16
Endeavour Silver Corp.
There is no assurance that the needs of the Company will
receive priority in all cases. From time to time, several companies may
participate together in the acquisition, exploration and development of natural
resource properties, thereby allowing these companies to: (i) participate in
larger properties and programs; (ii) acquire an interest in a greater number of
properties and programs; and (iii) reduce their financial exposure to any one
property or program. A particular company may assign, at its cost, all or a
portion of its interests in a particular program to another affiliated company
due to the financial position of the company making the assignment.
In determining whether or not the Company will participate in a
particular program and the interest therein to be acquired by it, it is expected
that the directors and officers of the Company will primarily consider the
degree of risk to which the Company may be exposed and its financial position at
that time.
Third Party Reliance
The Company’s rights to
acquire interests in certain mineral properties have been granted by third
parties who themselves may hold only an option to acquire such properties. As a
result, the Company may have no direct contractual relationship with the
underlying property holder.
Absolute Assurance on Financial Statements
We
prepare our financial reports in accordance with accounting policies and methods
prescribed by International Financial Reporting Standards. In the preparation of
financial reports, management may need to rely upon assumptions, make estimates
or use their best judgment in determining the financial condition or results of
operations of the Company. Significant accounting details are described in more
detail in the notes to our annual consolidated financial statements for the year
ended December 31, 2015. In order to have a reasonable level of assurance that
financial transactions are properly authorized, assets are safeguarded against
unauthorized or improper use and transactions are properly recorded and
reported, we have implemented and continue to analyze our internal control
systems for financial reporting. Although we believe our financial reporting and
financial statements are prepared with reasonable safeguards to ensure
reliability, we cannot provide absolute assurance in that regard.
General Economic Conditions
The unprecedented
events in global financial markets during the last few years have had a profound
effect on the global economy. Many industries, including the gold and silver
mining industry, are affected by these market conditions. Some of the key
effects of the current financial market turmoil include contraction in credit
markets resulting in a widening of credit risk, devaluations and high volatility
in global equity, commodity, foreign exchange and precious metal markets, and a
lack of market liquidity. A continued or worsened slowdown in the financial
markets or other economic conditions, including but not limited to, consumer
spending, employment rates, business conditions, inflation, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect the
Company’s growth and profitability.
Specifically:
-
the volatility of gold and silver prices
affects our revenues, profits and cash flow;
-
volatile energy prices,
commodity and consumables prices and currency exchange rates affect our
production costs; and
-
the devaluation and volatility of global stock
markets affects the valuation of our equity securities.
These factors could have a material adverse effect on the
Company’s financial condition and financial performance.
17
Endeavour Silver Corp.
Substantial Volatility of Share Price
The
market prices for the securities of mining companies, including our own, have
historically been highly volatile. The market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of any particular company. In addition, because of the nature of our
business, certain factors such as our announcements and the public’s reaction,
our operating performance and the performance of competitors and other similar
companies, fluctuations in the market prices of our resources, government
regulations, changes in earnings estimates or recommendations by research
analysts who track our securities or securities of other companies in the
resource sector, general market conditions, announcements relating to
litigation, the arrival or departure of key personnel and the risk factors
described in this AIF can have an adverse impact on the market price of the
Common Shares. Any negative change in the public’s perception of Endeavour’s
prospects could cause the price of our securities, including the price of our
Common Shares, to decrease dramatically. Furthermore, any negative change in the
public’s perception of the prospects of mining companies in general could
depress the price of our securities, including the price of our Common Shares,
regardless of our results. Following declines in the market price of a company’s
securities, securities class-action litigation is often instituted. Litigation
of this type, if instituted, could result in substantial costs and a diversion
of our management’s attention and resources.
Need for additional financing
The Company’s
current cash and cash-flows may not be sufficient to pursue additional
exploration, development or discovery of additional reserves, extension to
life-of-mines or new acquisitions and, therefore, the Company may require
additional financing. Additional financing may not be available on acceptable
terms, if at all. The Company may need additional financing by way of private or
public offerings of equity or debt or the sale of project or property interests
in order to have sufficient working capital for its business objectives, as well
as for general working capital purposes.
The success and the pricing of any such capital raising and/or
debt financing will be dependent upon the prevailing market conditions at that
time. There can be no assurance that financing will be available to the Company
or, if it is available, that it will be offered on acceptable terms. If
additional financing is raised through the issuance of equity or convertible
debt securities of the Company, this may negatively impact the price of the
Common Shares and the interests of shareholders in the net assets of the Company
may be diluted.
Differences in U.S. and Canadian reporting of mineral
reserves and resources
The Company’s mineral reserve and resource
estimates are not directly comparable to those made in filings subject to SEC
reporting and disclosure requirements as the Company generally reports mineral
reserves and resources in accordance with Canadian practices. These practices
are different from those used to report mineral reserve and resource estimates
in reports and other materials filed with the SEC. It is Canadian practice to
report measured, indicated and inferred resources, which are not permitted in
disclosure filed with the SEC by United States issuers. Under SEC rules,
mineralization may not be classified as a "reserve" unless the determination has
been made that the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. United States investors
are cautioned not to assume that all or any part of measured or indicated
resources will ever be converted into reserves.
Further, "inferred mineral resources" have a great amount of
uncertainty as to their existence and as to whether they can be mined legally or
economically. Disclosure of "contained ounces" is permitted disclosure under
Canadian regulations; however, the SEC 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 of metal
measures.
Accordingly, information concerning descriptions of
mineralization, reserves and resources contained in this AIF, or in the
documents incorporated herein by reference, may not be comparable to information
made public by United States companies subject to the reporting and disclosure
requirements of the SEC.
18
Endeavour Silver Corp.
Material weaknesses in the internal control over
financial reporting
In connection with the audit of the Company’s
consolidated financial statements for the year ended December 31, 2014, the
auditors discovered a material weakness related to the Company’s ineffective
management review of the recording of the impairment of long-lived assets and
related financial statement disclosures, specifically related to the circular
impact on deferred income taxes. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
Pursuant to the material weakness identified and disclosed as
of December 31, 2014 and due to the inherent complexities in valuing long-lived
assets, the Company remediated its internal controls by engaging as a consultant
a professional valuation company with experience and knowledge in assessing the
financial impact of impairments and will consult with such professional if there
are any future impairments. In addition, no assurance can be provided that the
Company has identified all of its existing significant deficiencies and material
weaknesses, or that it will not in the future have additional significant
deficiencies or material weaknesses. Section 404 of the U.S. Sarbanes-Oxley Act
(“SOX”) requires an annual assessment by management of the effectiveness
of the Company’s internal control over financial reporting and an attestation
report by the independent auditor addressing this assessment. The Company’s
failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely
basis could result in the loss of investor confidence in the reliability of the
Company’s financial statements, which in turn could harm the business and
negatively affect the trading price of the Common Shares. In addition, any
failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm the Company’s operating results
or cause us to fail to meet reporting obligations. Future acquisitions of
companies may also provide the Company with challenges in implementing the
required processes, procedures and controls in its acquired operations. Acquired
companies may not have disclosure controls and procedures or internal control
over financial reporting that are as thorough or effective as those required by
securities laws currently applicable the Company.
In addition, no evaluation can provide complete assurance that
the internal control over financial reporting will detect or uncover all
failures of persons within the Company to disclose material information required
to be reported. The effectiveness of the Company’s controls and procedures could
also be limited by simple errors or faulty judgments. In addition, as the
Company expands, the challenges involved in implementing appropriate internal
control over financial reporting will increase and will require that it continue
to improve the internal control over financial reporting. Although the Company
intend to devote substantial time and incur substantial costs, as necessary, to
ensure ongoing compliance, it cannot be certain that it will be successful in
complying with Section 404 of SOX.
Company’s Credit Facility with the Bank of Nova Scotia
The Company has a Facility with Scotiabank (terms as defined under
Item 14.1 Material Contracts). The Facility requires the Company to make certain
interest payments, provide a first-ranking security interest over all of its
assets and also contains a number of covenants that impose significant operating
and financial restrictions on the Company and may limit the Company’s ability to
engage in acts that may be in its long-term best interest.
If the Company’s cash flows and cash and cash equivalents are
insufficient to fund its debt service obligations, including repayment or
renewal of the Facility at the end of its term, the Company could face liquidity
problems and could be forced to seek amendments to the Facility, or reduce or
delay investments and capital expenditures, dispose of material assets or
operations, seek additional debt or equity capital or restructure or refinance
the Company’s indebtedness, including the Facility. The Company may not be able
to affect any such alternative measures on commercially reasonable terms or at
all and, even if successful, those alternatives may not allow the Company to
meet its scheduled debt service obligations. There can be no certainty that the
Company will be able to repay or renew the Facility at maturity and the failure
to do so would have a material adverse effect on the Company.
19
Endeavour Silver Corp.
In addition, a breach of the covenants under the Facility could
result in an event of default under the applicable indebtedness. Such a default
may allow the creditors to accelerate the related debt, and may result in the
acceleration of any other debt to which a cross acceleration or cross default
provision applies. In the event a lender accelerates the repayment of the
Company’s borrowings, the Company may not have sufficient assets to repay its
indebtedness. The security interests provided by the Company under the Facility
may adversely affect the Company’s ability to secure other types of financing.
As a result of the security interests granted to the Scotiabank, any default
under Facility including any covenants thereunder, could result in the loss of
the Company’s entire interest in its material assets.
Potential dilution of present and prospective
shareholdings
In order to finance future operations and development
efforts, the Company may raise funds through the issue of common shares or the
issue of securities convertible into common shares. The Company cannot predict
the size of future issues of common shares or the issue of securities
convertible into common shares or the effect, if any, that future issues and
sales of the Company’s common shares will have on the market price of its common
shares. Any transaction involving the issue of shares, or securities convertible
into shares, could result in dilution, possibly substantial, to present and
prospective holders of shares.
Lack of Dividends
The Company has never
declared or paid any dividends on the Common Shares. Endeavour intends, for the
foreseeable future, to retain its future earnings, if any, to finance its
exploration activities and further development and the expansion of the
business. The payment of future dividends, if any, will be reviewed periodically
by the Board of Directors of Endeavour and will depend upon, among other things,
conditions then existing including earnings, financial conditions, cash on hand,
financial requirements to fund our exploration activities, development and
growth, and other factors that the Board may consider appropriate in the
circumstances.
Future Sales of Common Shares by Existing Shareholders
Sales of a large number of the Company’s common shares in the public
markets, or the potential for such sales, could decrease the trading price of
the common shares and could impair the Company’s ability to raise capital
through future sales of common shares.
Claims Under U.S. Securities Laws
The
enforcement by investors of civil liabilities under the federal securities laws
of the United States may be affected adversely by the fact that the Company is
incorporated under the laws of British Columbia, Canada, that the independent
registered chartered accountants who have audited the Company’s financial
statements and some or all of the Company’s directors and officers may be
residents of Canada or elsewhere, and that all or a substantial portion of the
Company’s assets and said persons are located outside the United States. As a
result, it may be difficult for holders of the Company’s common shares to effect
service of process within the United States upon people who are not residents of
the United States or to realize in the United States upon judgments of courts of
the United States predicated upon civil liabilities under the federal securities
laws of the United States
Financial Instruments
From time to time, the
Company may use certain financial instruments to manage the risks associated
with changes in silver prices, interest rates and foreign currency exchange
rates. The use of financial instruments involves certain inherent risks
including, among other things: (i) credit risk, the risk of default on amounts
owing to the Company by the counterparties with which Company has entered into
such transaction; (ii) market liquidity risk, the risk that the Company has
entered into a position that cannot be closed out quickly, either by liquidating
such financial instrument or by establishing an offsetting position; (iii)
unrealized mark-to-market risk, the risk that, in respect of certain financial
instruments, an adverse change in market prices for commodities, currencies or
interest rates will result in the Company incurring an unrealized mark-to-market
loss in respect of such derivative products.
20
Endeavour Silver Corp.
Financial Reporting Standards
The Company
prepares its financial reports in accordance with IFRS applicable to publicly
accountable enterprises effective January 1, 2011. In preparation of financial
reports, management may need to rely upon assumptions, make estimates or use
their best judgment in determining the financial condition of the Company.
Significant accounting policies are described in more detail in the Company’s
audited financial statements. In order to have a reasonable level of assurance
that financial transactions are properly authorized, assets are safeguarded
against unauthorized or improper use, transactions are properly recorded and
reported and the Company has implemented and continues to analyze its internal
control systems for financial reporting. Although the Company believes its
financial reporting and financial statements are prepared with reasonable
safeguards to ensure reliability, the Company cannot provide absolute assurance.
4.3
Asset-Backed Securities Outstanding
The Company has not issued any asset-backed securities.
4.4
Mineral Projects
To satisfy the reporting requirements of National Instrument
51-102F2 with respect to the Company’s mineral projects, the Company has opted,
as permitted by the Instrument, to reproduce the summaries from the technical
reports on the respective material properties.
Guanacevi Mines Project, Durango State,
Mexico
The following summary of the Guanacevi Mines Project is
extracted from a technical report titled “NI 43-101 Technical Report Updated
Mineral Resource and Reserve Estimates for the Guanacevi Project, Durango State,
Mexico” prepared by Hard Rock Consulting LLC, with an effective date of
December 31, 2015 and dated March 3, 2016]. The complete report can be
viewed on SEDAR at www.sedar.com. The technical report is incorporated by
reference in its entirety into this AIF.
SUMMARY
Introduction
Hard Rock Consulting, LLC (“HRC”) was retained by Endeavour
Silver Corp. (“EDR”) to complete an independent technical audit and to update
the mineral resource and reserve estimates for the Guanaceví Project (the
“Project”) located in Durango State, Mexico. This report presents the results of
HRC’s efforts, and is intended to fulfill the Standards of Disclosure for
Mineral Projects according to Canadian National Instrument 43-101 (“NI 43-101”).
This report was prepared in accordance with the requirements and guidelines set
forth in Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the
mineral resources and reserves presented herein are classified according to
Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition
Standards - For Mineral Resources and Mineral Reserves, prepared by the CIM
Standing Committee on Reserve Definitions and adopted by CIM Council on May 10,
2014. The mineral resource and mineral reserve estimates reported here are based
on all available technical data and information as of December 31, 2015.
21
Endeavour Silver Corp.
Property Description and Ownership
The Guanaceví Project is located in the northwest portion of
the Mexican state of Durango, approximately 3.6 km west of the town of Guanaceví
and 260 km northwest of the capital city of Durango. The approximate geographic
center of the Project is 105°58'20"W longitude and 25°54'47"N latitude. At
present, the Project is comprised of 51 mineral concessions for a total property
area of 4,171.5546 ha.
EDR controls the Guanaceví Project through its 100% owned
Mexican subsidiary, Endeavour Gold Corporation S.A. de C.V. (Endeavour Gold).
Endeavour Gold holds the project through its two 100% owned subsidiaries, Minera
Plata Adelante S.A. de C.V. (Minera Plata Adelante) and Refinadora Plata
Guanaceví S.A. de C.V. (Refinadora Plata Guanaceví).
Geology and Mineralization
The Guanaceví silver-gold district hosts classic, high-grade
silver-gold, epithermal vein deposits characterized by low sulphidation
mineralization and adularia-sericite alteration. The Guanaceví veins are typical
of most other epithermal silver-gold vein deposits in Mexico in that they are
primarily hosted in the Tertiary Lower Volcanic series of andesite flows,
pyroclastics and epiclastics, overlain by the Upper Volcanic series of rhyolite
pyroclastics and ignimbrites. Evidence is accumulating in the Guanaceví mining
district that the mineralization is closely associated with a pulse of silicic
eruptions that either signaled the end of Lower Volcanic Sequence magmatism or
the onset of Upper Volcanic Sequence activity.
Mineralization at Guanaceví occurs in association with an
epithermal low sulphidation, quartz-carbonate, fracture-filling vein hosted by a
structure trending approximately N45°W, dipping 55° southwest. The Santa Cruz
vein is the principal host of silver and gold mineralization at Guanaceví, and
is located on the west side of the horst of the Guanaceví Formation. The
mineralized vein is part of a major fault system that trends northwest and
principally places the Guanaceví Formation in the footwall against andesite
and/or rhyolite in the hanging wall. The fault and vein comprise a structural
system referred to locally as the Santa Cruz vein structure or Santa Cruz vein
fault. The Santa Cruz vein itself has been traced for 5 km along trend, and
averages approximately 3.0 m in width. High-grade mineralization in the system
is not continuous, but occurs in steeply northwest-raking shoots up to 200 m in
strike length. A secondary mineralized vein is located sub-parallel and
subjacent to the Santa Cruz vein, in the footwall, and while less continuous is
economically significant in the Porvenir Dos and North Porvenir portions of the
Project.
Status of Exploration
In 2015, EDR spent US $1,548,683 (including property holding
costs) on exploration activities, including drilling, at the Guanaceví Project.
Local field exploration activities in 2015 included geological mapping,
sampling, and interpretation in the La Guirnalda, Santa Cruz West, and Garibaldi
claim areas. Regional field exploration was conducted over several concessions
peripheral to the Guanaceví Project, and included collection and analysis of a
total of 1, 011 rock samples.
In 2015, EDR conducted a surface drilling program mainly
focused on exploring the Santa Cruz vein in the shallow portion of the Porvenir
Comedor area and the eastern portion of the Santa Cruz mine (Santa Cruz East). A
total of 5,002.60 m were drilled in 17 holes. In 2015, underground drilling
conducted at Guanaceví was focused on exploring the Santa Cruz Vein at depth in
the North Porvenir and Santa Cruz mines. Underground drilling was also completed
at the Porvenir 4 mine in order to test the Santa Cruz vein at depth and to test
the secondary Veta Nueva vein, located in the footwall of the Santa Cruz vein.
The underground drilling program included a total of 4,547 m drilled in 22
holes.
22
Endeavour Silver Corp.
Since acquisition of the Guanaceví Project in 2004, through
December 31, 2015, EDR has completed 690 diamond drill holes totaling 191,116 m
and 22 reverse circulation drill holes totaling 2,977 m on the entire Guanaceví
Mines Project. Of this total, approximately 147,718 m of diamond drilling in 504
holes have been completed on the Santa Cruz vein structure. Holes were drilled
from both surface and underground drill stations, and 54,799 samples have been
collected and submitted for assay.
Development and Operations
Conventional cut and fill mining or by long hole stope methods
are employed at Guanaceví. Cut and fill stopes are generally 15m long and 5m
high, and long hole stopes are 15m long and 20m high. Access to the stoping
areas is provided by a series of primary and secondary ramps located in the
footwall. The ramps have grades from minus 15% to plus 12%, with plus or minus
12% as standard. The cross-cuts are 4 m by 4 m for the primary ramps and 3.5 m
by 3.5 m for the secondary ramps.
In the upper parts of the mine, stope access is by short (10m
to 40m) cross-cuts from the ramp to the vein/stope. These cross-cuts are
generally 3.5m by 3.5m in cross-section and are usually driven down at minus 18%
to intersect with the stope. As the stope advances up-dip on the vein, the back
is taken down the cross-cuts to maintain access until the cross-cut reaches a
maximum inclination of 15%. In the lower parts of the mine (below the water
table) stope access is by 90m long cross-cuts to the vein/stope. The cross-cuts
are generally 3.0m by 3.5m in cross-section and are driven at plus 1% to
intersect the stope (for water drainage). As the stope advances up-dip on the
vein, the back is taken down in these cross-cuts to maintain access until the
cross-cut reaches a maximum inclination of plus 15%.
Mining in the stopes is done with jackleg drills. Back cuts are
taken 2m to 2.5m high via vertical up-hole drilling or by breasting. The broken
material is mucked out using scooptrams (2 yard or 3.5 yard depending on vein
width). Waste fill from mine development is placed in the stope by the same
scooptrams to within 2 m to 2.5 m of the back. When the vein is less than
minimum mining width, the footwall is slashed to provide adequate width. This
slashing is done during the fill cycle and the slashed material remains in the
stope as fill.
In 2015, stope production in the deep Porvenir North mine
concentrated on the 3134 levels. The 4122 ramp was also continued over to the
3123 level stopes (Upper North Porvenir). In the Central Porvenir mine
development of the 4114 (+) ramp generated three new levels: 3145-2, 3146-2 and
3147-2. Stope production came from the 3147-2 and 3146-2 utilizing long hole
stoping. In the Santa Cruz mine, the development of the main ramp to access the
deepest levels is currently in progress. The ramp has reached the 3359 level’s
north and south principal veins and 3160 level. Lateral ramps to the 3159-2
north and south extension are in progress and the 3160-2 ramp is advancing.
During 2015 the 4118 (+) ramp was also advanced opening up the XC-7-2, XC-9-2,
3151 and upper levels. Other important developments in ore or on structure were
completed on the far south 3356, 3357, 3358 and 3359 levels. Stope production
came from the 3351, 3353, 3354, 3355, 3357, 3358 and 3359 by either long hole or
cut and fill mining.
Development of the main ramp at Porvenir 4 continued to reach
the 3358 main production zone. Development in ore was completed on the 3507,
3508 B (Bajo) levels. Stope production came from the 3504, 3506, 3507 and 3508 B
(Bajo). Total mine reported production for 2015 was 431,431 tonnes at 295 g/t Ag
and 0.62 g/t Au.
As of December 31, 2015, the Guanaceví mines project had a
roster of 542 employees and an additional 128 contractors. The mine operates on
two 10-hour shifts, 7 days a week, whereas the mill operates on a 24/7 schedule.
23
Endeavour Silver Corp.
Mineral Resource Estimate
Resource geologist Zachary J. Black, SME-RM, of HRC is
responsible for the mineral resource estimate presented in this report. Mr.
Black is a Qualified Person as defined by NI 43-101, and is independent of EDR.
The mineral resources reported herein are classified as Measured, Indicated and
Inferred according to CIM Definition Standards.
HRC estimated the mineral resource for the Guanaceví Project
based on drillhole data constrained by geologic vein boundaries with an Inverse
Distance Weighted (“ID”) algorithm. Datamine Studio RM® V1.0.73.0 (“Datamine”)
software was used to complete the resource estimate in conjunction with Leapfrog
Geo® V.3.0.0 (“Leapfrog”), which was used to produce the geologic model. The
metals of interest at Guanaceví are gold and silver.
The Guanaceví mineral resource is comprised of 22 individual
veins. The veins are further subdivided by area and modeling method. The mineral
resources have been estimated using either a Vertical Longitudinal Projection
(VLP) polygonal method (4 veins) or as 3-dimensional (“3D”) block model (18
veins).
The resources based on the 2D polygonal methods are estimated
by using a fixed distance VLP from sample points. The VLPs are created by
projecting vein geology and underground workings onto a vertical 2D long
section. The 2D estimates were classified based on the distance to the nearest
sample. Measured mineral resources are the area of the defined resource blocks
within 10 meters of a sample. Indicated mineral resources are the area of the
defined resource blocks within 20 meters of a sample. Inferred mineral resources
are those blocks greater than 20 meters from a sample and have a value for
estimated silver.
HRC constructed the 3D vein models using Leapfrog. Eighteen
veins were modeled using a linear interpolation methodology and sample
intervals. Cross-sections orthogonal to the strike of the vein were used to
select intervals from drillholes representing the vein material. Level sections
were used to select vein material from channel samples. Points representing the
hanging wall and footwall contacts were extracted by the software to interpolate
hanging wall and footwall surfaces. These surfaces were used to delineate each
vein solid. The surfaces were evaluated in 3-dimensions to ensure that both the
down dip and along strike continuity was maintained throughout the model. Veins
were clipped against younger veins, topography, and the concession boundaries.
The mineral resource estimate includes all analytical data
obtained as of December 31, 2015. Mineral resources are not mineral reserves and
may be materially affected by environmental, permitting, legal, socio-economic,
political, or other factors. Mineral resources are reported above a silver
equivalent grade of 182 gpt, assuming a silver price of $17.60 per ounce. HRC
used a cutoff grade to test for reasonable prospects for economic
extraction.
24
Endeavour Silver Corp.
The mineral resources for the Guanaceví mine as of December 31,
2015, are summarized in Table 1-1. The resources are exclusive of the mineral
reserves.
Table 1-1 Mineral Resource Estimate, Effective Date December
31, 2015
| Classification |
Tonnes |
Silver Equivalent |
Silver |
Gold |
| g/t |
g/t |
oz. |
g/t |
oz. |
| Measured |
181,500 |
342 |
304 |
1,777,309 |
0.53 |
3,097 |
| Indicated |
2,313,100 |
331 |
277 |
20,564,771 |
0.78 |
58,127 |
| Measured + Indicated |
2,494,600 |
332 |
279 |
22,342,080 |
0.76 |
61,224 |
| Inferred |
1,150,600 |
358 |
308 |
11,390,368 |
0.72 |
26,551 |
| Total |
3,645,300 |
340 |
288 |
33,732,449 |
0.75 |
87,775 |
| |
1. |
Measured, Indicated and Inferred resource cut-off grades
were 182 g/t silver equivalent at Guanaceví. |
| |
2. |
Mineral resources are not mineral reserves and do not
have demonstrated economic viability. There is no certainty that all or
any part of the mineral resources estimated will be converted into mineral
reserves. |
| |
3. |
Metallurgical recoveries were 83.5% silver and 86.2%
gold. |
| |
4. |
Silver equivalents are based on a 70:1 silver: gold
ratio |
| |
5. |
Price assumptions are $17.60 per ounce for silver and
$1,260 per ounce for gold for resource cutoff calculations. |
| |
6. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
Mineral Reserve Estimate
Mr. Jeff Choquette, P.E., MMSA-QP, of HRC is responsible for
the mineral reserve estimate presented in this report. Mr. Choquette is
Qualified Person as defined by NI 43-101 and is independent of EDR. The mineral
reserve estimate for EDR’s Guanaceví Project has an effective date of December
31st, 2015. The mineral reserve estimate includes the Santa Cruz and Porvenir
Norte areas of the mine and the ore stockpiles at the mill site. Stope designs
for reporting the mineral reserves were created utilizing the updated resources
and cutoff’s established for 2016. All of the stopes are within readily
accessible areas of the active mining areas. Ore is processed in the on-site
mill, leaching circuit and Merrill Crowe process capable of processing 1,300
tpd.
HRC utilized Datamine’s Mineable Shape Optimizer (“MSO”)
program to generate the stopes for the reserve mine plan. The stopes were
created based solely on Measured and Indicated resources above the calculated
cutoff, which have demonstrated to be economically viable; therefore, Measured
and Indicated mineral resources within the stopes have been converted to Proven
and Probable mineral reserves as defined by CIM. Inferred mineral resources are
classified as waste. Dilution is applied to Measured and Indicated resource
blocks depending on the mining method chosen.
The mining breakeven cut-off grade, which includes internal
stope dilution, was utilized in Datamine’s MSO to generate the stope designs for
defining the reserves. The cut-off is stated as silver equivalent since the
ratio between gold and silver is variable and both commodities are sold. The
average cut-off grade used for the Guanaceví property is 200 g/t Ag equivalent.
Silver equivalent grade is calculated as the silver grade + (gold grade * 70),
taking into account gold and silver prices and expected mill recoveries.
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Endeavour Silver Corp.
Mineral reserves are derived from Measured and Indicated
resources after applying the economic parameters as stated above, and utilizing
Datamine’s MSO program to generate stope designs for the reserve mine plan. The
Guanaceví Project mineral reserves are derived and classified according to the
following criteria:
-
Proven mineral reserves are the economically mineable part of the Measured
resource for which mining and processing / metallurgy information and other
relevant factors demonstrate that economic extraction is feasible. For
Guanaceví Project, this applies to blocks located within approximately 10m of
existing development and for which EDR has a mine plan in place.
-
Probable mineral reserves are those Measured or Indicated mineral resource
blocks which are considered economic and for which EDR has a mine plan in
place. For the Guanaceví mine project, this is applicable to blocks located a
maximum of 35m either vertically or horizontally from development with one
exception in the main lower Santa Cruz vein the maximum distance to
development was extended to 110m as this area is currently being developed.
The Proven and Probable mineral reserves for the Guanaceví mine
as of December 31, 2015 are summarized in Table 1-2. The reserves are exclusive
of the mineral resources reported in Section 14 of this report.
Table 1-2 Mineral Reserve Estimate
Classification |
Tonnes
(t x 1,000) |
AgEq
g/t |
Ag g/t |
Ag (oz)
* 1,000 |
Au g/t |
Au (oz)
* 1,000 |
%
Dilution |
| Proven |
107.4 |
290.1 |
254.0 |
877.2 |
0.52 |
1.78 |
29.9% |
| Probable |
797.9 |
236.1 |
205.0 |
5,260.1 |
0.45 |
11.65 |
25.7% |
| Total Proven and Probable Reserves |
905.3 |
242.5 |
210.8 |
6,137.3 |
0.46 |
13.43 |
26.2%
|
| |
1. |
Reserve cut-off grades are based on a 200 g/t silver
equivalent. |
| |
2. |
Metallurgical Recoveries were 83.5% silver and 86.2%
gold. |
| |
3. |
Mining Recoveries of 95% were applied. |
| |
4. |
Minimum mining widths were 1.4 meters. |
| |
5. |
Dilution factors averaged 26.2%. Dilution factors are
calculated based on internal stope dilution calculations and external
dilution factors of 15% for cut and fill and 30% for long hole. |
| |
6. |
Silver equivalents are based on a 70:1 silver:gold
ratio. |
| |
7. |
Price assumptions are $16 per ounce for silver and $1,150
per ounce for gold. |
| |
8. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
| |
9. |
Figures in table are rounded to reflect estimate
precision; small differences generated by rounding are not material to
estimates. |
Conclusions and Recommendations
The QP considers the Guanaceví resource and reserve estimates
presented here to conform with the requirements and guidelines set forth in
Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the mineral
resources and reserves presented herein are classified according to Canadian
Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards - For
Mineral Resources and Mineral Reserves, prepared by the CIM Standing Committee
on Reserve Definitions and adopted by CIM Council on May 10, 2014. These
resources and reserves form the basis for EDR’s ongoing mining operations at the
Guanaceví Mines Project.
26
Endeavour Silver Corp.
The QP is unaware of any significant technical, legal,
environmental or political considerations which would have an adverse effect on
the extraction and processing of the resources and reserves located at the
Guanaceví Mines Project. Mineral resources which have not been converted to
mineral reserves, and do not demonstrate economic viability shall remain mineral
resources. There is no certainty that all or any part of the mineral resources
estimated will be converted into mineral reserves.
The QP considers that the mineral concessions in the Guanaceví
mining district controlled by EDR continue to be highly prospective both along
strike and down dip of the existing mineralization.
EDR’s Guanaceví Mines Project has an extensive mining history
with well-known silver and gold bearing vein systems. Ongoing exploration has
continued to demonstrate the potential for the discovery of additional resources
at the project and within the district surrounding the mine. Since EDR took
control of the Guanaceví mines Property, new mining areas have enabled EDR to
increase production by providing additional sources of mill feed. EDR’s
operation management teams continue to search for improvements in efficiency,
lowering costs and researching and applying low-cost mining techniques.
For 2016, EDR plans to develop a surface drilling program
focused on the North part of the Pelayo vein, and also the South part of the
Santa Cruz ore body. Also, underground drilling will be conducted with the
objective to determine the extension to depth of the ore bodies at the
Central-North Porvenir and Santa Cruz Mine areas; around 500 m of cross-cuts
will be developed for these programs. Regional Exploration will continue to try
to find possible targets with mineralized zones within 50 km, mainly towards the
Northwest and South parts of the District, to potentially acquire properties for
future growth. The 2016 surface exploration program is planned to include 3,600
m of core in approximately 15 diamond drill holes to test the Pelayo & Santa
Cruz veins. Budgeted cost of the program is US $783,500. The budget cost for the
underground program is US $897,000, the program includes 2,000 m of core to test
the Santa Cruz vein at the deep Porvenir & Santa Cruz mines.
HRC recommends that the continuation of the conversion of all
resources into reserves from 2D polygons to 3D block models be continued. During
2015 considerable progress has been completed on this process. Additional
modeling efforts should be made to define the mineralized brecciated areas as
they have been an import source of economic material encountered in the current
operation, and could provide additional tonnage to support the mine plan.
Currently EDR utilizes the exploration drilling and chip and
muck samples in their resource and reserve calculations. HRC recommends that
future efforts focus on constructing block models for resource and reserve
reporting utilizing only the exploration and underground drilling results. The
chip and muck samples should be used to develop the production model. This will
help in keeping data densities consistent in each modeling effort and allow
another level into the reconciliation process to compare modeling results.
Although the reconciliations conducted by EDR show good
comparisons on planned values versus actual values the reconciliation process
should be improved to include the estimated tonnes and grade from the resource
models. By comparing the LOM plan on a monthly basis to the plant production the
actual physical location of the material mined may be different in the plan
versus the actual area that was mined. Due to the many faces that are mined
during a day this can only be completed on an average monthly basis to account
for the blending of this material at the mill. The monthly surveyed as mined
areas should be created and saved on a monthly basis for reporting the modeled
tonnes for each month. The combination of the 3D block models and 2D and
polygonal reserves makes this process difficult but considerable progress has
been made during the last year to get all resources and reserves into 3D block
models. The model predicted results versus actuals can then be used to determine
if dilution factors need to be adjusted or perhaps the resource modeling
parameters may require adjustment if there are large variances. On a yearly
basis the mill production should be reconciled to the final concentrate
shipments and resulting adjustment factors should be explained and reported.
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Endeavour Silver Corp.
Bolañitos Mines Project (formerly the Guanajuato Mines
Project), Guanajuato State, Mexico
The following summary of the Bolañitos Mines Project is
extracted from the technical report titled “NI 43-101 Technical Report: Updated
Minerals Resource and Reserve Estimates for the Bolañitos Project (formerly the
Guanajuato Mines Project) Guanajuato State Mexico” prepared by Hard Rock
Consulting LLC, with an effective date of December 31, 2015 and dated March 3,
2016. The complete report can be viewed on SEDAR at www.sedar.com. The technical
report is incorporated by reference in its entirety into this AIF.
SUMMARY
Introduction
Hard Rock Consulting, LLC (“HRC”) was retained by Endeavour
Silver Corp. (“EDR”) to complete an independent technical audit and to update
the mineral resource and reserve estimates for the Bolañitos Project (the
“Project”) located in Guanajuato State, Mexico. This report presents the results
of HRC’s efforts, and is intended to fulfill the Standards of Disclosure for
Mineral Projects according to Canadian National Instrument 43-101 (“NI 43-101”).
This report was prepared in accordance with the requirements and guidelines set
forth in Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the
mineral resources and reserves presented herein are classified according to
Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition
Standards - For Mineral Resources and Mineral Reserves, prepared by the CIM
Standing Committee on Reserve Definitions and adopted by CIM Council on May 10,
2014. The mineral resource and mineral reserve estimates reported here are based
on all available technical data and information as of December 31, 2015.
Property Description and Ownership
In 2007, EDR acquired the Bolañitos mine from Industrias
Peñoles S.A. de C.V. (Peñoles), the owner at the time, and Minas de la Luz, S.A.
de C.V. (Minas de la Luz), the operator at the time. The acquisition included
the Mina Cebada, Mina Bolañitos, Mina Golondrinas and Mina Asunción (as well as
a few other currently closed mines). Minas de la Luz continued as the operator
of the mines until June, 2007, when EDR assumed control. The Mina Asunción is
very close to the Mina Bolañitos and the two are currently connected
underground.
The Bolañitos Project is located in the state of Guanajuato,
Mexico. The mine consists of three operating mines: the Bolañitos, Lucero, and
Asuncion mines, which are located near the town of La Luz, about 12 km to the
northeast of Guanajuato. All of the mines are readily accessed by paved and
gravel roads. EDR also owns the inactive Cebada mine, located about 5 km north
of the city of Guanajuato, and the inactive Golondrinas mine, which is 3.5 km to
the southwest of Cebada.
Geology and Mineralization
The Bolañitos mine is located in eastern part of the Guanajuato
mining district, in the southeastern portion of the Sierra de Guanajuato, which
is an anticlinal structure about 100 km long and 20 km wide. Bolañitos is
located on the northeast side of this structure where typical primary bedding
textures dip 10° to 20° to the north-northeast. Economic mineralization at
Bolañitos is known to extend as much as 250 m vertically from 2300 m to 2050 m
elevation with the exception of the La Luz vein that extends 400 m vertically
from 2300 m to 1900 m.
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Endeavour Silver Corp.
The Guanajuato mining district is characterized by classic,
high grade silver-gold, epithermal vein deposits with low sulfidation
mineralization and adularia-sericite alteration. Veins in the Guanajuato
district are typical of most epithermal silver-gold vein deposits in Mexico with
respect to the volcanic or sedimentary host rocks and the paragenesis and tenor
of mineralization. The Guanajuato mining district hosts three major mineralized
fault systems, the La Luz, Veta Madre and Sierra systems.
Of the geological formations associated with the Guanajuato
district, only the Esperanza and La Luz Formations occur in the Bolañitos mine
area with mineralization residing primarily within the La Luz Formation.
Mineralization is known to dissipate at the contact with the Esperanza
Formation.
The Veta Madre historically was the most productive vein in the
Guanajuato district, and is by far the most continuous, having been traced on
the surface for nearly 25 km. The vein dips from 35° to 55º to the southwest
with measured displacement of around 1,200m near the Las Torres mine and 1,700 m
near La Valenciana mine. The most productive veins at Bolañitos strike parallel
to the Veta Madre system.
Bolañitos mineralization is directly related to faulting.
Mineralization occurs as open-space fillings in fracture zones or impregnations
in locally porous wall rock. Veins which formed in relatively open spaces are
the main targets for mining.
Mineralized veins at Bolañitos consist of the classic banded
and brecciated epithermal variety. Silver occurs primarily in dark sulfide-rich
bands within the veins, with little mineralization within the wall rocks. The
major metallic minerals reported include pyrite, argentite, electrum and ruby
silver, as well as some galena and sphalerite, generally deeper in the veins.
Mineralization is generally associated with phyllic (sericite) and
silicification alteration which forms haloes around the mineralizing structures.
The vein textures are attributed to the brittle fracturing-healing cycle of the
fault-hosted veins during and/or after faulting.
Economic concentrations of precious metals are present in
“shoots” distributed vertically and laterally between non-mineralized segments
of the veins. Overall, the style of mineralization is pinch-and-swell with some
flexures resulting in closures and others generating wide sigmoidal breccia
zones.
Status of Exploration
In 2015, EDR spent US $1,453,473 (including property holding
costs) on exploration activities, including drilling, at the Bolañitos Project.
Geological mapping, sampling, and interpretation of the target areas at
Bolañitos included:
-
Bolañitos North (Bolañitos, San Ignacio, San Miguel & Realejo Veins);
-
Bolañitos South (San Antonio);
-
Ana Rosa and Belen (Erika, Ana, Edith and Perla).
These activities were mainly conducted to complete the
delineation of the Bolañitos North structures, and to investigate possible
targets of interest in the South West part of Belen and in the Ana Rosa claim
(located at SW of la Luz town).
Exploration activities were designed to generate drill targets
and to further refine areas of interest by discriminating between mineralized
and barren ground. Geochemical sampling has been successful identifying vein
systems anomalous in gold and silver, as well as identifying other modes of
mineralization (Rio Dike). Detailed geologic mapping is problematic in the
Bolañitos Project area due to rugged terrain, dense vegetation, and the
homogeneity of the country rock, making it difficult to distinguish between
units.
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Endeavour Silver Corp.
Mineral Resource Estimate
Resource geologist Zachary J. Black, SME-RM, of HRC is
responsible for the mineral resource estimate presented here. Mr. Black is a
Qualified Person as defined by NI 43-101, and is independent of EDR. EDR
estimated the mineral resource for the Bolañitos mine Project based on drillhole
data constrained by geologic vein boundaries under the direct supervision of
HRC. Datamine Studio RM® V1.0.73.0 (“Datamine”) software was used to audit the
resource estimate in conjunction with Leapfrog Geo® V.3.0.0 (“Leapfrog”), which
was used to produce a geologic model. The metals of interest at Bolañitos are
gold and silver.
The Bolañitos mineral resource is comprised of 21 individual
veins. The veins are further subdivided into areas and modeling method. The
mineral resources have been estimated using either a Vertical Longitudinal
Projection (VLP) polygonal method (9 veins) or as 3-dimensional (“3D”) block
model (12 veins). The 3D models have been split into 2 areas based on the vein
location within the deposit.
The resources based on the 2D polygonal methods are estimated
by using a fixed distance Vertical Longitudinal Projection (VLP) from sample
points. The VLPs are created by projecting vein geology and underground workings
onto a vertical 2D long section. Resource blocks are constructed on the VLP
based on the sample locations in the plane of the projection. EDR geologists
review the data for sample trends and delineate areas with similar
characteristics along the sample lines. The areas are then grouped based on
mining requirements and the average grades and thicknesses of the samples are
tabulated for each block. Resource volumes are calculated from the delineated
area and the horizontal thickness of the vein, as recorded in the sample
database. The volume and density are used to determine the overall resource
tonnage for each area, and the grades are reported as a length weighted average
of the samples inside each resource block.
HRC validated the vein models provided by EDR using Leapfrog.
Ten veins were modeled by EDR using a series of cross-sectional interpretations.
The sectional interpretations are based primarily on composite intercepts and
are used to construct 3D vein solids in Vulcan. Cross-sections orthogonal to the
strike of the vein and level plan sections were used to insure sample selections
for compositing were contained within the modeled veins. HRC confirmed the areas
reported in EDR resource sheets loading AutoCAD® long VLP’s provided by EDR into
ArcGIS® software, and tracing the perimeter of the resource blocks and measuring
the area with the built in measuring tool. The dip of the vein and true
thickness are known variables.
The mineral resource estimate for the Bolañitos Project as of
December 31st, 2015, is summarized in Table 1-1. The mineral
resources are exclusive of the mineral reserves.
Table 1-1 Mineral Resource Estimate, Effective Date December
31st, 2015
| Classification |
Tonnes |
Silver
Equivalent |
Silver |
Gold |
| g/t |
g/t |
oz. |
g/t |
oz. |
| Measured |
101,200 |
289 |
140 |
457,317 |
2.13 |
6,920 |
| Indicated |
940,700 |
290 |
154 |
4,648,332 |
1.94 |
58,742 |
| Measured + Indicated |
1,042,00 |
289 |
152 |
5,105,649 |
1.96 |
65,662 |
| Inferred |
1,291,800 |
342 |
171 |
7,105,584 |
2.45 |
101,807 |
| Total |
2,333,800 |
319 |
163 |
12,211,233 |
2.23 |
167,469 |
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Endeavour Silver Corp.
| |
1. |
Measured, Indicated and Inferred resource cut-off grades
were 175 g/t silver equivalent at Bolañitos. |
| |
2. |
Mineral resources are not mineral reserves and do not
have demonstrated economic viability. There is no certainty that all or
any part of the mineral resources estimated will be converted into mineral
reserves. |
| |
3. |
Metallurgical recoveries were 75.9% silver and 84.7%
gold. |
| |
4. |
Silver equivalents are based on a 70:1 silver:gold
ratio |
| |
5. |
Price assumptions are $17.60 per ounce for silver and
$1,260 per ounce for gold for resource cutoff calculations. |
| |
6. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
Mineral Reserve Estimate
Mr. Jeff Choquette, P.E., MMSA QP Member, of HRC is responsible
for the mineral reserve estimate presented in this report. Mr. Choquette is
Qualified Person as defined by NI 43-101 and is independent of EDR. The reserve
calculation for the Bolañitos Project was completed in accordance with NI 43-101
and has an effective date of December 31st, 2015. Stope designs for reporting
the reserves were created utilizing the updated resources and cutoff’s
established for 2016. All of the stopes are within readily accessible areas of
the active mining areas. Ore is processed in the on-site mill and floatation
process capable of processing 1,600 tpd.
HRC utilized Datamine’s MSO (Mineable shape optimizer) program
to generate the stopes for the reserve mine plan. The stopes were created based
solely on Measured and Indicated resources above the calculated cutoff, which
have demonstrated to be economically viable; therefore, Measured and Indicated
mineral resources within the stopes have been converted to Proven and Probable
mineral reserves as defined by CIM. Inferred mineral resources are classified as
waste. Dilution is applied to Measured and Indicated resource blocks depending
on the mining method chosen.
The mining breakeven cut-off grade, which includes internal
stope dilution, was utilized in Datamine’s MSO to generate the stope designs for
defining the reserves. The cut-off is stated as silver equivalent since the
ratio between gold and silver is variable and both commodities are sold. The
average cut-off grade used for the Bolañitos property is 192 g/t Ag equivalent.
Silver equivalent grade is calculated as the silver grade + (gold grade * 70),
taking into account gold and silver prices and expected mill recoveries.
Mineral reserves are derived from Measured and Indicated
resources after applying the economic parameters as previously stated, and
utilizing Datamine’s MSO program to generate stope designs for the reserve mine
plan. The Bolañitos Project mineral reserves are derived and classified
according to the following criteria:
-
Proven mineral reserves are the economically mineable part of the Measured
resource for which mining and processing / metallurgy information and other
relevant factors demonstrate that economic extraction is feasible. For
Bolañitos Project, this applies to blocks located within approximately 10m of
existing development and for which EDR has a mine plan in place.
-
Probable mineral reserves are those Measured or Indicated mineral resource
blocks which are considered economic and for which EDR has a mine plan in
place. For the Bolañitos mine project, this is applicable to blocks located a
maximum of 35m either vertically or horizontally from development.
The Proven and Probable mineral reserves for the Bolañitos
Project as of December 31, 2015 are summarized in Table 1-2. The reserves are
exclusive of the mineral resources reported in Section 14 of this report.
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Endeavour Silver Corp.
Table 1-2 Mineral Reserve Estimate
| Classification |
Tonnes
(t
x
1,000) |
AgEq
g/t |
Ag g/t |
Ag (oz)
* 1,000
|
Au g/t |
Au (oz)
* 1,000
|
%
Dilution |
| Proven |
205.6 |
304.1 |
125.2 |
827.3 |
2.60 |
17.18 |
16.1% |
| Probable |
172.6 |
279.0 |
101.3 |
562.0 |
2.73
|
15.15 |
33.4% |
| Total Proven and Probable Reserves |
378.1 |
292.6 |
114.3 |
1,389.3 |
2.66 |
32.34 |
24.0% |
| |
1. |
Reserve cut-off grades are based on a 192 g/t silver
equivalent. |
| |
2. |
Metallurgical Recoveries were 75.9% silver and 84.7%
gold. |
| |
3. |
Mining Recoveries of 95% were applied. |
| |
4. |
Minimum mining widths were 0.8 meters. |
| |
5. |
Dilution factors averaged 24.0%. Dilution factors are
calculated based on internal stope dilution calculations and external
dilution factors of 15% for cut and fill and 30% for long hole. |
| |
6. |
Silver equivalents are based on a 70:1 silver:gold
ratio. |
| |
7. |
Price assumptions are $16 per ounce for silver and $1,150
per ounce for gold. |
| |
8. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
| |
9. |
Figures in table are rounded to reflect estimate
precision; small differences generated by rounding are not material to
estimates. |
Conclusions and Recommendations
The QP considers the Bolañitos mineral resource and reserve
estimates presented herein to conform with the requirements and guidelines set
forth in Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the
mineral resources and reserves presented herein are classified according to
Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition
Standards - For Mineral Resources and Mineral Reserves, prepared by the CIM
Standing Committee on Reserve Definitions and adopted by CIM Council on May 10,
2014. These mineral resources and reserves form the basis for EDR’s ongoing
mining operations at the Bolañitos Mines Project.
The QP is unaware of any significant technical, legal,
environmental or political considerations which would have an adverse effect on
the extraction and processing of the resources and reserves located at the
Bolañitos Mines Project. Mineral resources which have not been converted to
mineral reserves, and do not demonstrate economic viability shall remain mineral
resources. There is no certainty that all or any part of the mineral resources
estimated will be converted into mineral reserves.
The QP considers that the mineral concessions in the Bolañitos
mining district controlled by EDR continue to be highly prospective both along
strike and down dip of the existing mineralization.
EDR’s Bolañitos Mines Project has an extensive mining history
with well-known silver and gold bearing vein systems. Ongoing exploration has
continued to demonstrate the potential for the discovery of additional resources
at the project and within the district surrounding the mine. Outside of the
currently known reserve/resource areas, the mineral exploration potential for
the Bolañitos Project is considered to be very good. Parts of the known vein
splays beyond the historically mined areas also represent good exploration
targets for additional resource tonnage.
Since EDR took control of the Bolañitos
Mines Project, new mining areas have enabled EDR to increase production by
providing additional sources of mill feed. EDR’s operation management teams
continue to search for improvements in efficiency, lowering costs and
researching and applying low-cost mining techniques.
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Endeavour Silver Corp.
In 2016, EDR will conduct a surface drilling program at the
Bolañitos South area in order to identify potential mineralization in the Gina,
Maru and La Cuesta veins. Regional exploration in 2016 will be focused on the
Tlachiquera claim (recently staked), located in the northwestern portion of the
district. The 2016 surface exploration program is planned to include 1,000 m of
core, focused on the veins located at the Bolañitos South area. Budgeted cost of
the program is US $ 215,000.
HRC recommends that the process of converting mineral resources
into reserves from 2D polygons to 3D block models be continued. During the last
couple of years, considerable progress has been made on this process with only
nine veins remaining to be converted to 3D. Additional modeling efforts should
be made to define the mineralized brecciated areas as they have been an
important source of economic material encountered in the current operation, and
could provide additional tonnage to support the mine plan.
EDR currently utilizes the exploration drilling and chip and
muck samples in their resource and reserve calculations. HRC recommends that
future efforts focus on constructing block models for resource and reserve
reporting utilizing only the exploration and underground drilling results. The
chip and muck samples should be used to develop the production model. This will
help keep data densities consistent in each modeling effort and will provide
another level in the reconciliation process to compare modeling results.
Although the reconciliations conducted by EDR show good
comparison between planned versus actual values, the reconciliation process
should be improved to include the estimated tonnes and grade from the resource
models. Because the LOM plan is compared to the plant production on a monthly
basis, the actual physical location of the material mined may be different than
the planned location. Due to the many stopes that are mined during a day this
can only be completed on an average monthly basis due to blending of stope
material into the mill. The monthly surveyed as mined areas should be created
into triangulation solids and saved on a monthly basis for reporting the modeled
tonnes for each month. The combination of the 3D block models and 2D and
polygonal reserves makes this process difficult but considerable progress has
been made during the last year to get all resources and reserves into 3D block
models. The model-predicted results versus actual can then be used to determine
if dilution factors need to be adjusted, or perhaps the resource modeling
parameters may require adjustment if there are large variances. The mill
production should be reconciled to the final concentrate shipments on a yearly
basis, and resulting adjustment factors should be explained and reported.
El Cubo Mines Project, Guanajuato State,
Mexico
The following summary of the El Cubo Mines Project is extracted
from the technical report titled “NI 43-101 Technical Report: Updated Mineral
Resource and Reserve Estimates for the El Cubo Project, Guanajuato State Mexico”
prepared by Hard Rock Consulting LLC, with an effective date of December 31,
2015 and dated March 3, 2016. The complete report can be viewed on SEDAR at
www.sedar.com. The technical report is incorporated by reference in its entirety
into this AIF.
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Endeavour Silver Corp.
SUMMARY
Introduction
Hard Rock Consulting, LLC (“HRC”) was retained by Endeavour
Silver Corp. (“EDR”) to complete an independent technical audit and to update
the mineral resource and reserve estimates for the El Cubo Project (the
“Project”) located in Guanajuato State, Mexico. This report presents the results
of HRC’s efforts, and is intended to fulfill the Standards of Disclosure for
Mineral Projects according to Canadian National Instrument 43-101 (“NI 43-101”).
This report was prepared in accordance with the requirements and guidelines set
forth in Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the
mineral resources and reserves presented herein are classified according to
Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition
Standards - For Mineral Resources and Mineral Reserves, prepared by the CIM
Standing Committee on Reserve Definitions and adopted by CIM Council on May 10,
2014. The mineral resource and mineral reserve estimates reported here are based
on all available technical data and information as of December 31, 2015.
Property Description and Ownership
EDR acquired a 100% interest in the El Cubo Project in July
2012, through purchase of issued and outstanding shares of Mexgold and ensuing
acquisition of Mexgold subsidiaries Compañía Minera Del Cubo, S.A. de C.V.,
AuRico Gold GYC, S.A. de C.V. and Metales Interamericanos, S.A. de C.V.
The El Cubo property is located in central Mexico, in
Guanajuato State near the village of El Cubo, approximately 10 km east of the
City of Guanajuato and about 280 km northwest of Mexico City. The geographic
center of the property is located at roughly 21°00’17” N Latitude and 101°12’
25” W Longitude, at an elevation of 2265 m above mean sea level. The El Cubo
property consists of 57 mining concessions covering an area of approximately
8,141 ha, including several mine adits, ramps, shafts, and the 2000 tpd El Tajo
flotation plant.
Geology and Mineralization
The El Cubo mine is located on the southeast flank of the
Sierra Madre Occidental geological province in the southeastern portion of the
Sierra de Guanajuato, an anticlinal structure about 100 km long and 20 km wide.
The property is underlain by a volcano-sedimentary sequence of Mesozoic to
Cenozoic age volcanic, sedimentary, and intrusive rocks, some members of which
host the veins exploited by the mine. The Cenozoic rocks may have been emplaced
in a caldera setting with hydrothermal alteration occurring at approximately 27
Ma (Buchanan, 1980).
The Guanajuato mining district is characterized by classic,
high grade silver-gold, epithermal vein deposits with low sulfidation
mineralization and adularia-sericite alteration. Veins in the Guanajuato
district are typical of most epithermal silver-gold vein deposits in Mexico with
respect to the volcanic or sedimentary host rocks and the paragenesis and tenor
of mineralization. The Guanajuato mining district hosts three major mineralized
fault systems, the La Luz, Veta Madre and Sierra systems. The El Cubo mine
exploits veins of the Sierra fault system.
The northwest striking and southwest dipping faults are the
main structures containing the very important Villalpando, La Loca, Dolores and
Pastora-Fortuna veins. These veins are generally steeply dipping with some
northeast dipping sections. The Capulin fault offsets the northwest-striking
vein systems at the south end of the El Cubo mine, displacing the Dolores vein
downward to the south.
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Endeavour Silver Corp.
Veins are the main targets for mining. Some weak stockworks
that grade into disseminations are viable targets, especially if they are close
enough to surface and can be mined from an open pit. An historic open cut exists
on the Dolores vein in the vicinity of the El Tajo mill. The Villalpando and the
Dolores veins have been actively mined since the early stages of mining at El
Cubo.
Mineralized veins at El Cubo consist of the classic banded and
brecciated epithermal variety. Silver occurs primarily in dark sulfide-rich
bands within the veins, generally with little mineralization within the
wall-rocks. The major metallic minerals reported include pyrite, argentite,
electrum and ruby silver, as well as some galena and sphalerite, generally
deeper in the veins. Mineralization is generally associated with phyllic
(sericite) alteration and silicification which form haloes around the
mineralizing structures. The vein textures are attributed to the brittle
fracturing-healing cycle of the fault-hosted veins during and/or after faulting.
Economic concentrations of precious metals are present in
“shoots” distributed vertically and laterally between non-mineralized segments
of the veins, and at important vein intersections. The silver-rich veins, such
as Villalpando, contain quartz, adularia, pyrite, acanthite, naumannite and
native gold. Native silver is widespread in small amounts. Much of the native
silver is supergene. Silver sulfosalts (pyrargyrite and polybasite) are commonly
found at depth. Gold-rich veins, such as San Nicolas, contain quartz, pyrite,
minor chalcopyrite and sphalerite, electrum, and aguilarite.
Status of Exploration
Historical exploration at El Cubo was largely conducted by
drifting along known veins, with very little drilling. Drilling exploration
prior to 2000 was sporadic, and the associated information poorly organized.
Drilling activity at the El Cubo Project increased significantly between 2000
and 2009, in conjunction with the acquisition of El Cubo by Mexgold, and later
by Aurico, producing credible data for 844 drillholes (approximately 180,019 m).
The drillhole data applies to both surface and underground drilling, at a
variety of drilhole diameters, which occurred mainly over the Villalpando,
Dolores, La Loca, San Nicolas, San Eusebio, Pastora, Puertecito and La Cruz
structures.
In 2009, AuRico began the year with a dedicated six-month
program of data compilation followed by extensive field mapping over the Sierra
Vein system. At year end, AuRico had completed 16 core holes for 3,361 m in the
Dolores SE target. Exploration carried out in 2010 consisted of drilling in the
Dolores, Capulin, Villalpando Sur, Villalpando Gap, Puertecito, and La Cruz
target areas. Exploration activities carried out in 2011 focused on drilling the
step-out and in-fill on the 2009 Dolores Vein discovery.
In early 2012, AuRico drilled 16 drillholes on the Dolores SE
target, but all surface exploration drilling was put on hold subject to AuRico
completing the purchase and sale agreement for the El Cubo mine. At that time,
El Cubo exploration geologists were in the process of geologically mapping and
surface sampling the Cebolletas, Villalpando Sur, Cabrestantes and San Nicolás
areas.
Between 2012 and 2015, EDR’s drilling and field exploration
efforts were focused on locating mineralized bodies over primary and secondary
structures, mainly near the current production areas. Surface drilling was
conducted over the Villapando (Villalpando Gap, Asunción & Villalpando
South), Dolores (Dolores North), La Loca & La Paz veins. The mine
exploration drilling program was undertaken to determine the extent of
additional mineralization near areas currently being mined. The principal
targets were the Villalpando (Area II and IV) and Dolores (II) vein systems,
though a number of other structures also explored. As of December 2014, a total
of 72,969 m of drilling had been completed in 277 holes, with an associated
16,522 samples.
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Endeavour Silver Corp.
In 2015, EDR spent US $1,686,569 (including property holding
costs) on exploration activities, including drilling, at the El Cubo Project.
Field exploration activities at El Cubo were mainly focused on the Cubo North
area, with the intent of continuing to define targets of interest for possible
future drilling programs. Geological mapping, trenching and sampling were also
conducted in the Cubo Central and Cubo South areas, as well the surrounding
Nayal-Cabrestantes, Los Pinguicos, Olga Margarita-Janet, La Providencia and El
Eden areas.
During 2015, Endeavour Silver completed a total of 7,178.55 m
in 25 surface diamond drillholes at the El Cubo Mines Project. A total of 2,603
samples were collected and submitted for assays. Surface drilling exploration
carried out in 2015 is summarized in Table 1-1.
Table 1-1 Exploration Drilling Activities in 2015
| Project Area |
Number of
Holes |
Total
Meters |
Number of Samples
Taken |
| Violeta |
4 |
1,655.90 |
446 |
| Asunción |
2 |
305.80 |
156 |
| Cubo Central |
8 |
2,116.50 |
642 |
| Villalpando North |
4 |
1,349.10 |
596 |
| Nayal-Cabrestantes |
7 |
1,751.25 |
763 |
| Total |
25 |
7,178.55 |
2,603 |
Development and Operations
The El Cubo Mine is now organized into two discrete physical
areas, previously the mine was organized into four areas. Area 1 covers the
north end of the Villalpando system with access through the Sta. cecillia ramp,
the previous level 3 of the upper La Loca vein and the previous area 4 of the
lower El Cubo concessions with access from the Sta. Lucia shaft. Area 2 includes
the southern end of the Villalpando and Dolores vein systems, and is principally
accessed from the Dolores ramp at El Tajo and from a crosscut on Level 4. Each
area has separate crews and infrastructure for access, stoping, ventilation, and
ore haulage. The area separations are geographic, and by level.
Conventional drill and blast methods are used to extract the
ore at El Cubo, and access to the mining areas is provided by ramps, adits and
shafts. Mine development headings are drilled by jumbo and by jackleg. The
choice of equipment is generally guided by the anticipated vein widths, stoping
method, and equipment availability. The stoping methods used at El Cubo are 80%
mechanized cut-and-fill and 20% longhole open- stoping.
It is standard procedure throughout the mine to install
systematic ground control. Ground control is carried out using a combination of
split sets, mesh, w-straps, and cable bolts. The type of support varies
according to the conditions encountered, but split sets are most common and are
complemented as needed with mesh and/or w-straps. Cable bolting is required
during the preparation of stopes for longhole blasting. The cable bolts are
installed by drilling holes in the hanging wall and fixing the bolts in place
with cement pumped into the hole.
The upper levels of the mine are dry. Water inflows are a
factor in the lowest development levels where it is collected, pumped, and
distributed as additional water for the needs of mine production.
36
Endeavour Silver Corp.
The lowest historic development level of the mine, Level 9 of
the Villalpando vein, was flooded until the latter part of 2013. The mine has
been gradually dewatered and new development is pursuing mineral in the lower
levels. The water level at the end of 2015 was about 96m below Level 9 at the 13
Level.
After the strike ended in 2011, Blake (2011) provided a
preliminary geotechnical study to AuRico to determine if ground deterioration
had occurred and if so, what rehabilitation effort might be needed in order for
mining to resume. The geotechnical study concluded that in most cases, scaling
and spot bolting would sufficiently mitigate deterioration, and rehabilitation
work was carried out in three stopes according to recommendations.
The ventilation system at El Cubo is a combination of natural
and mechanical, but relies mostly on natural ventilation. Air flow enters
through the various access ramps, shafts, raise bore holes, and old mine
openings, and moves down to the lower part of the mine, exhausting through a
series of partially open old areas of the mine, raise bore holes, and
conventional driven raises.
As of December 31, 2015, the company had a total of 713 direct
employees distributed in different departments. There are 642 contract persons
for personal transport, security, underground development, underground mining
and ore transport from underground to surface and to the plant.
Mineral Resource Estimate
Resource geologist Zachary J. Black, SME-RM, of HRC is
responsible for the mineral resource estimate presented here. Mr. Black is a
Qualified Person as defined by NI 43-101, and is independent of EDR. HRC
estimated the mineral resource for the El Cubo Mine Project based on drillhole
data constrained by geologic vein boundaries with an Inverse Distance Weighted
(“ID”) algorithm. Datamine Studio RM® V1.0.73.0 (“Datamine”) software was used
to complete the resource estimate in conjunction with Leapfrog Geo® V.3.0.0
(“Leapfrog”), which was used to produce the geologic model. The metals of
interest at El Cubo are gold and silver.
HRC constructed the vein models using Leapfrog. Twenty-two
veins were modeled using a linear interpolation methodology and sample
intervals. Cross-sections orthogonal to the strike of the vein were used to
select intervals from drillholes representing the vein material. Level sections
were used to select vein material from channel samples. Points representing the
hanging wall and footwall contacts were extracted by the software to interpolate
hanging wall and footwall surfaces. These surfaces were used to delineate each
vein solid. The surfaces were evaluated in 3-dimensions to ensure that both the
down dip and along strike continuity was maintained throughout the model. Vein
volumes were clipped using a distance buffer of 100 meters, except the
Villalpando vein, which used a distance buffer of 125 meters, from the selected
vein intercepts. Veins were clipped against younger veins, topography, and the
concession boundaries.
The 3D geologic solids were converted to block models using
Datamine. Block model prototypes were created for each of the 3D veins. The
model prototypes are rotated along strike and down dip and encompass the entire
vein. A block size of 10m x 10m in the strike and dip directions was
established. The blocks in the z direction were sub-blocked to the vein
thickness. The El Cubo 3D models were validated by comparison of the global
descriptive statistics from the Inverse Distance Weighting (“ID”), Ordinary
Krige (“OK”), Nearest Neighbor (“NN”), and composite data, and inspection of the
ID block model on long section in comparison to the composite grades.
37
Endeavour Silver Corp.
HRC used the kriging efficiency, distance from samples, and the
number of samples to classify the mineral resources into measured, indicated,
inferred. Measured mineral resources are those blocks with at least 15
composites, a kriging efficiency of at least 75%, and a distance no greater than
10 meters. Indicated mineral resources are those blocks at least 20 meters from
a sample. Inferred mineral resources are those blocks greater than 20 meters
from a sample and have a value for estimated silver.
The mineral resource estimate includes all analytical data
obtained as of December 31, 2015. Mineral resources are not mineral reserves and
may be materially affected by environmental, permitting, legal, socio-economic,
political, or other factors. Mineral resources are reported above a silver
equivalent grade of 167 gpt, assuming a silver price of $17.60 per ounce. HRC
used a cutoff grade to test for reasonable prospects for economic
extraction.
The mineral resources for the El Cubo mine as of December 31,
2015, are summarized in Table 1-2. The resources are exclusive of the mineral
reserves.
Table 1-2 Mineral Resource Estimate, Effective Date December
31, 2015
| Classification |
Tonnes |
Silver
Equivalent |
Silver |
Gold |
| g/t |
g/t |
oz. |
g/t |
oz. |
| Measured |
74,000 |
477 |
280 |
669,052 |
2.83 |
6,765 |
| Indicated |
630,000 |
368 |
215 |
4,352,549 |
2.19 |
44,449 |
| Measured + Indicated |
704,000 |
380 |
222 |
5,021,601 |
2.26 |
51,213 |
| Inferred |
1,172,000 |
380 |
192 |
7,244,992 |
2.68 |
100,873 |
| |
1. |
Measured, Indicated and Inferred resource cut-off grades
were 167 g/t silver equivalent at El Cubo. |
| |
2. |
Mineral resources are not mineral reserves and do not
have demonstrated economic viability. There is no certainty that all or
any part of the mineral resources estimated will be converted into mineral
reserves. |
| |
3. |
Metallurgical recoveries were 87.4% silver and 89.6%
gold. |
| |
4. |
Silver equivalents are based on a 70:1 silver:gold
ratio |
| |
5. |
Price assumptions are $17.65 per ounce for silver and
$1,265 per ounce for gold for resource cutoff calculations. |
| |
6. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
Mineral Reserve Estimate
Mr. Jeff Choquette, P.E., MMSA QP, of HRC is responsible for
the mineral reserve estimate presented here. Mr. Choquette is Qualified Person
as defined by NI 43-101 and is independent of EDR. The mineral reserve
calculation for EDR’s El Cubo Mine in Guanajuato, Mexico was completed in
accordance with NI 43-101, and based on all data and information available as of
December 31st, 2015. Stope designs for reporting the reserves were
created utilizing the updated resources and cutoffs established for 2016. All of
the stopes are within readily accessible areas of the active mining areas. Ore
is processed in the on-site mill and floatation facility capable of processing
1,600 tpd, and excess mined tonnage (approximately 200-400 tpd) is trucked to
EDR’s Bolañitos mill for processing.
38
Endeavour Silver Corp.
HRC utilized Datamine’s Mineable Shape Optimizer (“MSO”)
program to generate the stopes for the reserve mine plan. The stopes were
created based solely on Measured and Indicated resources above the calculated
cutoff, which have demonstrated to be economically viable; therefore, Measured
and Indicated mineral resources within the stopes have been converted to Proven
and Probable mineral reserves as defined by NI 43-101. Measured and Indicated
mineral resources generated from the 2D polygon resource model were also
converted to mineral reserves, provided that associated grades fell above the
calculated cutoff and economic viability could be demonstrated. Inferred mineral
resources are classified as waste. Dilution is applied to Measured and Indicated
resource blocks depending on the mining method chosen.
The mining breakeven cut-off grade was utilized in Datamine’s
MSO to generate the stope designs for defining the reserves. The cut-off is
stated as silver equivalent since the ratio between gold and silver is variable
and both commodities are sold. The average cut-off grade used for the El Cubo
property is 184 g/t Ag equivalent. Silver equivalent grade is calculated as the
silver grade + (gold grade * 70), taking into account gold and silver prices and
expected mill recoveries.
Mineral reserves are derived from Measured and Indicated
resources after applying the economic parameters as stated Section 15.1.2,
utilizing Datamine’s MSO program to generate stope designs for the reserve mine
plan. Mineral reserves for the El Cubo Project have been derived and classified
according to the following criteria:
-
Proven mineral reserves are the economically mineable part of the Measured
resource for which mining and processing / metallurgy information and other
relevant factors demonstrate that economic extraction is feasible. For El
Cubo, this applies to blocks located within approximately 10 m of existing
development, and for which EDR has a mine plan in place.
-
Probable mineral reserves are those Measured or Indicated mineral resource
blocks which are considered economically viable and for which EDR has a mine
plan in place. For the El Cubo Project, this applies to all blocks for which
EDR has a mine plan in place.
The Proven and Probable mineral reserves for the El Cubo
Project as of December 31, 2015 are summarized in Table 1-3. The reserves are
exclusive of the mineral resources reported in Section 14 of this report.
Table 1-3 Mineral Reserve Estimate
Classification |
Tonnes
(t x 1,000) |
AgEq
g/t |
Ag g/t |
Ag (oz)
* 1,000 |
Au g/t |
Au
(oz) *
1,000 |
%
Dilution |
| Proven |
195.0 |
367.4 |
149.8 |
939.3 |
3.11 |
19.48 |
11.6% |
| Probable |
632.3 |
317.1 |
173.3 |
3,522.5 |
2.23
|
45.42 |
27.7% |
| Total Proven and Probable Reserves |
827.3 |
328.9 |
167.7 |
4,461.8 |
2.44 |
64.91 |
23.9% |
| |
1. |
Reserve cut-off grades are based on a 184 g/t silver
equivalent. |
| |
2. |
Metallurgical Recoveries were 89.6% silver and 87.4%
gold. |
| |
3. |
Mining Recoveries of 95% were applied. |
| |
4. |
Minimum mining widths were 0.8 meters. |
| |
5. |
Dilution factors averaged 23.9%. Dilution factors are
calculated based on internal stope dilution calculations and external
dilution factors of 15% for cut and fill and 30% for long hole. |
| |
6. |
Silver equivalents are based on a 70:1 silver:gold
ratio. |
| |
7. |
Price assumptions are $16 per ounce for silver and $1,150
per ounce for gold. |
| |
8. |
Mineral resources are estimated exclusive of and in
addition to mineral reserves. |
| |
9. |
Figures in table are rounded to reflect estimate
precision; small differences generated by rounding are not material to
estimates. |
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Endeavour Silver Corp.
Conclusions and Recommendations
The QP considers the El Cubo resource and reserve estimates
presented here to conform with the requirements and guidelines set forth in
Companion Policy 43-101CP and Form 43-101F1 (June 2011), and the mineral
resources and reserves presented herein are classified according to Canadian
Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards - For
Mineral Resources and Mineral Reserves, prepared by the CIM Standing Committee
on Reserve Definitions and adopted by CIM Council on May 10, 2014. These
resources and reserves form the basis for Endeavour Silver’s ongoing mining
operations at the El Cubo Mines Project.
The QP is unaware of any significant technical, legal,
environmental or political considerations which would have an adverse effect on
the extraction and processing of the resources and reserves located at the El
Cubo Mines Project. Mineral resources which have not been converted to mineral
reserves, and do not demonstrate economic viability shall remain mineral
resources. There is no certainty that all or any part of the mineral resources
estimated will be converted into mineral reserves.
The QP considers that the mineral concessions in the El Cubo
mining district controlled by Endeavour Silver continue to be highly prospective
both along strike and down dip of the existing mineralization.
The El Cubo mine has been in nearly continuous production for
decades. A substantial effort combining direct underground exploration,
underground drilling, and surface drilling will be necessary to sustain the mine
and continually expand mineral resources and reserves. The El Cubo concessions
cover at least 5 km of the trace of the vein system across the district. The
Villalpando-Asunción area continues to provide the bulk of production from the
mine, and is currently the focus of future mineral resource and reserve
development. The Dolores vein is an important parallel structure along which new
mineral resources and reserves have been added through a combination of
underground development and diamond drilling.
The mine has considerable potential to develop both exploration
targets close to existing operations outlined by underground drilling and those
identified by surface exploration. The 2016 surface exploration program includes
1,000 m of core drilling to test the Nayal vein area. Budgeted cost of the
program is US $345 thousand. The 2016 underground exploration program includes
1,200 m of core drilling that will be used to test areas proximal to current
operations. Budgeted cost for the program is US $134,000.
HRC recommends that the process of converting mineral resources
into reserves from 2D polygons to 3D block models be continued. Considerable
progress has been completed via this process with 22 of the 37 veins now
converted into 3D block models. Additional modeling efforts should be made to
define the mineralized brecciated areas as they have been an important source of
economic material encountered in the current operation, and could provide
additional tonnage to support the mine plan.
EDR currently utilizes the exploration drilling and chip and
muck samples in their resource and reserve calculations. HRC recommends that
future efforts focus on constructing block models for resource and reserve
reporting utilizing only the exploration and underground drilling results. The
chip and muck samples should be used to develop the production model. This will
help keep data densities consistent in each modeling effort and will provide
another level in the reconciliation process to compare modeling results.
Although the reconciliations conducted by EDR show good
comparison between planned versus actual values, the reconciliation process
should be improved to include the estimated tonnes and grade from the resource
models. Because the LOM plan is compared to the plant production on a monthly
basis, the actual physical location of the material mined may be different than
the planned location. Due to the many stopes that are mined during a day this
can only be completed on an average monthly basis due to
40
Endeavour Silver Corp.
blending of stope material into the mill. The monthly surveyed
as mined areas should be created into triangulation solids and saved on a
monthly basis for reporting the modeled tonnes for each month. The combination
of the 3D block models and 2D and polygonal reserves makes this process
difficult but considerable progress has been made during the last year to get
all resources and reserves into 3D block models. The model-predicted results
versus actual can then be used to determine if dilution factors need to be
adjusted, or perhaps the resource modeling parameters may require adjustment if
there are large variances. The mill production should be reconciled to the final
concentrate shipments on a yearly basis, and resulting adjustment factors should
be explained and reported.
Terronera Project, Jalisco State,
Mexico
On May 13, 2015, the Company filed the NI 43-101 Technical
Report Preliminary Economic Assessment for the Terronera Project, Jalisco State,
Mexico (“Terronera PEA”) prepared by Smith Foster and Associates with an
effective date of March 25, 2015 and dated April 30, 2015. With the exception of
some minor changes to terms for consistency with terms used in this AIF, the
below summary is a direct extract and reproduction of the summary contained in
the Terronera PEA, without material modification or revision. The complete
report can be viewed on SEDAR at www.sedar.com. The Terronera PEA is
incorporated by reference in its entirety into this AIF.
Summary
Introduction
Endeavour commissioned Smith Foster & Associates Inc. to
prepare a Preliminary Economic Assessment for the Terronera Project compliant
with NI 43-101. The project was formerly known as the San Sebastián Project but,
in March 2015, Endeavour formally changed the name to the Terronera Project.
The Terronera PEA has an effective date of March 25, 2015. The
mineral resource estimates reported in the Terronera PEA comply with the CIM
Definition Standards for Mineral Resources and Mineral Reserves, as required under NI 43-101.
The term San Sebastián Property, in the Terronera PEA, refers
to the entire area covered by the mineral concessions, while the term Terronera
Project refers to the area within the mineral concession on which the current
exploration programs and proposed mining and processing will be conducted.
The Terronera PEA includes technical information which requires
subsequent calculations or estimates to derive sub-totals, totals, and weighted
averages. Such calculations or estimations inherently involve a degree of
rounding and consequently introduce a margin of error. The QPs for the Terronera
PEA do not consider such errors to be material to the calculations presented
herein.
The conclusions and recommendations in the Terronera PEA
reflect the QPs’ best independent judgment in light of the information available
at the time of writing the Terronera PEA.
Summarized briefly below is key information in the Terronera
PEA, including property description and ownership, history, geology and
mineralization, the status of exploration and development, mineral resource
estimates, mineral processing and metallurgical testing, environmental studies
and permitting, capital and operating costs, economic analysis, conclusions, and
recommendations.
41
Endeavour Silver Corp.
Location and Property Description
San Sebastián del Oeste (San Sebastián) is an historic silver
and gold mining district located in southwestern Jalisco State, approximately
155 km west of Guadalajara and 50 km northeast of Puerto Vallarta, accessible by
paved and gravel roads. One small, high grade, underground silver-gold mine, La
Quiteria (130 tonnes per day), continues to operate in the district. The San
Sebastián properties acquired by Endeavour surround the La Quiteria mine and
represent a new silver-gold exploration opportunity for Endeavour.
Ownership
In February 2010, Endeavour acquired an option to purchase the
San Sebastián silver-gold properties in Jalisco State from IMMSA, also known as
Grupo Mexico, one of the largest mining companies in Mexico.
Endeavour holds the Terronera Project through its 100% owned
Mexican subsidiary, Endeavour Gold Corporation S.A. de C.V. (“Endeavour
Gold”). Endeavour Gold holds the Terronera Project through its 100% owned
subsidiary Minera Plata Adelante S.A. de C.V. (“Minera Plata”).
At present, the Terronera Project is comprised of 13 mineral
concessions. The core group of 10 concessions totalling 3,388 hectares (ha) were
owned by IMMSA. These concessions cover the main area of the known mining
district. In 2013, Endeavour completed the acquisition of a 100% interest in the
San Sebastián properties from IMMSA. IMMSA retained a 2% NSR (net smelter
return) royalty on mineral production from the San Sebastián properties.
In 2012, Endeavour also filed and received title for 2
concessions (San Sebastián FR. 1 and FR. 2) totalling 2,078 ha. Additionally, in
2013, Endeavour filed a total of 7 concessions (San Sebastian 12, San Sebastian
13, San Sebastian 14, San Sebastian 15, San Sebastian 16, San Sebastian 17 and
San Sebastian 18) totalling 4,163 ha. Titling of these concessions is still
pending, with the exception of San Sebastian 17 which is already titled (693
ha).
The annual 2014 concession tax for the San Sebastián Properties
was 693,658 Mexican pesos (pesos), which is equal to US$47,838 at an exchange
rate of 14.50 pesos to US$1.00.
History
The San Sebastián silver and gold mines were first discovered
in 1542 and San Sebastián del Oeste, a silver and gold mining town, was founded
in 1605 during the Spanish colonial period. By 1785, more than 25 mines and a
number of foundries had been established in the district and, during the peak
mining period, the area was considered one of the principal sources of gold,
silver and copper for New Spain. The main mines in the district included Real de
Oxtotipan, Los Reyes, Santa Gertrudis, Terronera and La Quiteria. As is the case
with many mines in Mexico which were owned by individuals or corporations, the
historical production records have not survived the revolutions, passing of the
individual owners, closing of the mines, corporate failure, or government
seizure of assets. Therefore, the exact silver production of these mines is
unknown.
The only significant modern exploration in the district was
carried out by IMMSA in the late 1980s and early 1990s.
As of 2013, the La Quiteria mine was still active and mined by
Minera Cimarrón S.A. de C.V., a private mining company.
42
Endeavour Silver Corp.
Geology and Mineralization
The San Sebastián properties (5,466 ha) cover a classic, low
sulphidation, epithermal vein system in four mineralized vein sub-districts
named Los Reyes, Santiago de los Pinos, San Sebastián and Real de Oxtotipan.
Each sub-district consists of a cluster of quartz (calcite, barite) veins
mineralized with sulphide minerals (pyrite, argentite, galena and sphalerite).
Each vein cluster spans about 3 km by 3 km in area. In total, more than 50 small
mines were developed historically on at least 20 separate veins.
The San Sebastián veins tend to be large and can carry high
grade silver-gold mineralized deposits. For example, the La Quiteria vein ranges
up to 15m thick, and the Santa Quiteria mine averages about 280 g/t silver and
0.5 g/t gold over a 3m to 4m width. This high grade mineralized zone appears to
extend into the San Sebastián Properties both along strike and immediately down
dip.
Exploration Program
2010 Exploration Program
In 2010, Endeavour commenced exploration activities on the
Terronera Project. Initial work included mainly data compilation, field mapping
and sampling. A total of $325,586 (including acquisition and property holding
costs) was spent on exploration activities on the Terronera Project in 2010.
2011 Exploration Program
In 2011, exploration activities continued on the Terronera
Project including geological mapping, rock chip sampling, topographic surveying
and diamond drilling. A total of $2,249,443 (including acquisition and property
holding costs) was spent on exploration activities on the Terronera Project in
2011.
2012 Exploration Program
In 2012, exploration activities continued on the Terronera
Project, primarily involving surface diamond drilling. A total of $3,455,816
(including acquisition and property holding costs) was spent on exploration
activities on the Terronera Project in 2012.
2013 Exploration Program
In 2013, exploration activities continued on the Terronera
Project. Follow-up surface diamond drilling continued in the Terronera vein
area. Also, geological mapping, trenching and sampling was conducted in the
Terronera South and Quiteria West areas. A total of $3,944,570 (including
acquisition and property holding costs) was spent on exploration activities on
the Terronera Project in 2013.
2014 Exploration Program
The 2014 exploration program included 6,250m of core in
approximately 20 surface diamond drill holes to delineate resources on the
Terronera vein. The field activities included detailed mapping and trenching,
mainly focused to the south and northern part of Terronera, and also the west
part of Quiteria West vein. Endeavour spent $2,807,644, mainly on diamond
drilling, in 2014.
2013 Previous Mineral Resource Estimate
The mineral resource discussed in the previous technical report
for the Terronera Project was estimated using the CIM Definition Standards on Mineral
Resources and Reserves, prepared by the CIM Standing
Committee on Reserve Definitions and adopted by CIM Council on May 10,
2014. The effective date of the previous Terronera Project technical report is
December 31, 2013.
43
Endeavour Silver Corp.
Animas-Los Negros, El Tajo and Real Veins
The estimate was conducted using a polygonal/sectional method.
Grade capping (based on log-probability plots) was at 524 g/t and 2.38 g/t for
silver and gold, respectively.
Terronera Vein
The block model used for the previous Terronera Project
technical report was developed for the Terronera vein which was tested by more
than 55 drill holes. The block size used to match the drilling density on a 50m
grid was 25m along strike x 25m down dip x the width of the vein. Grade
interpolation was achieved by using the inverse distance cubed (ID3) technique.
Grade capping (based on log-probability plots) was at 2,070 g/t and 7.96 g/t for
silver and gold, respectively.
Cut-off Grade
The cut-off grade selected by Endeavour for the current
resource estimate is 100 g/t silver equivalent (AgEq), using a 70:1 ratio based
on prices of $18/oz silver and $1,250/oz gold, with no base metal credits
applied. A summary of the mineral resources at a cut-off grade of 100 g/t AgEq
is given in the table below.
Summary of the Current Terronera Mineral Resources at a
Cut-off Grade of 100 g/t AgEq
Effective Date March 15, 2015
Resource
Classification |
Tonnes
(millions) |
Ag
g/t |
Au
g/t |
AgEq
g/t |
Ag Oz
(millions) |
Au Oz
(thousands) |
| Indicated |
2.9 |
211 |
1.65 |
310 |
19.9 |
156 |
| Inferred |
1.2 |
218 |
1.39 |
302 |
8.5 |
54 |
Notes:
| |
1) |
Mineral resources which are not mineral reserves do not
demonstrate economic viability. The estimate of mineral resources may be
materially affected by environmental, permitting, legal, title, taxation,
sociopolitical, marketing, or other relevant issues |
| |
|
|
| |
2) |
There has been insufficient exploration to define the
inferred resources as an indicated or measured mineral resource. It is
uncertain if further exploration will result in upgrading them to an
indicated or measured mineral resource category |
| |
|
|
| |
3) |
74 drill holes were utilized in the current resource
calculation |
| |
|
|
| |
4) |
Grade capping was 1,750 g/t for silver and 7.84 g/t for
gold. |
Mineral Processing and Metallurgical Testing
A simulation model was made of the beneficiation process based
on a medium grade composite sample. In addition, a steady state mass balance was
calculated for the entire process including the flotation circuit. The model
showed that a fine grind will result in increased metal recovery. Given that the
mine plan is based on mining the high grade ores first, the metal recoveries
recommended for the economic model are 90% silver and 84% gold as indicated by
the test results of the high grade composite sample.
Further test work is recommended to support the future
development of the Terronera Project. The tests include flotation locked cycle
tests, mineralogical examinations, and ICP (inductively coupled plasma) 32
element analyses on final concentrates and tailing products.
44
Endeavour Silver Corp.
Mining Methods
The mining method selected for the extraction of the
mineralized rock is mechanized non-captive cut and fill mining. A nominal cut
and fill lift will be 5m high and excavated the width of the mineralized zone.
Multiple working faces can be created in the same area by mining a number of
lifts at the same time accessed by up-and-down ramps constructed in the
backfill.
Primary access to the mineral deposit will be via a 1,748m long
track haulage drift (adit) at the 1,440m level. This track haulage drift will
also serve as a main drainage and ventilation level. The mine and stope
development and production schedules are generally based on mining higher grade
‘Blocks’ first, followed by mining lower grade ‘Blocks’. Mining will generally
be completed from the bottom up. The life-of-mine and stope development is
estimated to be 46,300m.
Recovery Methods
The Terronera Project will produce a marketable flotation
concentrate from precious metal bearing materials originating from the Terronera
vein. A beneficiation plant using a flotation process was selected for recovery
of precious metals present in the deposit. A fine grind will be required to
achieve acceptable levels of gold and silver recovery. Precious metal values
will be recovered into a flotation concentrate that may be shipped to a smelter
for further processing.
Environmental Studies, Permitting, and Social Impact
Endeavour submitted in December, 2013 a Manifest of
Environmental Impact to the Mexico environmental permitting authority known as
SEMARNAT (Secretaria de Medio Ambiente y Recursos Naturales). A SEMARNAT permit
for the Terronera Project was issued in October, 2014 for a 500 tpd project.
A Terronera Project closure and reclamation plan will be
included in an amended 1,000 tpd MIA permit application now being prepared by
Endeavour. The Terronera Project will be required to be designed to comply with
the environmental regulations and standards in place in México. The mining
infrastructure and supporting facilities will need to be designed so as to
minimize the impact to the natural environment. Mexican law requires that an
environmental monitoring program of surface and underground water, creek
sediments, soil, air, vegetation and wildlife conditions be implemented. This
program will be required before and during mining operations and after mine
closure.
The Terronera Project tailings storage facility (“TSF”) will be
designed to store filtered tailings, or “drystack” tailings, to minimize
downstream contamination risk and to maximize geotechnical stability in the
seismically active coastal area of western Mexico. The conceptual Terronera
Project TSF design will accommodate approximately 2.0 million m³ of compacted
tailings which provides a storage capacity, at a process rate of 1,000 tpd, for
the first ten years of mine life.
Capital and Operating Costs
The Terronera Project has an estimated total capital cost of
$65,363,000. All estimates were prepared by engineers and construction personnel
with direct experience on recent Endeavour mine projects and other construction
projects in Mexico.
Operating costs of $45 per tonne for mining, $27 per tonne for
processing, and $10 per tonne for General and Administration were all taken from
the current mine and plant operations of Endeavour that best match the Terronera
Project throughput and conditions.
45
Endeavour Silver Corp.
Economic Analysis
An economic analysis utilizing a pre-tax and after-tax cash
flow financial model was prepared for the base case mine plan. The metal prices
assumed in the base case are $18.00/oz silver and $1,260/oz gold.
The economic analysis is preliminary in nature and is based on
production schedules that include Inferred Mineral Resources, which are
considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as Mineral Reserves.
There is no certainty that the Terronera PEA will be realized or that Inferred
Mineral Resources will ever be upgraded to Reserves. Mineral Resources that are
not Mineral Reserves do not have demonstrated economic viability.
The Mexico tax policies for mining changed effective January 1,
2014. An overriding royalty on gross revenues, after smelter deductions, of 0.5%
applies to precious metal mines (gold, silver and platinum). A new Special
Mining Duty of 7.5% is levied on earnings before income tax and depreciation
allowance. Corporate income taxes of 30% are applied to earnings after the usual
allowable deductions for depreciation, loss carry-forwards, etc. The Special
Mining Duty and the over-riding royalty are also deductible for the purpose of
calculating corporate income tax.
The financial model incorporates these taxes in computing the
after-tax cash flow amounts, net present value, and internal rate of return. The
financial model is constructed on a 100% equity basis, however, in the tax
treatment it is assumed that debt procured at the corporate level is charged as
a tax credit at the Terronera operating subsidiary level. A total of $40 million
is applied in this manner commencing in year 1 through year 8 at $5 million per
year.The Terronera Project key financial indicators for the base case are as
follows:
-
After-tax internal rate of return 20.0%
-
Project payback period 3.7 years
-
After-Tax Net Present Value (5% discount) of $48,607,000
These key indicators describe a project whose base case is
financially profitable and, as the sensitivity analysis in the table below
demonstrates, has considerable upside potential should the size of the deposit
increase or metal prices improve.
Base Case After-Tax NPV and IRR Sensitivities
Variance |
Operating Cost Sensitivity |
Initial Capital Sensitivity |
Metal Price Sensitivity |
| NPV(5%) |
IRR |
NPV(5%) |
IRR |
NPV(5%) |
IRR |
| -20% |
$82.54 |
28.5% |
$54.68 |
23.6% |
-$16.10 |
-0.8% |
| -10% |
$66.59 |
24.6% |
$51.68 |
21.7% |
$17.89 |
10.9% |
| Base Case |
$48.61 |
20.0% |
$48.61 |
20.0% |
$48.61 |
20.0% |
| +10% |
$27.56 |
14.1% |
$45.43 |
18.4% |
$75.10 |
27.1% |
| +20% |
$3.47 |
6.3% |
$42.08 |
16.9% |
$100.43 |
33.7% |
Conclusions and Recommendations
The Terronera Project resource estimates presented here conform
to the current CIM Definition Standards for Mineral Resources and Mineral Reserves,
as required under NI 43-101. We believe that estimation approach and methodology
used is reasonable and appropriate based on the data available. There are no
known significant technical, legal, environmental or political considerations
which would have an adverse effect on the resource estimate or the continued
exploration and development of the Terronera Project.
46
Endeavour Silver Corp.
Based on a review of the Terronera Project and the encouraging
results thus far, it is recommended that Endeavour proceed to the next stage of
development by preparing a pre-feasibility study that includes the following:
-
Further environmental studies and permit applications
-
A site geotechnical program
-
A site hydrology study
-
An in-fill drilling program
-
Condemnation drilling at all sites
-
Further studies to optimize the mine plan
-
A re-estimation of the mineral resources and estimation of mineral reserves
-
Further metallurgical tests
-
Further studies to optimize the grinding and processing circuits
-
Preliminary engineering of the TSF
-
Tailings transport trade-off study from Dry Tailings Plant to TSF
-
More detailed cost estimates
The total estimated cost of the above programs, studies, and
tests and preparing a pre-feasibility study is $3.4 million. The QP further
recommends that Endeavour considers more drilling to expand the mineral resource
which could improve the economics of the Terronera Project.
ITEM 5: DIVIDENDS
5.1 Dividends
The Company has not declared any dividends during the past
three fiscal years ended December 31, 2015. Although there are no restrictions
preventing the Company from paying dividends, the Company has no present
intention of paying dividends on its common shares as it anticipates that all
available funds will be invested to finance further acquisition, exploration and
development of its mineral properties.
ITEM
6: DESCRIPTION OF CAPITAL
STRUCTURE
6.1 General
Description of Capital Structure
The Company’s authorized share capital is comprised of an
unlimited number of common shares without par value.
The following table provides a summary concerning the Company’s
share capital as of December 31, 2015:
| |
December 31, 2015 |
| Authorized share capital |
Unlimited number of common shares without par value |
| Number of shares issued and outstanding |
102,776,470 common shares without par value
|
47
Endeavour Silver Corp.
As at March 8, 2016, the Company has 106,392,513 common shares
issued and outstanding.
All common shares of the Company rank equally as to dividends,
voting rights and participation in assets and in all other respects. Each share
carries one vote per share at meetings of the shareholders of the Company. There
are no indentures or agreements limiting the payment of dividends and there are
no conversion rights, special liquidation rights, pre-emptive rights or
subscription rights attached to the common shares. The shares presently issued
are not subject to any calls or assessments.
6.2 Constraints
To the best of its knowledge, the Company is not aware of any
constraints imposed on the ownership of its securities to ensure that the
Company has a required level of Canadian ownership.
6.3 Ratings
To the best of its knowledge, the Company is not aware of any
ratings, including provisional ratings, from rating organizations for the
Company’s securities that are outstanding and continue in effect.
ITEM
7: MARKET FOR SECURITIES
7.1 Trading
Price and Volume
The Company’s common shares are listed for trading on the
Toronto Stock Exchange (the “TSX”) under the symbol “EDR” and since March 14,
2011 on the New York Stock Exchange (“NYSE”) under the symbol “EXK”. Prior to
March 14, 2011, the Company’s common shares were listed on the NYSE MKT.
The
price ranges for the Company’s common shares in Canadian dollars and volume
traded on the TSX for the most recently completed fiscal year ended December 31,
2015 and the months of January and February 2016 are set out below:
Date |
Open |
High |
Low |
Close |
Volume
Traded |
| Feb-16 |
1.75 |
2.53 |
1.66 |
2.27 |
3,117,314 |
| Jan-16 |
2.00 |
2.10 |
1.46 |
1.74 |
1,551,340 |
| Dec-15 |
1.98 |
2.09 |
1.87 |
1.98 |
1,561,994 |
| Nov-15 |
2.10 |
2.10 |
1.79 |
1.90 |
1,530,820 |
| Oct-15 |
2.11 |
2.49 |
2.07 |
2.16 |
1,786,537 |
| Sep-15 |
2.20 |
2.32 |
1.83 |
2.06 |
1,539,321 |
| Aug-15 |
1.81 |
2.54 |
1.64 |
2.22 |
2,386,867 |
| Jul-15 |
2.49 |
2.59 |
1.64 |
1.81 |
2,399,668 |
| Jun-15 |
2.58 |
2.74 |
2.45 |
2.51 |
1,333,083 |
| May-15 |
2.43 |
2.81 |
2.31 |
2.51 |
3,775,515 |
| Apr-15 |
2.45 |
2.70 |
2.25 |
2.45 |
3,206,221 |
| Mar-15 |
2.97 |
2.98 |
1.98 |
2.39 |
5,795,452 |
| Feb-15 |
3.41 |
3.55 |
2.76 |
2.97 |
3,509,061 |
| Jan-15 |
2.50 |
3.83 |
2.43 |
3.49 |
5,682,301 |
48
Endeavour Silver Corp.
The price ranges for the Company’s common shares in United
States dollars and volume traded on the NYSE for the most recently completed
fiscal year ended December 31, 2015 and the months of January and February 2016
are set out below:
Date |
Open |
High |
Low |
Close |
Volume
Traded |
| Feb-16 |
1.25 |
1.83 |
1.18 |
1.68 |
20,864,332 |
| Jan-16 |
1.43 |
1.48 |
1.01 |
1.24 |
10,875,274 |
| Dec-15 |
1.44 |
1.57 |
1.36 |
1.42 |
10,190,879 |
| Nov-15 |
1.61 |
1.61 |
1.33 |
1.42 |
11,197,742 |
| Oct-15 |
1.53 |
1.94 |
1.53 |
1.65 |
14,507,039 |
| Sep-15 |
1.69 |
1.77 |
1.37 |
1.55 |
12,008,515 |
| Aug-15 |
1.34 |
1.94 |
1.25 |
1.69 |
20,649,096 |
| Jul-15 |
1.99 |
2.04 |
1.26 |
1.37 |
8,539,149 |
| Jun-15 |
2.02 |
2.22 |
1.95 |
1.99 |
14,417,144 |
| May-15 |
2.00 |
2.41 |
1.90 |
1.97 |
17,355,674 |
| Apr-15 |
1.93 |
2.24 |
1.84 |
2.02 |
19,245,835 |
| Mar-15 |
2.35 |
2.38 |
1.55 |
1.90 |
29,451,745 |
| Feb-15 |
2.70 |
2.82 |
2.18 |
2.36 |
19,953,035 |
| Jan-15 |
2.11 |
3.17 |
2.07 |
2.74 |
36,929,146 |
ITEM
8: ESCROWED SECURITIES
8.1 Escrowed
Securities
To the Company’s knowledge, as at December 31, 2015, there were
no escrowed securities or securities subject to contractual restriction on
transfer.
ITEM
9: DIRECTORS AND OFFICERS
9.1 Name,
Occupation and Security Holding
The following is a list of the current directors and executive
officers of the Company, their province/state and country of residence, their
current positions with the Company and their principal occupations during the
past five years:
49
Endeavour Silver Corp.
Name and
Province/State and
Country
of Residence
|
Principal Occupation
for the
Last Five Years
|
Current Position with
the
Company
and
Period of Service
|
Approximate number and
percentage of voting
securities owned, directly
or indirectly or over which
direction or control is
exercised (2) (3) (4) |
Bradford J. Cooke
British Columbia, Canada
|
CEO and Director of
Endeavour
|
Director and Chief
Executive Officer
(since
July 25, 2002) |
1,062,831
1.01% |
Godfrey J. Walton
British Columbia, Canada
|
Director, President
and COO of
Endeavour and
President, G.J. Walton
& Associates Ltd. |
Director, President and
Chief Operating
Officer
(since July 25, 2002)
|
75,847
0.07%
|
Ken Pickering(1)
British Columbia,
Canada
|
Vice President, Major
Projects BHP Billiton
to Oct 2010:
Independent Director
of Pan Aust (ASX);
TheMac Resources
(TSXV); Northern
Dynasty Minerals
Ltd.(TSX) and Enaex
(Chile). |
Director
(since August 20, 2012)
|
5,000
0.005%
|
Mario D. Szotlender (1),(2),(3)
Caracas, Venezuela
|
Independent
Consultant and
Director of
several
public mineral
exploration and
mining companies |
Director
(since July 25, 2002)
|
225,100
0.21%
|
Geoffrey Handley (1),(2),(3)
Sydney,
Australia
|
Independent Director of
several public
mineral
exploration and mining
companies |
Chairman
(since May 23, 2012)
Director
(since June 14, 2006) |
10,000
0.01%
|
Rex McLennan (2),(3)
British
Columbia, Canada
|
Independent Director,
Chief Financial
Officer
of Viterra Inc. until
December 2012
|
Director
(since June 14, 2007)
|
10,000
0.01%
|
Ricardo Campoy (1),(3)
New York, USA
|
Independent Director,
Managing director of
Headwaters MB,
Director of General
Moly |
Director
(since July 9, 2010)
|
4,000
0.004%
|
Daniel Dickson
British Columbia, Canada |
CFO of Endeavour
|
Chief Financial Officer
(since April 1,
2008) |
Nil
|
50
Endeavour Silver Corp.
Name and
Province/State and
Country
of Residence
|
Principal Occupation
for the
Last Five Years
|
Current Position with
the
Company
and
Period of Service
|
Approximate number and
percentage of voting
securities owned, directly
or indirectly or over which
direction or control is
exercised (2) (3) (4) |
Luis Castro
Durango, Mexico
|
VP of Exploration of
Endeavour, prior
Manager of Exploration
of Endeavour |
Vice President,
Exploration (since
November 12, 2012)
|
Nil
|
David Howe
Leon, Mexico
|
VP of Operations of
Endeavour since
November 2007 |
Vice President
Operations, Mexico (since
November 1, 2007) |
20,000
0.02% |
Terence Chandler
British Columbia, Canada
|
VP of Corporate
Development of
Endeavour Silver since
January 2013.
Consulting Geologist
Terrenex Consulting,
President Redcorp
Ventures Limited |
Vice President Corporate
Development (since
January 1, 2013)
|
Nil
|
Bernard Poznanski
British Columbia, Canada
|
Lawyer, Koffman
Kalef Business
Lawyers
|
Corporate Secretary
(since March 9, 2009)
|
Nil
|
| |
(1) |
Member of Compensation Committee and Member |
| |
|
|
| |
(2) |
Member of Corporate Governance and Nominating
Committee |
| |
|
|
| |
(3) |
Member of Audit Committee |
| |
|
|
| |
(4) |
Refer to www.sedi.ca
for continuous disclosure of Directors & Officers
holdings. |
Directors' Terms of Office
Each director is elected to serve until the next annual general
meeting of shareholders or until his successor is elected or appointed, or
unless his office is earlier vacated under any of the relevant provisions of the
articles of the Company or the Business Corporations Act (British
Columbia).
Control of Securities
As at March 8, 2016 the directors and officers of the Company
as a group beneficially owned, directly or indirectly, or exercised control or
direction over an aggregate of 1,407,778 common shares of the Company,
representing approximately 1.34% of the issued and outstanding common shares of
the Company.
51
Endeavour Silver Corp.
9.2 Cease
Trade Orders, Bankruptcies, Penalties or Sanctions
Other than as disclosed herein, no director or executive
officer of the Company is, as at the date of this AIF, or has been, within the
ten years preceding the date of this AIF, a director, chief executive officer or
chief financial officer of any company (including the Company) that
| |
(a) |
was subject to a cease trade or similar order or an order
that denied the relevant company access to any exemption under securities
legislation, that was in effect for a period of more than 30 consecutive
days, when such order was issued while the person was acting in the
capacity of a director, chief executive officer or chief financial officer
of the relevant company, or |
| |
|
|
| |
(b) |
was subject to a cease trade or similar order or an order
that denied the relevant company access to any exemption under securities
legislation, that was in effect for a period of more than 30 consecutive
days, that was issued after such person ceased to be a director, chief
executive officer or chief financial officer of the relevant company, and
which resulted from an event that occurred while the person was acting in
the capacity of a director, chief executive officer or chief financial
officer of the relevant company. |
Bernard Poznanski, the Corporate Secretary of the Company, was
a director and Corporate Secretary of Energem Resources Inc. (“Energem”) when
certain management cease trade orders were issued against the insiders of
Energem. Mr. Poznanski ceased to be a director and Corporate Secretary of
Energem on May 1, 2006. Particulars of the orders are as follows:
| |
(a) |
On March 7, 2006, the Executive Director of the British
Columbia Securities Commission (the “BCSC”) issued a management cease
trade order in connection with the late filing of Energem’s 2005
comparative annual financial statements, 2005 annual MD&A and a 2005
Annual Information Form. The management cease trade order was revoked on
May 31, 2006 after the relevant documents were filed; and |
| |
|
|
| |
(b) |
On April 20, 2005, the Executive Director of the BCSC
issued a management cease trade order in connection with the late filing
of Energem’s 2004 comparative annual financial statements, 2005 first
interim period financial statements and MD&A for the 2005 first
interim period. The management cease trade order was revoked on June 2,
2005 after the relevant documents were filed. |
Ricardo Campoy was a director of Century Mining Corporation
(“Century”) when it was subject to cease trade orders or management cease trade
orders in issued March 2008, April 2009 and May 2010.
| |
(a) |
On March 14, 2008, Century received notice from the
British Columbia Securities Commission that the British Columbia
Securities Commission had invoked a cease trade order with respect to
Century’s shares as a result of inadequacies in a NI 43-101 technical
report filed by Century for the Lamaque Project and in Century’s financial
reports for the third quarter of 2007. On March 20, 2008 the British
Columbia Securities Commission revoked the cease trade order and imposed a
management cease trade order, giving Century time to comply with the
issues cited in the cease trade order. All of those issues were resolved
upon the filing of Century’s revised Lamaque Project NI 43-101 technical
report, the filing of a NI 43-101 technical report on the San Juan Project
and the filing of Century’s restated third quarter 2007 financial
statements and related management’s discussion & analysis. The
management cease trade order remained in place until June 24, 2008, when
Century filed its audited financial statements and management’s discussion
& analysis for the year ended December 31,
2007. |
52
Endeavour Silver Corp.
| |
(b) |
On May 4, 2009, Century announced that the British
Columbia Securities Commission had granted Century an extension for filing
its annual financial statements and management’s discussion and analysis
for the year ended December 31, 2008 in response to Century’s request for
a management cease trade order filed with the British Columbia Securities
Commission on April 28, 2009. On May 22, 2009, Century filed its financial
statements and management’s discussion and analysis for the year ended
December 31, 2008. However, the management cease trade order remained in
effect, with the consent of Century, until June 16, 2009. |
| |
|
|
| |
(c) |
On May 12, 2010, Century announced that the British
Columbia Securities Commission had invoked a cease trade order with
respect to Century’s shares as a result of Century’s failure to file its
annual financial statements and related management’s discussion and
analysis for the year ended December 31, 2009. Century subsequently filed
its annual financial statements and related management’s discussion and
analysis for the year ended December 31, 2009, and the British Columbia
Securities Commission revoked the cease trade order on May 17,
2010. |
Geoffrey Handley was a director of Mirabela Nickel Limited
(“Mirabela”) until January 11, 2014. On February 25, 2014, within a year of Mr.
Handley ceasing to be a director, Mirabela announced that it had entered into a
legally binding plan support agreement (“PSA”) which establishes a framework for
a proposed recapitalization of Mirabela, subject to certain terms and
conditions, as well as the appointment of certain persons of KordaMentha, a
restructuring firm, as joint and several voluntary administrators under the
Australian Corporations Act 2001. Mirabela also announced that, under the PSA,
the proposed recapitalization will be effected through a recapitalization and
restructuring plan to be implemented through a deed of company arrangement in
Australia and an extrajudicial reorganization proceeding to be filed by Mirabela
Brazil before the competent Brazilian court. Trading in securities of Mirabela
on the Australian Securities Exchange was suspended from October 7, 2013 to June
30, 2014.
Terence Chandler, an officer of the Company, held the position
of President, CEO and Director of Redcorp Ventures Ltd. (“Redcorp”) while
Redcorp and its wholly-owned subsidiary Redfern Resources Ltd. (“Redfern”) were
involved in proceedings under the Companies’ Creditors Arrangement Act (Canada)
(“CCAA”). On March 4, 2009, Redcorp filed for protection under the CCAA with the
intention to re-finance its mining project and restructure its debt. After an
unsuccessful attempt to sell the mining property, the assets of Redcorp and
Redfern were placed into receivership. By June 3, 2009, Mr. Chandler resigned as
director and ceased to be an officer of Redcorp.
No director or executive officer of the Company or any
shareholder holding a sufficient number of common shares of the Company to
affect materially the control of the Company:
| |
(a) |
is, as at the date of this AIF, or has been, within the
ten years preceding the date of this AIF, a director or executive officer
of any company (including the Company) that, while that person was acting
in that capacity, or within a year of that person ceasing to act in that
capacity, became bankrupt, made a proposal under any legislation relating
to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold its assets, |
| |
|
|
| |
(b) |
has, within the ten years preceding the date of this AIF,
become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any
proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of that
person, |
| |
|
|
| |
(c) |
has been subject to any penalties or sanctions imposed by
a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities
regulatory authority, or |
| 53 |
| Endeavour Silver Corp.
|
| |
(d) |
has been subject to any other penalties or sanctions
imposed by a court or regulatory body that would likely be considered
important to a reasonable investor in making an investment decision
regarding the Company. |
9.3 Conflicts of
Interest
The Company's directors and officers may serve as directors or
officers of other companies or have significant shareholdings in other resource
companies and, to the extent that such other companies may participate in
ventures in which the Company may participate, the directors of the Company may
have a conflict of interest in negotiating and concluding terms respecting the
extent of such participation. In the event that such a conflict of interest
arises at a meeting of the Company's directors, a director who has such a
conflict will abstain from voting for or against the approval of such
participation or such terms. From time to time several companies may participate
in the acquisition, exploration and development of natural resource properties
thereby allowing for their participation in larger programs, permitting
involvement in a greater number of programs and reducing financial exposure in
respect of any one program. It may also occur that a particular company will
assign all or a portion of its interest in a particular program to another of
these companies due to the financial position of the company making the
assignment. In accordance with the laws of British Columbia, the directors of
the Company are required to act honestly, in good faith and in the best
interests of the Company. In determining whether or not the company will
participate in a particular program and the interest therein to be acquired by
it, the directors will primarily consider the degree of risk to which the
Company may be exposed and its financial position at the time.
The directors and officers of the Company are aware of the
existence of laws governing the accountability of directors and officers for
corporate opportunity and requiring disclosure by the directors of conflicts of
interest and the Company will rely upon such laws in respect of any directors'
and officers' conflicts of interest in or in respect of any breaches of duty by
any of its directors and officers. All such conflicts will be disclosed by such
directors or officers in accordance with the Business Corporations Act
(British Columbia) and they will govern themselves in respect thereof to the
best of their ability in accordance with the obligations imposed upon them by
law.
To the best of its knowledge, the Company is not aware of any
such conflicts of interest.
ITEM 10: PROMOTERS
Since January 1, 2014 no person or company has acted as a
promoter of the Company.
ITEM 11: LEGAL PROCEEDINGS
11.1 Legal Proceedings
Other than discussed below, there are no material legal
proceedings in the Company’s last fiscal year to which the Company is a party or
to which any of its property is subject, and there are no such proceedings known
to the Company to be contemplated.
Minera Santa Cruz y Garibaldi SA de CV (“MSCG”), a subsidiary
of the Company, received a MXN$238 million assessment on October 12, 2010 by
Mexican fiscal authorities for failure to provide the appropriate support
for certain expense deductions taken in MSCG’s 2006 tax return, failure to
provide appropriate support for loans made to MSCG from affiliated companies,
and deemed an unrecorded distribution of dividends to shareholders, among
other individually immaterial items. MSCG immediately initiated a Nullity action
and filed an administrative attachment to dispute the assessment.
54
Endeavour Silver Corp.
Minera Santa Cruz y Garibaldi SA de CV (“MSCG”), a subsidiary
of the Company, received a MXN$238 million assessment on October 12, 2010 by
Mexican fiscal authorities for failure to provide the appropriate support for
certain expense deductions taken in MSCG’s 2006 tax return, failure to provide
appropriate support for loans made to MSCG from affiliated companies, and deemed
an unrecorded distribution of dividends to shareholders, among other
individually immaterial items. MSCG immediately initiated a Nullity action and
filed an administrative attachment to dispute the assessment.
In June 2015, the Superior Court ruled in favour of MSCG on a
number of the matters under appeal; however, the Superior Court ruled against
MSCG for failure to provide appropriate support for certain deductions taken in
MSCG’s 2006 tax return. An assessment by the Tax Court was made, however the Tax
Court did not follow the Superior Court directive as required by law. Therefore
the Company filed another Nullity action for the Tax Court to follow the
Superior Court directive during the year. The Company expects the Tax Court to
make a final assessment based on the Superior Court directive in 2017. The
Company estimates the impact of the Superior Court ruling will result in an
additional tax expense of MXN 31.7 million (~USD $1.8 million) to MSCG for
fiscal 2006 when the Tax Court rules on a final assessment. As of December 31,
2015, the Company estimates additional interest and penalties payable on overdue
taxes by MSCG to be MXN 65.7 million (~USD $3.8 million). If MSCG agrees to pay
the tax assessment, or a lesser settled amount, it is eligible to apply for
forgiveness of 100% of the penalties and 50% of the interest, with the latter
amounting to MXN 22.6 million (~USD $1.3 million) on the MXN 31.7 million
estimated tax assessment.
Included in the Company’s consolidated financial statements,
are net assets of $240,000, including $42,000 in cash, of MSCG. Following the
Tax Court’s rulings, MSCG is in discussions with the tax authorities with
regards to the shortfall of assets within MSCG to settle its estimated tax
liability. An alternative settlement option would be to transfer the shares and
assets of MSCG to the tax authorities. As of September 30, 2015, the Company
recognized an allowance for transferring the shares and assets of MSCG amounting
to $240,000. The Company is currently assessing MSCG’s settlement options,
however the Tax Court assessment must be received before any negotiation can be
finalized or a decision is made.
11.2 Regulatory Actions
During the year ended December 31, 2015, there were no
penalties or sanctions imposed against the Company by a court relating to
securities legislation or by a securities regulatory authority. During the year
ended December 31, 2015, there were no settlement agreements that the Company
entered into before a court relating to securities legislation or with a
securities regulatory authority. Except as described in item 11.1, there are no
other penalties or sanctions imposed by a court or regulatory body against the
Company that would likely be considered important to a reasonable investor in
making an investment decision.
55
Endeavour Silver Corp.
ITEM 12: INTEREST OF
MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
12.1 Interest of Management
and Others in Material Transactions
None of the following persons or companies has had any material
interest, direct or indirect in any transaction since January 1, 2013 that has
materially affected or is reasonably expected to materially affect the Company:
| (a) |
a director or executive officer of the Company; |
| |
|
| (b) |
a person or company that beneficially owns, or controls
or directs, directly or indirectly more than 10% of any class or series of
the outstanding voting securities of the Company; and |
| |
|
| (c) |
an associate or affiliate of any of the persons or
companies referred to in the above paragraphs (a) or
(b). |
The Company’s directors and officers may serve as directors or
officers of other public resource companies or have significant shareholdings in
other public resource companies and, to the extent that such other companies may
participate in ventures in which the Company may participate, the directors of
the Company may have a conflict of interest in negotiating and concluding terms
respecting the extent of such participation. The interests of these companies
may differ from time to time. See “Risk Factors – Potential Conflicts of
Interest” and “Conflict of Interest”
ITEM 13: TRANSFER AGENT AND
REGISTRAR
13.1 Transfer Agent and
Registrar
The transfer agent and registrar for the common shares of the
Company is Computershare Investor Services Inc. at its principal offices in
Vancouver, British Columbia and Toronto, Ontario.
ITEM 14: MATERIAL CONTRACTS
14.1 Material Contracts
Other than noted below there are no contracts that are material
to the Company that were entered into during the financial year ended December
31, 2015 or prior thereto but which are still in effect, other than contracts
entered into in the ordinary course of business of the Company.
On July 24, 2012, the Company entered into a $75 million
revolving credit facility (“the Facility”) with The Bank of Nova Scotia
(“Scotiabank”) that was originally scheduled to reduce to $50 million in July
2013 and reduce to $25 million in July 2015. The purpose of the Facility was 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 a debt to EBITDA ratio. The Facility is subject to various
qualitative and quantitative covenants, including EBITDA leverage ratio, an
interest service coverage ratio and tangible net worth calculation. During the
year ended December 31, 2013, the Company extended the Facility until July 24,
2016, with a requirement to reduce the credit limit from $50 million to $25
million by July 24, 2015. At December 31, 2015, the Company had $22 million
outstanding on this Facility.
56
Endeavour Silver Corp.
In March 2015, the Facility was amended requiring the Tangible
Net Worth of the Company (as defined in the Facility) to be greater than 85% of
“Equity” (as defined by the Facility) as at December 31, 2014, plus 50% of
subsequent quarterly earnings.
Subsequent to year end, the Company has entered into an amended
restated credit agreement with Scotia Capital, including an amended Tangible Net
Worth covenant requiring the tangible net worth to be greater than $45.9
million, subject to final satisfaction of conditions precedent, to convert the
$22 million which remains outstanding under the existing line of credit into a
two year term loan amortized quarterly and expiring December 31, 2017. The
Company repaid $3 million on signing the amended and restated credit agreement
and will pay $2.5 million each quarter.
ITEM 15: INTERESTS OF EXPERTS
15.1 Names of Experts
KPMG LLP is the external auditor of the Company and reported on
the fiscal 2015 audited financial statements of the Company filed on SEDAR.
The Qualified Persons who completed the reserves and resources
estimate for the Guanacevi Project are Zachary J. Black, SME-RM, Jeffery W.
Choquette, P.E. and Jennifer J. Brown, SME-RM, of Hard Rock Consulting. They are
the authors of the report“NI 43-101 Technical Report Updated Resource and
Reserve Estimates for the Guanacevi Mines Project, Durango State, Mexico”
dated March 3, 2016 (effective date of December 31, 2015) filed on SEDAR.
The Qualified Persons who completed the reserves and resources
for the Bolañitos Mines Project are Zachary J. Black, SME-RM, Jeffery W.
Choquette, P.E. and Jennifer J. Brown, SME-RM, of Hard Rock Consulting. They are
the authors of the report “NI 43-101 Technical Report: Updated Mineral
Resource and Reserve Estimates for the Bolañitos Project, Guanajuato State,
Mexico” dated March 3, 2016 (effective date of December 31, 2015) filed on
SEDAR.
The Qualified Persons who completed the estimate of the
reserves and resources for the El Cubo Mine are Zachary J. Black, SME-RM,
Jeffery W. Choquette, P.E. and Jennifer J. Brown, SME-RM, of Hard Rock
Consulting. They are the author of the report “NI 43-101 Technical Report:
Updated Mineral Resource and Reserve Estimates for the El Cubo Project ,
Guanajuato State, Mexico” dated March 3, 2016 (effective date of December
31, 2015 filed on SEDAR.
The Qualified Persons who completed the Preliminary Economic
Assessment for the Terronera Project are Peter J. Smith, P. Eng. of Smith Foster
& Associates, Scott Fleming, P.E. of Amec Foster Wheeler, Jarita Barry, P.
Geo., David Burga, P. Geo., Richard Routledge, P. Geo., Richard Sutcliffe,
Ph.D., P. Geo., James L. and Pearson, P. Eng. of P&E Mining Consultants Inc,
and Eugenio Iasillo, P. E. of Processing Engineering L.L.C. They are the authors
of the report “NI 43-101 Technical Report Preliminary Economic Assessment for
the Terronera Project, Jalisco State, Mexico” dated April 30, 2015
(effective date of March 25, 2015) filed on SEDAR.
15.2 Interests of Experts
KPMG LLP are the auditors of the Company and have confirmed with respect to the Company, that they
are independent within the meaning of the relevant rules and related interpretations prescribed by the
relevant professional bodies in Canada and any applicable legislation or regulations and also that they are
independent accountants with respect to the Company under all relevant United States professional and
regulatory standards.
To the best of the Company’s knowledge, the other experts named
in Item 15.1 did not have any registered or beneficial interest, direct or
indirect, in any securities or other property of the Company when the experts
prepared their respective reports or afterwards, nor will they receive any such
interest.
57
Endeavour Silver Corp.
ITEM 16: ADDITIONAL
INFORMATION
16.1 Additional Information
Additional information relating to the Company may be found on
SEDAR at www.sedar.com. Additional information, including directors’ and
officers’ remuneration and indebtedness, principal holders of the Company’s
securities and securities authorized for issuance under equity compensation
plans, if applicable, is contained in the Company’s Information Circular
pertaining to its most recent Annual General Meeting of security holders held on
May 6, 2015. Additional financial information is also provided in the Company’s
financial statements and management’s discussion and analysis for its most
recently completed financial year ended December 31, 2015.
16.2 Audit Committee
1.
The Audit Committee’s Charter
National Instrument 52-110 Audit Committees (“NI 52-110)
requires every issuer to disclose certain information concerning the
constitution of its audit committee and its relationship with its independent
auditor, as set forth below.
2.
Composition of the Audit Committee
The Company’s audit committee is comprised of four directors, as set
forth below:
| Gezoff Handley |
Ricardo Campoy |
Mario D. Szotlender |
Rex McLennan |
As defined in NI 52-110, Geoff Handley, Mario Szotlender,
Ricardo Campoy and Rex McLennan are “independent”. The Company therefore meets
the requirement of NI 52-110 that all audit committee members be independent.
All of the members of the audit committee are financially
literate.
3.
Relevant Education and Experience
Geoff Handley – Mr. Handley is a geologist with a Science
Degree and over 30 years of experience in the exploration and mining industry
which included analyzing the financial statements of mining companies as an
investment analyst and, later, as the manager/executive responsible for
corporate mergers and acquisition activities at Placer Dome Inc.
Ricardo
Campoy – Mr. Campoy has a Bachelor of Science in Mine Engineering from the
Colorado School of Mines and a Master of International Management (Finance) from
the American Graduate School of International Management. Mr. Campoy has over 30
years of experience as a mine engineer, investment banker and financial advisor
for the resource industry, financial institutions and investment funds.
Mario Szotlender - Mr. Szotlender is a financier and
businessman with a Bachelors degree in International Relations from Universidad
Central de Venezuela, Caracas, Venezuela and 20 years of experience financing
and managing resource projects in Central and South America.
58
Endeavour Silver Corp.
Rex McLennan - Mr. McLennan holds a Master of Business
Administration degree from McGill University and a Bachelor of Science degree
from the University of British Columbia. Mr. McLennan has an ICD.D designation
with the Institute of Corporate Directors. Mr. McLennan was most recently Chief
Financial Officers of Viterra Inc., a major global agricultural commodity
company, since February 2008, until Viterra was acquired by Glencore Plc in
December 2012. He has held increasingly responsible positions in the mining and
oil and gas sectors. From 1997 to 2005, he was the Executive Vice President and
Chief Financial Officer for Placer Dome Inc., and prior to this held the
position of Vice President and Treasurer with the same company. For more than
ten years, he held positions of increasing responsibility in business planning,
finance and treasury and was a Senior Advisor in the Treasurer’s Department for
Imperial Oil, a publicly traded Canadian subsidiary of Exxon Corporation.
4.
Reliance on Certain Exemptions
At no time since the commencement of the Company’s most recently
completed financial year has the Company relied on the following exemptions
under NI 52-110:
| |
(a) |
the exemption in section 2.4. De Minimis Non-audit
Services;, |
| |
(b) |
the exemption in section 3.2 Initial Public
Offerings; |
| |
(c) |
the exemption in section 3.3(2) Controlled
Companies; |
| |
(d) |
the exemption in section 3.4 Events Outside Control of
Member; |
| |
(e) |
the exemption in section 3.5 Death, Disability or
Resignation of Audit Committee Member; |
| |
(f) |
the exemption in section 3.6 Temporary Exemption for
Limited and Exceptional Circumstances; |
| |
(g) |
the exemption in section 3.8 Acquisition of Financial
Literacy; |
| |
(h) |
an exemption from NI 52-110, in whole or part, granted
under Part 8, Exemptions |
5.
Audit Committee Oversight
At no time since the commencement of the Company’s most
recently completed financial year, has a recommendation of the Committee to
nominate or compensate an external auditor not been adopted by the Board or
Directors.
6.
Pre-Approval Policies and Procedures
The audit committee has not adopted specific policies and
procedures for the engagement of non-audit services. Subject to the requirements
of NI 52-110, the engagement of non-audit services is considered by the
Company’s Board of Directors and, where applicable, by the audit committee, on a
case-by-case basis.
7.
External Auditor Service Fees (By Category)
Set forth below are details of certain service fees paid to the
Company’s external auditor in each of the last two fiscal years for audit
services:
| Financial Year End |
Audit Fees(1) |
Tax Fees(2) |
All Other Fees(3) |
| December 31, 2015 |
Cdn.$497,500 |
Nil |
Nil |
| December 31, 2014 |
Cdn.$587,800 |
Nil |
Nil |
| (1) |
Relates to fees for assurance and related services by the
Company’s external auditor that are reasonably related to the performance
of the audit or review of the Company’s financial statements. |
| |
|
| (2) |
Relates to fees for professional services rendered by the
Company’s external auditor for tax compliance and tax advice. |
| |
|
| (3) |
The aggregate fees billed in each of the last two fiscal
years for products and services provided by the Company’s external
auditor, other than the services reported under clauses (1) and (2) above.
The nature of the services in the fiscal period ending December 31, 2015
pertains to filing of a supplemental prospectus. |
59
Endeavour Silver Corp.
SCHEDULE “A”
ENDEAVOUR SILVER CORP. (the "Company")
Audit Committee Charter
(effective August 1, 2012)
This Audit Committee Charter has been approved by the Board of
Directors (the “Board”) of Endeavour Silver Corp. (the “Company”) as of the date
set out above.
| 1. |
Purpose Of Audit Committee |
| |
|
|
| 1.1 |
The purpose of the Audit Committee (the “Committee”) is
to act as the representative of the Board in carrying out its oversight
responsibilities relating to: |
| |
|
|
|
(a) |
The audit process; |
| |
|
|
|
(b) |
The financial accounting and reporting process to
shareholders and regulatory bodies; and |
| |
|
|
|
(c) |
The system of internal financial controls. |
| |
|
|
| 1.2 |
All reasonably necessary costs to allow the Committee to
carry out its duties shall be paid for by the Company. Also, in carrying
out the foregoing duties, the Committee shall have the right and the
ability to retain any outside legal, accounting or other expert advice or
assistance to assist the Committee members in the proper completion of
their duties, for and on behalf of the Company and at the Company’s cost,
without any requirement for further Board or management approval of such
expenditure. |
| |
|
|
| 2. |
Composition |
| |
|
|
|
The Committee shall consist of a minimum of three
Directors, all of whom are “independent” within the meaning of National
Instrument 52-110 - Audit Committees in Canada, and as required by all
applicable United States securities laws and regulations and the policies
of the New York Stock Exchange. The Committee shall be appointed annually
by the Board immediately following the Annual General Meeting of the
Company. Each member of the Committee shall be financially literate,
meaning that each member must be able to read and understand financial
statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and complexity of the
issues that can reasonably be expected to be raised by the Company’s
financial statements. One member of the Committee must have accounting and
financial expertise, meaning that the member possesses financial or
accounting credentials or has experience in finance or
accounting. |
| |
|
|
| 3. |
Duties |
| |
|
|
| 3.1 |
The Committee’s duty is to monitor and oversee the
operations of management and the external auditor. Management is
responsible for establishing and following the Company’s internal controls
and financial reporting processes and for compliance with applicable laws
and policies. The external auditor is responsible for performing an
independent audit of the Company’s financial statements in accordance with
generally accepted auditing standards, and for issuing its report on the
statements. The Committee should review and evaluate this Charter on an
annual basis. |
60
Endeavour Silver Corp.
| 3.2 |
The specific duties of the Committee are as
follows: |
| |
|
|
|
|
(a) |
Management Oversight: |
| |
|
|
|
|
|
(i) |
Review and evaluate the adequacy of the Company’s
processes for identifying, analyzing and managing financial risks,
including foreign exchange and liquidity that may prevent the Company from
achieving its objectives; |
| |
|
|
|
|
|
(ii) |
Review and evaluate the adequacy of the Company’s
processes over internal controls,; |
| |
|
|
|
|
|
(iii) |
Review and evaluate the adequacy of the Company’s
processes over the status and adequacy of internal information systems and
security; |
| |
|
|
|
|
|
(iv) |
Meet with the external auditor at least once a year in
the absence of management; |
| |
|
|
|
|
|
(v) |
Request the external auditor’s assessment of the
Company’s financial and accounting personnel; |
| |
|
|
|
|
|
(vi) |
Review and approve the Company’s hiring policies
regarding partners, employees and former partners and employees of the
present and former external auditor of the Company. |
| |
|
|
|
|
(b) |
External Auditor Oversight |
| |
|
|
|
|
|
(i) |
Recommend to the Board the selection and, where
applicable, the replacement of the external auditor to be appointed or
nominated annually for shareholder approval; |
| |
|
|
|
|
|
(ii) |
Recommend to the Board the compensation to be paid to the
external auditor; |
| |
|
|
|
|
|
(iii) |
Review and evaluate the external auditor’s process for
identifying and responding to key audit and internal control
risks; |
| |
|
|
|
|
|
(iv) |
Review the scope and approach of the annual
audit; |
| |
|
|
|
|
|
(v) |
Inform the external auditor of the Committee’s
expectations; |
| |
|
|
|
|
|
(vi) |
Review the independence of the external auditor on an
annual basis; |
| |
|
|
|
|
|
(vii) |
Review with the external auditor both the acceptability
and the quality of the Company’s financial reporting standards; |
| |
|
|
|
|
|
(viii) |
Resolve any disagreements between management and the
external auditor regarding financial reporting; |
| |
|
|
|
|
|
(ix) |
Review and pre-approve all audit and audit-related
services and the fees and other compensation related thereto, and any
non-audit services, provided by the Company’s external auditor. The
authority to pre-approve non-audit services may be delegated by the
Committee to one or more independent members of the Committee, provided
that such pre-approval must be presented to the Committee’s first
scheduled meeting following such pre-approval. Pre-approval of non-audit
services is satisfied if: |
61
Endeavour Silver Corp.
| |
A. |
the aggregate amount of all the non-audit services that
were not pre-approved is reasonably expected to constitute no more than 5%
of the total amount of fees paid by the Company and subsidiaries to the
Company’s external auditor during the fiscal year in which the services
are provided; |
| |
|
|
| |
B. |
the Company or a subsidiary did not recognize the
services as non-audit services at the time of the engagement;
and |
| |
|
|
| |
C. |
the services are promptly brought to the attention of the
Committee and approved, prior to completion of the audit, by the Committee
or by one or more of its members to whom authority to grant such approvals
has been delegated by the Committee; and |
| |
(x) |
Confirm with the external auditor that the external
auditor is ultimately accountable to the Board and the Committee, as
representatives of the shareholders. |
| |
(c) |
Financial Reporting Oversight |
| |
|
|
|
| |
|
(i) |
Review with management and the external auditor the
Company’s annual and interim financial statements, management’s discussion
and analysis, any annual and interim earnings press releases and any
reports or other financial information to be submitted to any governmental
and/or regulatory body, or the public, including any certification,
report, opinion, or review rendered by the external auditor, for the
purpose of recommending their approval to the Board prior to their filing,
issue or publication; |
| |
|
|
|
| |
|
(ii) |
Ensure that adequate procedures are in place for the
review of the Company’s public disclosure of financial information
extracted or derived from the Company’s financial statements (other than
the public disclosure referred to in (i) above), as well as review any
financial information and earnings guidance provided to analysts and
rating agencies, and periodically assess the adequacy of those procedures;
and |
| |
|
|
|
| |
|
(iii) |
Discuss with the external auditor the quality and the
acceptability of the International Financial Reporting Standards applied
by management. |
| |
(d) |
“Whistleblower” Procedures |
| |
|
|
|
| |
|
(i) |
Establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters; and |
| |
|
|
|
| |
|
(ii) |
Establish procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters. |
62
Endeavour Silver Corp.
