Endeavour Silver $EXK, has had its issues over recent years but it appears to be nearing an inflection point whereby the overall quality of its asset portfolio increases, output increases and costs decrease as operational issues have been worked out and it has an excellent development project in its pipeline. On Monday, the company released an updated Pre-Feasibility Study (PFS), which is more robust relative to the 2018 PFS.
Endeavour worked with Ausenco engineering on the re-engineering of the project to generate improved economics, as we will discussed.
Using spot prices for silver and gold at July 8th, 2020 [$18.49/oz. Ag & $1,812/oz. Au], the project has an NPV5% of $230m and IRR of 45.70%. Life of mine cash costs and mine-site AISC (net of byproduct gold) of negative (-$4.15/oz.) and (-$2.06/oz.). With an initial 10yr mine-life and initial capital investment of $99.1m, Terronera will produce average payable Ag and Au production will be 3m oz. and 33k oz. using a 1.6ktpd plant.
The operation will have plant capacity of 1,600tpd but there is significant exploration upside as well as expansion potential. The company will evaluate utilizing a 2ktpd plant, which will increase output, an have a big impact on the overall value of the project. This could be a phase process, first to 1.6ktpd then to 2ktpd.
Endeavour could also very well choose to built the larger projects from the start instead of a phased expansion. This would likely be the smarter option as it will catch more of the bull market in precious metals. Terronera is poised to be Endeavour's largest and most valuable asset, producing on average, the most silver and gold output of any of its mines and its being extremely high-margin oz.
At 2ktpd, average annual production would increase to 3.75m oz. Ag and >40k oz. Au, which in all likelihood will be reached, if not exceeded. Endeavour Silver has a nice mix of higher-cost assets and with the addition of Terronera, a declining cost profile over the medium-term. Regardless, Endeavour should begin to outperform in a rising price environment. Endeavour also has some other exciting development projects [Parral].
A feasibility is schedule to commence in September and is estimated to take 9-12 months, after which time a production decision will be made provided it can put together an adequate financing package, which shouldn't be an issue. In my view, the biggest obstacle toward realizing maximum value is the time its takes to reach production which will be approx. 2.5yrs.
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