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November 27, 2017

Q: During 2017, the price of silver has been relatively flat,  averaging approximately US$17 per oz. What is your 2018 outlook for the metal?

A: I attended the annual Silver Institute dinner in New York last week.  The featured speaker was the precious metals analyst for GFMS, the bullion research group.  He reviewed the fundamental supply and demand for silver both in 2017 and looking forward.  We learned that total supply this year is flat and mine supply is lower while jewelry and industrial demand are both up.  Investment demand was up in the ETFs but down sharply for coin and bar demand, leading to a small physical surplus and a flat silver price this year.

Looking forward, silver supply is forecast to decline for several years given that silver is primarily a byproduct of copper, lead, zinc and gold mines, and during the recent 5 year bear market for all metals, very few new copper, lead, zinc and gold mines got built.  Silver demand is forecast to continue rising, driven by electronics and solar photovoltaic cells which are the fastest growing aspect of industrial demand, but also electric vehicles which could soon overtake solar!

So it appears we are headed back into a bull market for silver next year.  The GFMS forecast average silver price for 2018 is up 10% to US$18.80 per oz.  We note that Canadian mining analysts such as BMO and TD also raised their silver price forecasts to around US$19 per oz next year.  If these forecasts are accurate, Endeavour could see a significant jump in both cash flow and net earnings in 2018.

Click here to view the GFMS Silver Survey Update


October 2, 2017

Q: I see you posted an update on the El Compas development project on your website home page. What is the current status of the project and when can we expect to see the commencement of production?

A: Yes we plan to post updates at the beginning of each month with the project schedule and photos showing the progress of our mine development and plant refurbishment at El Compas. At this time, we are advancing the first few meters of the mine access ramp and refurbishing the ball mill, float cells and conveyors. Production should commence by the end of the 1st quarter 2018.


August 17, 2017

Q: Several Mexico mining companies recently suffered lost production due to strikes or other work stoppages. Can you please comment on labor relations at Endeavour's mines, and labor relations in Mexico generally?

A: Endeavour maintains good employee relations at each of our mines by being proactive with our two unions in preventing any issues from growing. I also think our positive approach to building a sustainable business, our corporate social integrity, really helps build trust with our people. As a result, we have not had any labour strikes in recent years nor work stoppages in Mexico. In general, Mexico has a large and well-trained workforce in the mining sector. Our biggest challenge has been retaining good workers, because there is always another company wanting to hire them away! Thankfully, most of our mines are located in desirable places to live in Mexico so we have that advantage as well. I cannot comment on some of the issues that other companies have had at their operations because we are not fully aware of the circumstances.


August 11, 2017

Q: Endeavour continues to have operating problems and high costs at the Guanacevi mine - what is management doing to resolve these issues?

A: The Guanaceví mine has been lagging behind plan for a year now due to some unforeseen site management and underground mine issues. Last year, we broke into a hot spring at the bottom of the Santa Cruz mine (our main producing area) and it fried our electrical and pump systems and strained our ventilation system. We made constructive changes to site management, repaired the electrical, pumping and ventilation systems and dewatered the deep, high-grade mine workings only to encounter continued electrical outages and pump failures, which caused more mine flooding and restricted access to the lower mine workings.

This year, slower than planned mine development due to narrower than planned vein widths also contributed to lower mine output, while excess dilution of the ore resulted in lower than planned grades. In July, a lightning strike caused a repeat in the electrical issues just as electrical repairs were again nearing completion, resulting in another pump failure and renewed flooding in the deeper working areas. Another internal review was initiated in order to better understand the new issues and possible resolutions. While there is no guarantee we will not be struck by lightning again, we are optimistic that the mine operations are now normalizing, and the recently completed electrical and ventilation repairs and construction of a new underground pump station should help smooth production in H2, 2017.

Given these setbacks, Guanaceví will not meet its planned production this year and accordingly, we reduced our consolidated production guidance and raising our consolidated cost guidance. Returning Guanacevi to long-term profitability relies in part on developing two new orebodies, Milache and Santa Cruz Sur. Underground ramp access is already under way toward Milache, and initial production is expected in the second half of 2018. Mine development at Santa Cruz Sur is scheduled to coincide with the development of Milache. Guanaceví will look much better in a year, both in production and in costs. We think the future of the mine remains very promising.


June 6, 2017

Q: I see you recently acquired several small properties in Zacatecas. Are they not too small for a mid-sized silver company like Endeavour? What is your strategy in Zacatecas?

A: We entered the Zacatecas mining district in 2016 with the $6.7 million acquisition of the El Compas property and the leased La Plata government plant. Normally we would not consider acquiring such a small project but the mine is already permitted, shallow and high grade, and the leased plant is already permitted. Based on our recent preliminary economic assessment, the low capex (<$10 million) and low all-in sustaining cost (<$10 per silver equivalent oz) estimates generate accretive cash flows and profit margins for Endeavour. We therefore view the El Compas project as picking “low hanging fruit” that establishes a foothold for us in the region and a foundation on which to grow.

Zacatecas state has a rich silver mining history that dates back to the 16th century. It is the largest silver producing state in Mexico and home to some of the world’s largest silver mines, including the world class Fresnillo mine. Other mining companies active in the state include Goldcorp, Pan American Silver, First Majestic Silver and MAG Silver. With El Compas having such a great address, our focus has now turned to building critical mass by picking up other prospective properties in the district to grow reserves, increase production, and extend the mine life. The recently acquired Calicanto and Veta Grande properties were acquired for their near-term mine exploration and development potential.

We are now drilling at Calicanto, we expect to start developing the main access ramp at El Compas in the third quarter, and we hope to permit and drill the Veta Grande properties later this year. Stay tuned for news as we get busy in this prospective silver mining district!


May 2, 2017

Q: Why has there been so much volatility in your stock recently?

A: You are correct, our stock has been particularly volatile in recent weeks and we believe the GDXJ ETF index fund rebalancing is the main reason. At the date of their most recent filing, the GDXJ held 15% of Endeavour’s issued and outstanding shares – making them by far our largest shareholder. Their holdings had been steadily creeping up as the size of the fund grew, and they were rapidly approaching the 20% threshold in many of their holdings (not just Endeavour Silver). They cannot own more than 20% in any company because it would breach their ETF policies and trigger certain takeover and disclosure laws. To address this, the GDXJ managers recently announced a change in their investment methodology to allow more larger cap companies into the fund, thereby reducing their exposure to the junior companies (the J in GDXJ). As a result, they have been reducing their positions in all of their current GDXJ holdings and buying the larger cap mining shares to be added to the index. We believe this rebalancing of the GDXJ holdings is primarily what caused the recent volatility, and price decline, in our stock. There is no other fundamental reason for the sell-off, as our operations remain on track to meet 2017 guidance, and we are cash flow positive at current metal prices.


April 13, 2017

Q: Why did Endeavour’s share price fall 25% in just one day in early March? 

A: We don’t know why Endeavour’s share price fell so sharply on March 2. It does not appear to have been a large institutional seller nor a large short seller. One shareholder suggested it could have been short-term algorithmic traders all going negative on silver at the same time but we cannot confirm that. On the day in question, we released our 2016 financial results when the precious metal prices were falling, so the market appears to have focused on our higher Q4 costs rather than our strong annual results. We have a lot of positive news coming this year and if we do a good job on our operating mines and development projects, we are confident the market will rebound


March 30, 2017

Q: Your El Compas economics look very good, but the proposed new mine is very small. Why bother to build such a small mine, and how can you make it a core asset?

A: We are excited to be back in growth mode after focusing on reducing our operating costs at our three mines during the four-year bear market for precious metals. This week’s announcement shows that even though the mineral resource is small and high grade the PEA provides robust economic returns. With the low capital investment of US$10 million funded by existing cash, and the short timeline of six months to initial production, El Compas mine has the near-term potential to become a healthy contributor to our consolidated cash flow. Small can be beautiful, and our philosophy is to develop a profitable mine first, then see how we can expand it to become a core asset. We expect all-in sustaining costs to be less than $10 per oz silver equivalent, so El Compas not only expands our metal production, it will help reduce our consolidated operating costs. The operation is scalable so when we discover or acquire additional mineral resources in the Zacatecas district then we can refurbish the second ball mill to double the plant capacity to 500 tonnes per day. Our exploration program will continue in 2017, with a plan to drill 8,000 metres to test new targets on the property and look for opportunities to consolidate land holdings in the district. Stay tuned for more developments as we advance this exciting new project to become our fourth mine.


October 26, 2016

Q: In Q3 you reported a significant drop in silver production compared to both Q2 this year and Q2 last year, mainly due to Guanaceví. Even though you have three development projects now in the pipeline for future development, what does the future production look like for the three mines currently operating?

A: Our silver production outlook at the three operating mines is stable over the near term, but all three mines have some unused plant capacity, so we are aggressively exploring and developing these mining properties to extend their mine lives. Guanaceví is our oldest and highest grade silver mine, and we have identified several areas to explore and develop to extend its mine life. Also, the Guanacevi ore-bodies are higher grade at the top and lower grade at the bottom. Because we are now mining toward the bottom of the Porvenir Norte ore-body and into the middle of Santa Cruz, our consolidated grades have been lower in recent quarters. But when we open up the top of the Santa Cruz Sur ore-body next year, followed by the shallow extensions of Porvenir Norte, Dos and Cuatro, the consolidated grades are expected to return to previous levels, which will boost both our silver grades and production. At the other mines – Bolañitos and El Cubo – we are well ahead of our 2016 guidance on both production and costs, and like Guanacevi, we are exploring and developing new areas to extend their mine lives.


October 5, 2016

Q: The silver price had a big bounce off its low early this year and it looks like a new precious metal cycle is underway. What are you doing to grow the company again? 

A: It is amazing how quickly our silver mining sector turned its focus this year from survival to growth. Endeavour Silver has been more active than most silver companies in responding to these new market conditions. Firstly, we reversed our January decision to take our El Cubo mine down to care and maintenance by year-end. With El Cubo back operating at close to its 1,500 tpd capacity, we boosted our production guidance in July and now expect to produce between 9.0 and 9.8 million ounces of silver equivalents this year. Secondly, we turned our attention to rebuilding our project development pipeline through acquisitions while asset prices are still depressed. We recently acquired the El Compas gold project in Zacatecas state, and have entered into a binding agreement to acquire the Parral silver property in Chihuahua state. Both are small but scalable, high-quality mining projects located in large, historic mining districts with near-term, low-cost production potential and strong exploration upside. Last but not least, our emerging new high-grade silver-gold discovery on the Terronera property in Jalisco state is now subject to a pre-feasibility study for a possible production decision by the end of 2016.
What are we doing to fuel our next phase of growth in Endeavour? We propose to build three new mines over the next three years. Our five-year goal is to double our annual silver equivalent production to 20 million ounces, and drive our operating costs down to the lowest quartile in the sector. Our three new projects will take us halfway to that goal, and we are still motivated to grow through organic mine expansions and additional M&A. These next five years should be very exciting for Endeavour shareholders. 


July 18, 2016

Q: Now that you have made the decision to continue operating the El Cubo mine and not wind it down to care and maintenance later this year, what are your plans for bringing production back up to 1,500 tonnes per day and how will you extend its mine life?

A: We were successful in reducing all-in sustaining costs at El Cubo down to the $18 per oz range by Q1 of this year, and with the recent resurgence in the silver price to $20 per oz, we can once again make money at El Cubo. Therefore, we revised our guidance to produce at about 1,000 tonnes per day (tpd) for the remainder of this year, but we have already refined our mine plan and we now expect to be back producing at 1,500 tpd this quarter. We can do this with a modest $1.6 million investment in underground development to push the main access ramp in ore rather than waste at the V-Asunción orebody down to the lowest mine level. Beyond 2017, we have additional resources, but El Cubo will require significant investments in exploration and development in order to bring them into the mine plan and continue operating. We also have exploration targets that with luck can become discoveries and future mine developments at El Cubo.


April 26, 2016

Q: The silver price until recently lagged the gold price this year, pushing the gold to silver ratio above 83 to 1. Now it has backed down to 73 to 1. What is your short term view on silver vs gold?

A: Silver historically lags gold entering into a new cycle but typically catches up with a bang. Since gold bottomed late last year, and had a nice bounce to start the year, it does look like a new cycle for the precious metals is now under way, so it is no surprise silver lagged gold. If you recall the last cycle, gold started rising off bottom in March 2001 but silver did not start to move until November 2003 when gold was already significantly higher, but then silver almost doubled in six months. From a fundamental point of view, Wall Street is still focused on the risk of falling electronic demand due to the global economic slowdown, whereas Main Street is starting to recognize that silver production topped last year and is forecast to decline for several years due to lack of new discoveries and mine development. So silver was bound to play catch up to gold and it did just that over the past two weeks. However, these gold and silver markets are now overheated and looking a bit toppy, so my short term view is that gold and silver should correct soon, after which time should follow an attractive buying opportunity in advance of the next up-leg in the precious metal cycle.


March 31, 2016

Q. Endeavour Silver shares are up 75% YTD but gold and silver are only up 10-15%. Why has there been such a jump in your share price in the first quarter?

A. I think there are three main reasons why our share price has rebounded so well this year:

  • First, Endeavour Silver shares were oversold last year due largely to our sector-leading leverage to the silver price. Leverage is a double-edged sword because when precious metals prices fall, our share price falls more than our peers; but when precious metals prices rise, our shares bounce back more than our peers.  
  • Second, we announced in late January our plan to focus on generating free cash flow from our high-cost El Cubo mine this year by ramping production down to care and maintenance by year-end. Since El Cubo’s high costs were a drag on our cash flow and share performance, cutting costs and reducing production to make free cash flow this year was taken as positive news by the market.
  • Third, our renewed focus on expanding the resources at our exciting new Terronera project in Mexico and engineering a larger mine to improve the already robust economics in order to complete a pre-feasibility study could drive a significant revaluation of our future cash flow and therefore share price.


February 4, 2016

Q. Thank you for being the first silver producer to reduce, rather than increase, your production at this time of low silver prices. Why aren't more silver producers focusing on profits instead of production?

A. First and foremost, our decision to ramp down production at El Cubo to care and maintenance late this year was driven by our policy that each mine should be profitable whatever the silver price is. El Cubo was a high cost mine when we bought it in 2012, but the silver price at that time was over $30 per oz. We thought we could drive the costs down substantially to make money at $20 per oz if we invested in modernizing and expanding the entire operation. We successfully completed that plan on time and budget, but by then silver had fallen below $20 per oz so we executed a Phase 2 mine expansion last year to reduce all-in costs even further.

The good news is that our operating group successfully drove the all-in sustaining costs at El Cubo from more than $40 per oz in 2012 to less than $20 per oz in Q4, 2015. The bad news is that the silver price crashed down to $14 per oz where it is now. Therefore, we made the difficult but right decision to reduce production at El Cubo down to care and maintenance, make some profits at the mine this year, and keep the ounces in the ground for future production at higher silver prices. Our other two mines at Guanaceví and Bolañitos have been profitable for years and continue to generate free cash flow even at $14 per oz silver.

I cannot speak for other silver miners, but we run our business to generate short-term positive cash flow and long-term growth of profits, which ultimately drives accretive growth and substantial returns for our shareholders.


September 8, 2015

Q. Normally gold and silver prices start rising at this time of year due to rising physical demand but this year, the precious metals still seem to be stuck at low prices. Why?

A. It may be a bit early to draw conclusions about whether gold and silver prices will enjoy their normal seasonal strength from September to March, but there are certainly other larger short term factors currently weighing down these precious metal (pm) prices.

First, the recent strength of the USD$ tied to an improving US economy puts a dampening effect on all commodity prices. All the talk this year by the US Federal Reserve Bank about raising interest rates has really put pressure on the pm's because conventional wisdom would have us believe higher rates attract global capital away from commodities into USD equities and bonds. Interestingly, a quick review shows that the last five times the US Fed raised interest rates, the gold price INCREASED by an average of 10% in the following three months, and in three of the cases, continued to appreciate for two years. In other words, the markets discounted the rate increases beforehand and sold off after the fact.

Second, the recent crash in Chinese equities spilled over into other global equity markets, sparking a rush to the "safety" and liquidity of the USD, and a sharp increase in pm shorts, which were only partially covered over the past two weeks. This causes a domino effect because equity investors trading on margin (like Chinese speculators) then have to sell other investments (like gold) to cover their margin calls. In the past, such periods were ephemeral and passed relatively quickly.

Third, the recent devaluation of the Chinese yuan actually made gold and silver prices higher in their currency, reducing demand and further depressing the seasonal effect. In fact, many emerging country currencies have and are depreciating against the USD so gold is rising in many local currencies. However, gold has continued to decline in Indian rupees so it is reasonable to assume that physical demand in India should resume after the current liquidity crisis passes.

I think all these events and recent market volatility are directly related to the ongoing debt and deficit crisis in many developed countries especially Europe and China. Such global issues are the main reason why investors hold gold and silver as stores of value, but they take time to unfold.


July 6, 2015

Q. Endeavour Silver just released its Annual Review and Sustainability Report for 2014. You seem to do a lot more than what's required - with operating costs being a major issue these days, why spend more than you need to?

A. It comes down to our mission to find, build, and operate quality silver mines in a sustainable way to create real value for stakeholders. By continually improving what we do and how we do it, we aim to make a positive difference in people's lives. Our motto this year, Growth with Integrity, reflects our personal values of honesty and integrity, and our 'people first' business strategy. We embrace sustainability throughout our organization because it ultimately makes us more productive as an organization, it motivates employees and management, inspires governments and communities, and leaves behind a legacy of positive lasting benefits when the mines are gone.

We accomplished a lot with our sustainability programs last year. Notwithstanding two mine-site fatalities, to which we responded with rigorous safety retraining programs at each mine and the hiring of a new senior safety trainer, our safety performance did improve significantly as measured by other safety indicators. We reported a 45% reduction in the number of reportable accidents, and a 22% reduction in the reportable frequency rate.

We continued to expand and improve our social and environmental programs last year, for which we received multiple awards in 2014, including the "Socially Responsible Company" award for all three mines and a "Supporting the Environment" award for Bolañitos and El Cubo. Endeavour planted 40,000 trees and cacti in 2014 as part of its environmental reclamation program!

Contributions to education and employability remain one of our top sustainability initiatives. At Guanaceví, we signed an agreement with one of the top Mexican private universities to provide access to online education for people in the community. Self-employment initiatives at Bolañitos continue to grow, and the local women who have participated remain active, learning and benefiting from their small businesses.

Sustainability is really just recognizing what is needed to get the job done in the best way possible, so in that sense, it is not new in the mining industry. Over a century ago, prospectors and miners opened up frontier areas by not only finding new orebodies, but by doing what was needed to build and operate the mines. They brought in and trained the miners, built the towns and churches, installed the power and water supplies, provided transportation and recreation, basically built full community services because that's what was needed. Standards were certainly different in those days but our concept is the same: we do our best to maximize returns and minimize risks for all stakeholders.


June 11, 2015

Q. There have been lots of mergers and acquisitions (M&A) in the gold mining space over the past two years, and even senior silver mining companies have been acquiring gold mines, but there have been very few silver acquisitions. Why is that, and what if anything is Endeavour doing to grow by M&A?

A. You are quite right; the fact is there are very few M&A opportunities in the silver space and even fewer economically robust silver projects or mines or companies at these low precious metal prices, which is why most silver miners are looking at gold opportunities, as there are more to choose from.

We have been fortunate to own two economically robust silver-gold mines at Guanaceví and Bolañitos in recent years, and the current mine expansion at our El Cubo mine is intended to drive its all-in sustaining costs down so that it too can start making free cash flow. Although our emerging new high-grade discovery at Terronera is currently the subject of a pre-feasibility study to become our fourth mine, management is still motivated to grow through M&A as well.

Like other companies, we have expanded our M&A strategy in the past two years - even though we prefer Mexico, we are now looking in Canada, USA, Peru and Chile; even though we prefer silver dominant opportunities, we are now looking at gold dominant opportunities; and even though we prefer operating mines, we are looking at exploration and development stage mines and companies to add to our project pipeline for future growth.

There are typically three types of M&A transactions available: major transactions such as a "merger of equals" to acquire a profitable mine or company for immediate growth; moderate transactions to acquire large development projects for near-term growth; and minor transactions to acquire attractive exploration projects for long-term growth.

We firmly believe the adage "buy low, sell high" applies to company M&A as well as investments, and we would very much like to do at least one M&A transaction if not more this year while metal, stock and property prices are low. Having said that, it "takes two to tango" to make a "win-win" deal.


May 26, 2015

Q. Your Terronera preliminary economic assessment (PEA) looks economic but small. Why not focus on more exploration drilling to expand the resources for a larger mine, rather than trying to finance and build a small mine when silver prices are so low?

A. Good question! We will certainly consider doing that if the silver price when we complete the pre-feasibility study later this year is still below $18 per oz. However, our business model has been to start small and enjoy early cash flow in order to help fund exploration, make new discoveries, develop new mines and grow the business organically. This worked very well for us in the past and Terronera is conceptually no different from our first three mines so we will follow the same phased approach to development. Our intent is to start small by building a 1,000 tonne per day (tpd) operation within a 2,000 tpd footprint. By the time this phase 1 mine is built and producing, we will have almost two more years of drill results to potentially support a low-cost phase 2 expansion to 2,000 tpd.

While we think Terronera has excellent potential to expand the resources and production, any potential expansion will be based on further exploration success. Therefore, infill drilling of the inferred resource is now underway and step-out drilling is scheduled to commence in the second half of this year. At 1,000 tpd, Terronera would be our smallest mine, producing about 3 million silver equivalent (Ag Eq) oz per year, but at 2,000 tpd, it would become our largest mine, producing around 6 million Ag Eq oz. The low estimated PEA cash costs of US$3.93 per oz silver and all-in sustaining costs of $7.60 per oz, both net of gold credits, imply it could also become our most profitable mine.


April 15, 2015

Q. Gender diversity in business has recently become a hot topic. Mining is historically a male dominated industry. What are you doing to attract more women to Endeavour?

A. We recognize the benefits arising from diversity in our workforce, including gender, sexual orientation and ethnicity. By embracing diversity, we broaden our skill sets and experience, and access different outlooks and perspectives, which ultimately should result in better outcomes for our stakeholders. We have been successful at this because we recruit, retain, reward and develop our people based upon their abilities and contributions. Despite the paucity of female professionals and tradespeople in the mining sector, we have been able to attract qualified women to certain positions.

For example, when we bought the Bolañitos mine in 2007, the mining sector was suffering from a serious skills shortage and hiring geologists was extremely competitive. We posted some job openings in Guanajuato and were fortunate to attract some female Mexican geologists as applicants. Although they were short on experience, our VP Exploration provided them with on the job training and they turned out to be very productive employees, smart, diligent and hard working. A couple of them have been promoted on merit and now manage our exploration groups in Guanajuato.

Another example of our desire to diversify is our mining skills training schools. Like the professions, there is a lack of skilled mining equipment operators in our sector, so Endeavour launched its mining schools in order to provide the young or unemployed in Mexico with career skills that will last a lifetime. Since 2009, we have trained over 100 students including dozens of women in such skills as truck driving, scoop tramming and jumbo drilling.

While we do not support the adoption of quotas to support our diversity policy, we recruit and employ people based on their qualifications, abilities and contributions. We are committed to fostering a diverse workplace environment where individual differences and opinions are heard and respected and employment opportunities are based on the qualifications required for a particular position at a particular time, including training, experience, performance, skill and merit.

You will find our diversity policy on the website here.


March 26, 2015

Q. Your mine lives look to be quite short compared to some of your peers. Should we shareholders be concerned that Endeavour is going to run out of ore?

A. Actually, neither Guanaceví nor Bolañitos had any mine life (no reserves or resources) when we bought them, and El Cubo's mine life was very short, so you may also wonder how we managed not only to restart the mining operations but grow the production on a regular basis. What we recognized at each mine site was that even though these mines had prolific histories of small scale production, they had received very little modern exploration and we thought the exploration potential for new discoveries was excellent.

Over the past 11 years, we have established an enviable track record of making new discoveries to drive organic growth, and we remain bullish on the potential to extend the mine lives of our operations. Due to the geological nature of underground mines, our mine lives will always be considered short compared to larger open pit mines, and our higher-grade epithermal vein ore-bodies are more reasonably explored and developed over a number of years, hence the smaller annual reserves and resources.

Last year, we once again replaced our silver reserves by underground development and expanded our silver resources by surface drilling. Another reason why our mine lives may be shorter than some peers is our conservative approach to reserve estimation. We do not estimate reserves based on drilling, only on driving tunnels, and given how much time and money are needed for underground development, it just makes better sense to convert resources to reserves on an annual basis.

At Guanaceví, we discovered two new zones of high grade silver-gold mineralization in 2014: Porvenir Centro adjacent to the main Santa Cruz mine ramp, and Santa Cruz Sur just south of our producing Santa Cruz mine. At Bolañitos, exploration drilling successfully delineated the LL-Asunción orebody, which is now in development with production expected to begin this year. At El Cubo, we made the new Villalpando-Asunción discovery in 2013, delineated it last year and it is now the anchor of our current production.

While we have many exploration targets at the three mine sites yet to be tested, it is certainly true that each mine will ultimately run out of ore. However, we are not there yet and our focus continues to be squarely on extending our mine lives through our brownfields acquisition and exploration strategy.


March 18, 2015

Q. Endeavour's operating costs have been drifting higher since 2011. What are you doing to reduce both cash costs and all-in sustaining costs (AISC) in order to preserve free cash flow and profit margin?

A. Profit margins have shrunk industry-wide since 2011 due to the sharp fall in precious metal prices, so all mining companies are battling to cut costs and maintain free cash flow. Endeavour has enjoyed many years of strong after-tax free cash flow totaling $82 million from Guanaceví since 2006 and $103 million from Bolañitos since 2007.

At Endeavour, cash costs net of the gold by-product credit have risen the last three years for three reasons: 1) the value of our gold credit has fallen 40%, 2) labour and consumable costs have risen about 5% each year, and 3) we bought the high cost El Cubo mine in 2012 and turned the corner on its cash costs at the end of 2014. Endeavour has been cutting cash costs by increasing productivity, controlling grade at the mines, and improving metal recoveries at the plants. Our optimization efforts succeeded in reducing cash costs in 2014 at both Guanacevi (from $14.32 down to $9.73 per oz) and El Cubo (from $18.77 down to $16.46 per oz) compared to the previous year. We recently announced a significant expansion at El Cubo that will see El Cubo cash costs fall once again and our 2015 consolidated cash costs remain below $10 per ounce of silver produced.

Our all-in sustaining costs, which include all costs except investments for growth, came in at $16.79 per ounce last year. The El Cubo expansion will allow us to maintain AISC in the same range as 2014 even with the lower metal prices. Because we bought small underground mines in historic districts in need of operational turn-arounds and exploration discoveries to drive production growth, our exploration and mine development capital budgets are typically high in the early years of mine expansion and then fall to sustainable levels once the mines stop growing. Our combined capital and exploration spending has been declining at Guanacevi since 2011, Bolanitos since 2012 and El Cubo since 2013.


March 4, 2015

Q.  Do lower oil prices benefit Endeavour's operating costs?

A. Yes, but only in a small way because we are not big diesel consumers like large open pit mines and their oversized trucks. We are on the power grid in Mexico and the price of oil is subsidized and regulated in Mexico so both power and diesel prices have not moved down much in recent months. However, I should point out that all oil producing nations like Mexico have seen their currencies weaken vs the US dollar, the Mexican peso has effectively devalued 15% in recent months, and that does have a beneficial effect on Endeavour's operating costs.


February 25, 2015

Q.  What is your precious metals price outlook for 2015 and why?

A. I am moderately bullish on gold and silver prices this year notwithstanding the strengthening US dollar. Analyst consensus prices average about US$1235 per oz gold and US$18.18 silver for 2015. From a fundamental point of view, total gold supply has been falling in recent years due to reduced scrap recycling. The only new gold supply since 2012 has been sales from the gold ETFs and that trend recently reversed itself from net sales to net purchases in January 2015. On the demand side, India posted a record year and China had a near record year of gold imports in 2014, and we can assume most of that gold disappeared into jewelry, coins and bars so not available for resale or lease, unlike the gold inventories held by central banks and bullion banks. From a technical point of view, gold broke the previous 3 ½ year down trend in January and moved up on strength so I think the bottom is in and a two steps forward, one step back pattern will dominate gold this year, with support around US$1,180 and resistance levels up to US$1,420.

Silver is a bit different because it is both a currency and a commodity whereas gold is simply a currency and store of value. Furthermore, most new silver production comes as a byproduct of gold, copper and zinc mines rather than from primary silver producers and those other companies are quite happy to hedge their future silver production. Fundamentally, silver supply rises each year due to rising mine production but there has been and will continue to be a total supply/demand deficit because silver demand has been rising faster due to rising industrial usage for electronics, solar panels, and many other emerging new high tech uses in addition to investment demand. Remarkably, the silver ETFs have seen no net sales since this market correction began in 2011, which suggests that silver investors are longer term than gold investors! Technically, silver also broke its downtrend and established an uptrend in January but it is subject to global economic forces so is lagging gold as shown by the high silver/gold ratio. Once again, I think the bottom is in, and a volatile two steps forward, one step back pattern should also dominate silver this year, with support around US$15.80 and resistance levels up to US$22.20.


February 19, 2015

Q.  Your guidance in 2015 is for lower silver production this year. Endeavour has been one of the fastest growing silver producers for many years, so is this a change of strategy or a temporary reduction?

A. Endeavour established an enviable track record for accretive growth over its first 11 years of operations by buying small mines in historic districts, bringing the money and expertise needed to turn them around from losing money to making money, and making new discoveries that could be fast-tracked to production. However, Guanaceví and Bolañitos are now mature mines operating at capacity with short mine lives, so this year we plan to reduce production at Bolañitos while we model our next phase of growth at El Cubo and San Sebastián. Therefore, this is not a change of strategy, just a transition period as we prepare to expand El Cubo and build San Sebastián.


February 12, 2015

Q.  Endeavour delivered its 10th consecutive year of record silver production in 2014. How were you able to do that?

A. Our silver production grew in 2014 thanks largely to the hard work and expertise of our operating teams in Mexico. The operations group at Guanaceví turned in a spectacular year, producing one million ounces above plan and achieving the highest throughput in our history of owning the mine. Specifically, both ore grades and metal recoveries improved as the higher grade Porvenir Cuatro and Santa Cruz mines replaced falling production from the lower grade Porvenir Norte mine. At Bolañitos, our people continued to generate strong free cash flow even at low metal prices and met all their targets for the year. At El Cubo, mine personnel launched the "Yes We Can" program to raise both grades and throughput significantly in the fourth quarter and finished the year with a bang by achieving our goal of ramping up mine production to plant capacity by year-end.


October 28, 2014

Q.  Mr. Cooke, why were you selling Endeavour shares last week at these low prices?

A. Thanks for your question. I was exercising some options that are set to expire and my last opportunity to do so would be on November 12. Because insiders are blacked out from trades in the market during financial reporting periods, last week was my last chance to sell stock in order cover the cost of exercising these options. I sold enough stock to cover the exercise price and the associated personal income taxes. I ended up with a net purchase of 10,000 shares, and Endeavour received $658,000. My trades accounted for only 3.5% of the trading volumes on those days. Please note that I have been a net buyer of Endeavour stock this year – most recently acquiring 20,000 shares on market in September at Cdn$5.40.


September 2, 2014

Q.  What is Endeavour doing to prevent a tailings accident like the recent Mount Polley spill in BC?

A. It's a very good question because the incident at Mount Polley has raised concerns about the engineering and safety of tailings dams, not just in Canada and the USA but around the globe. Once people understand what happened at Mount Polley there is a possibility that permitting of new tailings facilities and the monitoring of existing ones could face increased scrutiny. Companies will be held to a higher standard, and communities will have greater confidence. New technologies such as paste thickened tailings or dry stack tailings – which remove up to 85% of moisture from tailings –significantly reduce the risks of catastrophic failure. At Endeavour, the safety and sustainability of our operations are top priority. One example of this is the transition we made in 2012 from standard (wet) tailings held in a pond behind a dam to dry stack tailings piled on a hillside at our Guanacevi mine. Dry stack tailings come at a significantly higher capital and operating cost but offer many benefits such as being easier to close and rehabilitate; they require a smaller footprint compared to wet tailings; they can be used in areas of steep terrain, high seismic activity, or where water conservation is critical; and they allow for progressive rehabilitation of land to return it to its natural state.

At all three of our mines, we monitor the stability of our tailings using water wells, aerial mapping and satellite imagery. We engage a world-class third party engineering consultant to design, evaluate the stability and performance of our tailings facilities and adjustments are made to the structures, volumes and flow of material as needed. We aim to not only meet local laws and regulations related to tailings management, but to exceed them where possible, focusing on sustainable development and adoption of best environmental practices.


August 15, 2014

Q.  Why did Endeavour’s share price fall after the Q2 earnings announcement this week?

A. Thanks for your question. It’s difficult to predict how the market will react when companies release earnings because there are many other factors at play, including volatility in the metals prices and stock markets. In this case, it appears that investors of silver stocks in general are looking for a short term correction from the high of last week, and several other silver mining companies who released their Q2 financial results this week suffered similar if not greater reductions in their share prices. Expectations for Endeavour in particular may have been that Q2 financial results would be a repeat of our stellar outperformance in Q1. In fact there should have been no surprises, as we pre-released Q2 production in early July and it was lower as forecast than Q1. Gold grades, which were unusually high in Q1, reverted to planned grades in Q2 as expected which reduced our gold credit and therefore increased our cash cost per oz. Throughput and production were also lower in Q2 compared to Q1 due to the temporary closures of the Porvenir Cuatro mine at Guanaceví and the Santa Cecilia mine at El Cubo following two fatal accidents in late March-early April. All of this was expected to impact throughput in Q2, but we remain on track – in fact slightly ahead of – full-year guidance for production of 6.5-6.9 million ounces of silver and 65,000-69,000 ounces of silver in 2014. Last but not least, we paid our annual profit share tax with the employees in Q2, which also impacted our earnings during the quarter./p>

Regarding our sustaining and growth costs, Q2 and Q3 are typically our peak spending quarters for capital and exploration programs. We now have 12 drill rigs working across our three mines and our exploration property, San Sebastián. This increased spending, combined with lower throughput and ounces, resulted in higher cash costs and all-in sustaining costs (AISC) in Q2 compared to Q1. However, we remain solidly on track to meet our full-year guidance for cash costs in the $9-10 per ounce range, and AISC of less than $20 per ounce.


April 7, 2014

Q.  I've read about problems another Canadian company is having with illegal miners near Guanajuato in Mexico. Are you experiencing similar problems at your mines, and if so what are you doing about it?

A. The short answer is no. But your question is a good one because it relates to both safety as well as security, not just for our people but also for the communities where we work. Illegal mining is a situation we take very seriously and we work closely with local and state authorities to keep our operations secure. In many instances, illegal miners are inexperienced, and by entering the underground mining areas without permission they risk injury or even death due to a lack of safety equipment and poor conditions. Further, their presence would threaten the integrity of our operations and workers. We have a strong security presence at our mines and have closed the historic underground mine adits and entrances, thereby eliminating these historic means of access. From time to time we have caught illegal miners trying to gain access our mines, but we work closely with the authorities to charge them with trespassing to prevent and resolve these situations. The safety of our people is our top priority and we actively monitor access at each of our mines to ensure no illegal miners can trespass.


March 31, 2014

Q.  You reported a financial loss in your 2013 financial results. How can that be, given that all three mines performed well last year, delivering higher throughput, grades and recoveries?

A. Our reported 2013 loss incorporated a number of non-cash items that reflected much lower precious metals prices at the end of 2013 compared to the previous year. The spot price of silver fell 25% in 2013 and the price of gold was nearly 20% lower. Assuming these prices continue, there is a negative impact on potential future cash flows which in turn affects the value of the assets that we have recorded on our books. Accounting standards require that we assess the recoverability on our historical investment using the current price environment. None of the impairment charges affected cash flow, and in fact 2013 marked steady increases in revenue, cash flow and EBITDA (earnings before interest, taxes, depreciation and amortization). This was due to the 67% increase in silver equivalent production we recorded in 2013 over the previous year. Cash costs remained below $8 per ounce of silver production, and all-in sustaining costs, which is the new metric mining companies are using to report the total cost of running a mine, including sustaining capital, were below $19 per ounce in 2013. Even with the dramatic decline in spot prices, we added $19 million to the balance sheet in the second half of the year; we still generated healthy cash flows in 2013, and we anticipate healthy cash flows in 2014.


February 12, 2014

Q.  Several of your peers are forecasting strong production growth in 2014, yet Endeavour’s is holding flat. What is your thinking behind that decision?

A. After delivering our ninth consecutive year of growth in 2014 we decided to hold steady on production – not because we don’t have the ability to grow, but because we don’t see the point of pushing production when metal prices are so low, and we do see an opportunity here to hone the operations and polish our operating and financial performance. By that I mean we plan to optimize operating efficiencies, reduce costs, and increase profit margins while precious metals prices are low. That should better position Endeavour to outperform our peers when the metal prices do finally start to rise. We want to be one of the top performing silver producers when prices start to move up, and we believe this prudent and disciplined approach will get us there.


February 5, 2014

Q.  Is Endeavour doing anything to take advantage of opportunities to create value through consolidation in the mining sector in this low silver price environment?

A. Yes.  Our goal is to become a senior silver producer (10 million ounces of silver production per year) in the next three years. We can do that through internal organic growth – building, expanding, and improving our own mines – or by mergers or acquisitions. Our San Sebastián project, an organic discovery we made in Mexico in 2012, has the potential to become our fourth mine and will advance to an economic evaluation this year. At the same time, we are evaluating opportunities to grow through a merger, acquisition or consolidation. At this point in the precious metals price cycle, equity valuations are heavily discounted and there are a few companies with good assets trading at steep discounts. Our M&A strategy is simple: We are looking to add core assets with the potential to add five million ounces per year of silver equivalent production per year that we can operate at a profit.


November 8, 2013

Q.  I understand Mexico is introducing several new taxes that impact mining.  How will this affect Endeavour's profits going forward?  Is Mexico still an attractive country for new mining investments?

A.  Yes, Mexico is in the process of legislatinag a new Fiscal Reform Act that introduces many new or higher taxes for both citizens and corporations in Mexico, including some new taxes on mining.  The Fiscal Reform Act was recently approved by both the Mexican Chamber of Deputies and the Senate and is now pending ratification by President Pena Nieto on or before November 15 to be effective January 1, 2014.  The tax reform includes, among other items, the elimination of the previously proposed decrease in the Mexican corporate tax rate from 30% to 28%, a Special Mining Duty of 7.5% on earnings before interest, taxes, depreciation and amortization (EBITDA) and an 0.5% Environmental Tax on gold and silver revenues, a 10% dividend tax and the elimination of the annual deduction of green-fields exploration expenses from income before tax. 

Virtually every silver mining company is impacted because most of us have mines in Mexico, so silver mining companies in general will be reporting higher tax payments and therefore lower profits after tax from our Mexican operations.  We estimate the impact the new taxes would have on Endeavour's annual cash flow assuming the same production, costs and metal prices as 2013 will be around $6.5 million of extra taxes. Fortunately, the Special Mining Duty and Environmental Tax are deductible for taxable income calculations so at least we are not getting a double dip.  Mexico has historically been one of the more attractive jurisdictions in the world for new mine investment based on its combination of political stability, good infrastructure, low tax rates, and attractive mineral potential – all of which drove our decision to make significant investments in Mexico over the past 10 years. However, this new fiscal policy will significantly impair Mexico's competitiveness in the mining world.  Suffice to say that Mexico is no longer the most attractive country for new silver mining investments in the world. 

Endeavour diversified its exploration portfolio by acquiring properties in Chile three years ago, and management will now turn its focus to mine acquisitions outside of Mexico as well.  Having said that, we still enjoy significant competitive advantages in Mexico, and while Endeavour is still interested in finding or buying new mines in Mexico, they just have to be bigger and better opportunities than we previously considered under the former tax regime.  We will continue to re-assess the competitiveness of the jurisdictions in which we are willing to invest on an ongoing basis, including criteria such as political risk, security risk, infrastructure, mineral potential, cost of living and total tax burden.  


October 10, 2013

Q: How was Endeavour Silver able to deliver yet another record quarter of production in Q3 and raise its production guidance for 2013, while simultaneously cutting costs in this difficult price environment?

A. Thanks for your question. Simply put, we have a great operating team who consistently meet or beat their targets, and Q3 was no exception.  There were a number of production variables that we were able to maximize during the quarter:

  • At Bolañitos, we maximized mine production by filling not only the Bolañitos plant to capacity but also the leased Las Torres plant near El Cubo until the end of July.  After that, we moved the extra Bolañitos mine production seamlessly over to the newly rebuilt El Cubo plant where we have excess capacity at this time.  Bolañitos production grades were also higher than plan, partly due to our conservative reserve estimation
  • At El Cubo, we completed the reconstruction of the plant and surface infrastructure on time and under budget during Q2, which meant we could optimize the mine and plant performance in Q3.  As a result, both production grades and recoveries improved in Q3.
  • In addition, El Cubo and Bolañitos production and recoveries both benefitted from the clean-out of the leased Las Torres plant before it was returned to the owner in late July, as well as the timing of our doré bar pours at the beginning and end of the quarter.
  • At Guanaceví, production grades were above plan thanks to mining more ore from the higher grade Porvenir Cuatro orebody and metal recoveries benefitted from the timing of our dore bar pours at the beginning and end of the quarter
  • We were able to significantly increase our 2013 production guidance mainly as a result of the out-performance of the Bolañitos mine and the operational turn-around of the El Cubo mine

While the clean-out of the Las Torres plant was a one-time event, it was only responsible for less than half of the extra production in Q3 over Q2, so the majority of our out-performance in Q3 should be sustainable going forward.  Management has now developed a three-year growth plan to grow our production by another 60% over the next three years, but we will save that discussion for another time.


September 16, 2013

Q: In this modern age of mining, why do fatalities still occur from time to time, and what does Endeavour do to minimize the risk of fatal or lost time accidents?

A: The reality of mining is that it is inherently an industry that presents risks, even with all our modern technology and training. It is just not possible to completely eliminate risk or human error. We train in hazard identification to eliminate all risks to the best extent possible, and therefore our entire system of safety policies, practices, training, meetings, reviews, incentives, audits and performance is based on repetition of best practices. We work proactively, teaching safety systems, job safe procedures, the correct use of tools, the correct use of personal safety equipment, and special permissions for certain work. We also work to eliminate dangerous conditions such as potential rock falls through the use of modern technology to support underground tunnels, training to check for and safely remove loose rocks, and we regularly conduct air quality and ventilation studies. We are proud of the achievements our team has made, which include winning 1st, 2nd and 3rd place at the Durango State mine rescue and first aid competitions in 2012, and two "Casco de Plata" (Silver Hard Hat) awards from the Mexican Chamber of Mines (CAMIMEX) in 2011 for notable improvements in safety performance. We continue to work toward our objective of a perfect safety record with no lost time accidents. Working in any mine environment requires training, great care and attention, and a positive attitude toward safety, with a thorough awareness and respect of the underground conditions.


August 28, 2013

Q: Endeavour has already produced more than 3.0 million ounces of silver in the first six months of 2013, yet your guidance for the full year remains unchanged at 5.0-5.3 million ounces. Are you planning to revise this, or are you expecting a weaker H2?

A: Thanks for your question. Endeavour produced 3.0 million oz silver and 35,000 oz gold in the first half of 2013, so we are well ahead of our production guidance for the year. Management normally reviews guidance and revises it if necessary in September each year. In the second quarter, Endeavour completed the El Cubo plant reconstruction on time and budget which allowed us to return the leased Las Torres plant at El Cubo to its owner, Fresnillo plc, thereby reducing slightly our total processing capacity. Although we have stated the second half production may not match the first half production, we are encouraged that the Bolañitos mine has out-performed expectations and the El Cubo mine turn-around is speeding up. Once we see the August production numbers, we will comment on Bolañitos and El Cubo and our production guidance in September as anticipated.


August 15, 2013

Q: Is it true your total cost of production, including acquisition/exploration costs, is over $21/oz.?

A: Thanks for your question. We have not published our all-in cost of production but it can be readily derived from our quarterly financial reports, depending on one's assumptions, which is the main issue the industry is now trying to address. We are working toward incorporating All-in Sustaining Cost (AISC) reporting into future earnings releases, likely in Q3 or Q4. The concept of AISC was developed by the World Gold Council in response to demands from investors for companies to better define the total costs associated with producing precious metals. However the main challenge with the World Gold Council framework is a lack of clarity on the definitions of sustaining capital and exploration spending, and what should or should not be included. For example, both growth capital and exploration expenditures are discretionary items, which rise and fall with the precious metal prices and company profits. When metal prices and company profits are up, companies typically re-invest more profits to explore and develop new mines and when metal prices and company profits are down (like today), companies typically re-invest less. As you know, mines are not sustainable, renewable resources; they are fixed, depleting resources. Further, AISC does not account for acquisition costs, development capital, interest expenses or taxes. Given this, we are working to develop clear, consistent definitions in order to report AISC in a meaningful way.


August 8, 2013

Q: The El Cubo mine is still losing money. What are you doing to speed up the turnaround, and at what point do you say enough is enough and close the mine?

A: Thanks for your question; it is a good one. We are about half way through the two year period we estimated it would take us to effect the operational turn-around at El Cubo. El Cubo made good operating progress in Q4, 2012 and Q1, 2013 with higher production grades and lower operating costs, and we substantially completed the capital reconstruction of the plant and surface infrastructure on time and budget in Q2, 2013. The scheduled down time for re-commissioning of the newly rebuilt plant resulted in lower production and higher costs in Q2 and we initiated a number of cost cutting measures that should benefit the operation in Q3. The metal prices have fallen so precipitously this year, it is clear we need to speed up our turn-around programs. To that end, management has initiated another round of cost cutting and revenue enhancement at El Cubo. We appointed a new general manager in July; pulled out of the lowest grade stopes, and re-allocated those crews to higher grade stopes; and pushed harder on development to open up new higher grade areas in the mine discovered by exploration. In addition, we are discussing with the union more layoffs as the mine needs more productivity from fewer employees. If the silver price moves above $20 and we succeed in our latest optimization efforts, the mine should return to profitability with no need to close. But if the silver price remains below $20 and our latest turn-around efforts fail, then we will have to consider reducing the production to the highest grade stopes, and if necessary, put the mine on care and maintenance.


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Bradford J. Cooke, CEO

Welcome to Ask the CEO – my website blog where I answer questions from shareholders, investors and other interested parties on issues related to the company and the silver mining industry. Many of the emails and phone calls I receive from stakeholders focus on common themes such as the future of silver as an investment, what it’s like doing business in Mexico, the profitability of our operations, and how our plans to grow and improve our business will translate into meaningful benefits for shareholders, employees and communities.

My posts will focus on both the silver mining industry in general and Endeavour’s silver mining operations in particular. In addition to discussing our performance, strategy, and the current issues facing our business, from time to time I will also address external challenges we face, from volatility in the commodity markets to the social and economic implications of mineral development.

My objective is to be transparent and accessible in communicating with you, our stakeholders. This is your forum to have your questions answered, and I encourage you to submit questions to I look forward to hearing from you.

Bradford Cooke

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