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The company announced Tuesday that it’s begun a “major expansion” of its Mexico-based El Cubo mine. The plan is to increase mine output over the next four months from the current capacity of 1,550 tonnes per day to 2,200.
Putting out big news in the silver space on Tuesday was Endeavour Silver (TSX:EDR,NYSE:EXK), which announced that it’s begun a “major expansion” of its Mexico-based El Cubo mine. The plan is to increase mine output over the next four months from the current capacity of 1,550 tonnes per day to 2,200.
According to the company, the additional production will come from the V-Asunción and Santa Cecilia mine areas. The former has “thicker mineralized zones amenable to long hole mining,” while the latter has “narrower but higher grade veins.” Material from those areas will be processed at Endeavour’s Bolanitos plant.
Continued improvements
Those familiar with Endeavour may remember that this isn’t the first improvement the company has made recently at El Cubo. In fact, as Tuesday’s release notes, it just finished up an initial two-year capital expansion and operating turnaround plan there.
It might thus seem strange that the company is looking at further expansion so soon, especially when the silver price is so low — the white metal dropped about half a percent Tuesday to trade at $15.51 per ounce. However, in conversation with Resource Investing News, CEO Bradford Cooke explained that when you dig into the numbers the company’s reasoning becomes more clear.
“We’ve done about as well as we can do now in both optimizing our grades delivered to the plant and our recoveries coming out of the plant,” he said, adding, “the only real factor left in our control to drive unit costs lower is to push the unit tonnes higher — in other words, to expand the mine output.” He described the move as a “logical fit, a synergistic move … to drive costs down at El Cubo and take advantage of [the] plant capacity at Bolanitos.”
Enhanced performance
It certainly does seem as if the expansion will bring a multitude of benefits for Endeavour. As Cooke said, “this obviously drives our costs down at El Cubo to either breakeven or better at current prices, and of course it also has a very beneficial impact on our consolidated performance this year.”
Specifically, he noted that while Endeavour’s previous production guidance was in the range of 6 million ounces of silver, it’s now looking at 6.5 to 7 million. Meanwhile, silver equivalent production was set at 9 to 10 million ounces, but has now been bumped up to 10.5 to 11.5 million ounces.
In terms of costs, consolidated cash costs of production, net of gold by-product credits, are expected to come in at $9 to $10 per ounce of silver for the year. All-in sustaining costs net of gold by-product credits are now set at $16 to $17 per ounce of silver. That amount falls to $15.50 to $17 per ounce of silver “[w]hen non-cash items such as stock based compensation are excluded.”
The company expects “across-the-board improvements on [its] anticipated performance this year thanks to the mine expansion at El Cubo,” Cooke summarized.
Eyes on the Fed
All that said, Endeavour’s share price didn’t have a positive reaction to Tuesday’s news. At close of day it was sitting at $2.13 on the TSX, down 4.05 percent, and at $1.67 on the NYSE, down 4.57 percent.
For his part, Cooke wasn’t too concerned, and pointed out, “it’s a pretty ugly day in the markets. I think that there will ultimately be a delayed reaction to this news — the market needs to absorb it and understand what it means and then wait until the outlook is better.”
He also noted that better times could come as soon as Wednesday. “We might see that tomorrow if Janet Yellen … says she’s going to be patient,” he said, referring to the outcome of the US Federal Reserve meeting taking place from March 17 to 18. Analysts believe that if the central bank removes a “patient” reference to interest rates from its statement, then it will take a step closer to a rate hike.
The outcome of the Fed meeting remains to be seen, and precious metals investors will no doubt be watching closely for its results. And of course, those interested in Endeavour Silver would certainly do well to keep an eye on the company moving forward, particularly in terms of activity at El Cubo.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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