UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2020

Commission File Number: 001-33153

ENDEAVOUR SILVER CORP.
(Translation of registrant's name into English)

#1130-609 Granville Street
Vancouver, British Columbia, Canada V7Y 1G5

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

[           ] Form 20-F   [ x ] Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [           ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [           ]

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes [           ] No [ x ]

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _________


INCORPORATED BY REFERENCE

Exhibits 99.1 and 99.2 to this Form 6-K of Endeavour Silver Corp. (the “Company”) are hereby incorporated by reference as exhibits to the Registration Statement on Form F-10 (File No. 333-237625) of the Company, as amended or supplemented.

 

SUBMITTED HEREWITH

Exhibits

Exhibit   Description
   
99.1   Interim Financial Statements for the three months ended March 31, 2020
99.2   Management's Discussion and Analysis for the three months ended March 31, 2020
99.3   Form 52-109F2 - Certification of Interim Filings - Full Certificate - CEO
99.4   Form 52-109F2 - Certification of Interim Filings - Full Certificate - CFO

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Endeavour Silver Corp.
  (Registrant)
     
Date: May 8, 2020 By: /s/ Bradford Cooke
    Bradford Cooke
  Title: CEO

 


Endeavour Silver Corp.: Exhibit 99.1 - Filed by newsfilecorp.com

 



ENDEAVOUR SILVER CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(unaudited – prepared by management)

(expressed in thousands of US dollars)

      March 31,     December 31,  
  Notes   2020     2019  
ASSETS              
Current assets              
Cash and cash equivalents   $ 14,990   $ 23,368  
Other investments     76     69  
Account and other receivables 4,6   14,225     18,572  
Income tax receivable     3,328     4,378  
Inventories 5   13,072     13,589  
Prepaid expenses     5,051     3,302  
Total current assets     50,742     63,278  
               
Non-current deposits     593     606  
Non-current IVA receivable     1,080     2,048  
Deferred income tax asset     5,354     7,136  
Intangible assets     853     975  
Right-of-use leased assets     1,243     1,337  
Mineral properties, plant and equipment 7   90,399     88,333  
               
Total assets   $ 150,264   $ 163,713  
               
LIABILITIES AND SHAREHOLDERS' EQUITY              
               
Current liabilities              
Accounts payable and accrued liabilities   $ 18,392   $ 19,775  
Income taxes payable     1,062     1,947  
Loans payable 8   3,946     2,958  
Lease liabilities 9   160     164  
Total current liabilities     23,560     24,844  
               
Loans payable 8   7,598     5,917  
Lease liabilities 9   938     1,074  
Provision for reclamation and rehabilitation     8,496     8,403  
Deferred income tax liability     656     682  
Total liabilities     41,248     40,920  
               
Shareholders' equity              
Common shares, unlimited shares authorized, no par value, issued              
and outstanding 142,614,304 shares (Dec 31, 2019 - 141,668,178 shares) Page 4   483,580     482,170  
Contributed surplus Page 4   12,221     11,482  
Retained earnings (deficit)     (386,785 )   (370,859 )
Total shareholders' equity     109,016     122,793  
Total liabilities and shareholders' equity   $ 150,264   $ 163,713  

Commitments and contingencies (Notes 2, 7, 8, 9, and 16)

Subsequent events (Notes 2, 8, 10)

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of the Board:

/s/ Rex McLennan

 

/s/ Bradford Cooke

Director

 

Director

 



ENDEAVOUR SILVER CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS

(unaudited – prepared by management)

(expressed in thousands of US dollars, except for shares and per share amounts)

      Three months ended  
      March 31,     March 31,  
  Notes   2020     2019  
Revenue 11 $ 21,927   $ 28,021  
Cost of sales:              
Direct costs     16,800     23,072  
Royalties     857     317  
Share-based payments 10 (b)(c)   91     55  
Depreciation, depletion and amortization     6,023     7,116  
Write down of inventory to net realizable value 5   1,042     3,212  
      24,813     33,772  
               
Mine operating earnings (loss)     (2,886 )   (5,751 )
Expenses:              
Exploration 12   2,382     2,333  
General and administrative 13   2,005     3,042  
Severance costs     -     1,100  
Care and maintenance costs     1,345     -  
      5,732     6,475  
               
Operating earnings (loss)     (8,618 )   (12,226 )
               
Finance costs     310     92  
Other income (expense):              
Foreign exchange     (4,917 )   (403 )
Investment and other     49     (209 )
      (4,868 )   (612 )
               
Earnings (loss) before income taxes     (13,796 )   (12,930 )
               
Income tax expense (recovery):              
Current income tax expense     266     698  
Deferred income tax expense (recovery)     1,864     (350 )
      2,130     348  
Net loss and comprehensive loss for the period     (15,926 )   (13,278 )
               
Basic and diluted earnings (loss) per share based on net earnings   $ (0.11 ) $ (0.10 )
Basic and diluted weighted average number of shares outstanding     141,810,208     131,395,790  

The accompanying notes are an integral part of these consolidated financial statements.




ENDEAVOUR SILVER CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited – prepared by management)

(expressed in thousands of US dollars, except share amounts)

                        Retained     Total  
      Number of     Share     Contributed     Earnings     Shareholders'  
  Note   shares     Capital     Surplus     (Deficit)     Equity  
Balance at December 31, 2018     130,781,052     459,109     9,676     (324,005 )   144,780  
                                 
Public equity offerings, net of issuance costs 10 (a)   694,468     1,487     -     -     1,487  
Share based compensation 10 (b)(c)   -     -     999     -     999  
Earnings (loss) for the period     -     -     -     (13,278 )   (13,278 )
Balance at March 31, 2019     131,475,520   $ 460,596   $ 10,675   $ (337,283 ) $ 133,988  
                                 
Public equity offerings, net of issuance costs 10 (a)   10,022,658     21,054     -     -     21,054  
Exercise of options 10 (b)   170,000     520     (177 )   -     343  
Share based compensation 10 (b)(c)   -     -     2,196     -     2,196  
Expiry and forfeiture of options 10 (b)   -     -     (1,212 )   1,212     -  
Earnings (loss) for the period     -     -     -     (34,788 )   (34,788 )
Balance at December 31, 2019     141,668,178   $ 482,170   $ 11,482   $ (370,859 ) $ 122,793  
                                 
Public equity offerings, net of issuance costs 10 (a)   940,126     1,392     -     -     1,392  
Exercise of options 10 (b)   6,000     18     (6 )   -     12  
Share based compensation 10 (b)(c)   -     -     745     -     745  
Earnings (loss) for the period     -     -     -     (15,926 )   (15,926 )
Balance at March 31, 2020     142,614,304   $ 483,580   $ 12,221   $ (386,785 ) $ 109,016  

The accompanying notes are an integral part of these consolidated financial statements.



ENDEAVOUR SILVER CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited – prepared by management)

(expressed in thousands of US dollars)

                                   Three months ended  
      March 31,     March 31,  
  Notes   2020     2019  
               
Operating activities              
Net earnings (loss) for the period   $ (15,926 ) $ (13,278 )
               
Items not affecting cash:              
Share-based compensation 10 (b)(c)   745     999  
Depreciation, depletion and amortization     6,268     7,227  
Deferred income tax expense (recovery)     1,864     (350 )
Unrealized foreign exchange loss (gain)     654     (4 )
Finance costs     311     92  
Write down of inventory to net realizable value 5   1,042     3,212  
Loss on asset disposal     78     -  
Unrealized loss (gain) on other investments     (7 )   (28 )
Net changes in non-cash working capital 14   2,622     (6,704 )
Cash from (used in) operating activities     (2,349 )   (8,834 )
               
Investing activities              
Proceeds on disposal of property, plant and equipment     27     -  
Mineral property, plant and equipment expenditures 7   (5,512 )   (3,923 )
Intangible asset expenditures     -     (203 )
Cash used in investing activities     (5,485 )   (4,126 )
               
Financing activities              
Repayment of loans payable 8   (772 )   (100 )
Repayment of lease liabities 9   (43 )   (71 )
Interest paid 8,9   (218 )   (21 )
Public equity offerings 10(a)   1,485     1,572  
Exercise of options 10(b)   12     -  
Share issuance costs 10(a)   (74 )   (65 )
Cash from financing activitites     390     1,315  
               
Effect of exchange rate change on cash and cash equivalents     (934 )   45  
               
Decrease in cash and cash equivalents     (7,444 )   (11,645 )
Cash and cash equivalents, beginning of the year     23,368     33,376  
Cash and cash equivalents, end of the period   $ 14,990   $ 21,776  

Supplemental cash flow information (Note 14)

The accompanying notes are an integral part of these consolidated financial statements.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

1. CORPORATE INFORMATION

Endeavour Silver Corp. (the “Company” or “Endeavour Silver”) is a corporation governed by the Business Corporations Act (British Columbia). The Company is engaged in silver mining in Mexico and related activities including acquisition, exploration, development, extraction, processing, refining and reclamation. The Company is also engaged in exploration activities in Chile. The address of the registered office is #1130 – 609 Granville Street, Vancouver, B.C., V7Y 1G5.

2. BASIS OF PRESENTATION

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements.

The Board of Directors approved the consolidated financial statements for issue on May 6, 2020.

The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

As of March 31, 2020, the Mexican government declared a national health emergency with extraordinary measures due to the COVID-19 pandemic. Numerous health precautions have been decreed, including the suspension of non-essential businesses, with only essential services to remain open. Mining does not qualify as an essential service so for the protection of the Company’s staff, employees, contractors and communities, the Company suspended its three mining operations in Mexico as of April 1, 2020 as mandated by the Mexican government. The Company is retaining essential personnel at each mine site during the suspension period to maintain safety protocols, environmental monitoring, security measures and equipment maintenance. Essential personnel are following the Company’s strict COVID-19 safety protocols and non-essential employees have been sent home to self-isolate and stay healthy, while continuing to receive their base pay. The suspension of activities may not be applicable after May 18, 2020, to municipalities that present low or no known cases or transmission of the COVID-19 virus. All three of the Company operating mines are located in municipalities that currently present low to no cases and the Company is planning to re-start operations on this premise.

The Company implemented plans to minimize the risks of the COVID-19 virus, both to employees and to the business. At each site, Endeavour is following government health protocols and is closely monitoring the situation with local health authorities. The Company has posted health advisories to educate employees about the COVID-19 symptoms, best practices to avoid contracting and spreading the virus, and procedures to follow if symptoms are experienced.

The Company’s long term business could be significantly adversely affected by the effects of the COVID-19 pandemic. The Company cannot accurately predict the impact COVID-19 will have on third parties’ ability to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In particular, the continued spread of the COVID-19 globally could materially and adversely impact the Company’s business including without limitation, employee health, limitations on travel, the availability of industry experts and personnel, on-going restrictions to mining and processing operations and drill programs, and other factors that will depend on future developments beyond the Company’s control. In addition, the COVID-19 pandemic could adversely affect the economies and financial markets of many countries (including those in which the Company operates), resulting in an economic downturn that could negatively impact the Company’s operating results and ability to raise capital. As of March 31, 2020, the Company held $15.0 million in cash and $27.2 million in working capital, however the temporary suspension imposed by the Mexican government will have a material effect on the Company’s financial position. Management believes there is sufficient working capital to meets its current obligations, however the ultimate duration of the suspension or other future suspensions will impact liquidity. The Company has raised $1,840 subsequent to March 31, 2020 under its ATM facility and on April 28, 2020 filed a base shelf prospectus (see Note 10). The Company may be required to raise additional funds through future debt or equity financings in order to carry out its business plans. The Company will continue to monitor discretionary spending and capital needs during the temporary suspension of mining operations and the COVID-19 health crisis.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

These consolidated financial statements are presented in the Company’s functional currency of US dollars and include the accounts of the Company and its wholly owned subsidiaries: Endeavour Management Corp., Endeavour Gold Corporation S.A. de C.V., EDR Silver de Mexico S.A. de C.V. SOFOM , Minera Santa Cruz Y Garibaldi S.A de C.V., Metalurgica Guanaceví S.A. de C.V., Minera Plata Adelante S.A. de C.V., Refinadora Plata Guanaceví S.A. de C. V., Minas Bolañitos S. A. de C.V., Guanaceví Mining Services S.A. de C.V., Recursos Humanos Guanaceví S.A. de C.V., Recursos Villalpando S.A. de C.V., Servicios Administrativos Varal S.A. de C.V., Minera Plata Carina SPA, MXRT Holding Ltd., Compania Minera del Cubo S.A. de C.V., Minas Lupycal S.A. de C.V., Metales Interamericanos S.A. de C.V., Oro Silver Resources Ltd., Minera Oro Silver de Mexico S.A. de C.V. and Terronera Precious Metals S.A. de C.V. All intercompany transactions and balances have been eliminated upon consolidation of these subsidiaries.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Company’s annual audited consolidated financial statements as at and for the year ended December 31, 2019 except that the Company has changed its presentation of concentrate treatment and refining costs of sales to presenting as a reduction in revenue. The prior period amounts have also been reclassified.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual audited consolidated financial statements as at and for the year ended December 31, 2019 and accordingly should be read in conjunction with the Company’s annual audited financial statements for the year ended December 31, 2019. The Company considered the effects of the COVID- 19 pandemic, including its assumptions on liquidity (see Note 2) and long-lived asset impairment indicators. Management concluded the suspension of mining operations is temporary, therefore not an indicator of impairment for any of its mine CGUs.

4. ACCOUNTS AND OTHER RECEIVABLES

      March 31     December 31  
  Note   2020     2019  
Trade receivables(1)   $ 5,045   $ 6,722  
IVA receivables     8,834     10,572  
Due from related parties  6   1     1  
Other receivables     345     1,277  
    $ 14,225   $ 18,572  

(1) The trade receivables consist of receivables from provisional silver and gold sales from the Bolañitos and El Compas mines. The fair value of receivables arising from concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted forward price on the measurement date from the exchange that is the principal active market for the particular metal. As such, these receivables, which meet the definition of an embedded derivative, are classified within Level 2 of the fair value hierarchy (Note 17).

5. INVENTORIES

    March 31     December 31  
    2020     2019  
Warehouse inventory $ 6,934   $ 8,342  
Finished goods inventory   4,445     2,313  
Work in process inventory   357     457  
Stockpile inventory(1)   1,336     2,477  
  $ 13,072   $ 13,589  

(1) The stockpile inventory balance at March 31, 2020 is net of a write down to net realizable value of $1,042 (December 31, 2019 - $576) for stockpile inventory held at the El Compas mine.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

6. RELATED PARTY TRANSACTIONS

The Company shares common administrative services and office space with a company related by virtue of a common director and from time to time will incur third party costs on behalf of related parties on a full cost recovery basis. The charges for these costs totaled $1 for the three months ended March 31, 2020 (March 31, 2019 - $2). The Company has a $1 net receivable related to these costs as of March 31, 2020 (December 31, 2019 – $1).

The Company was charged $38 for legal services for the three months ended March 31, 2020 by a legal firm in which the Company’s corporate secretary is a partner (March 31, 2019 - $19). The Company has $18 payable to the legal firm as at March 31, 2020 (December 31, 2019 - $33).

7. MINERAL PROPERTIES, PLANT AND EQUIPMENT

(a) Mineral properties, plant and equipment comprise:

    Mineral           Machinery&           Transport&        
    properties     Plant     equipment     Building     office equipment     Total  
Cost                                    
Balance at December 31, 2018   516,227     102,501     66,255     12,344     12,234     709,561  
Additions   18,040     1,509     10,292     612     1,101     31,554  
Disposals   (45 )         (71 )               (116 )
Balance at December 31, 2019 $ 534,222   $ 104,010   $ 76,476   $ 12,956   $ 13,335   $ 740,999  
Additions   4,914     110     4,142           109     9,275  
Disposals               (283 )         (105 )   (388 )
Balance at March 31, 2020 $ 539,136   $ 104,120   $ 80,335   $ 12,956   $ 13,339   $ 749,886  
                                     
Accumulated amortization and impairment                                    
Balance at December 31, 2018   465,901     88,498     47,813     9,674     8,898     620,784  
Amortization   23,862     3,698     2,970     186     1,184     31,900  
Disposals               (18 )               (18 )
Balance at December 31, 2019 $ 489,763   $ 92,196   $ 50,765   $ 9,860   $ 10,082   $ 652,666  
Amortization   4,921     1,058     627     80     346     7,032  
Disposals               (106 )         (105 )   (211 )
Balance at March 31, 2020 $ 494,684   $ 93,254   $ 51,286   $ 9,940   $ 10,323   $ 659,487  
Net book value                                    
At December 31, 2019 $ 44,459   $ 11,814   $ 25,711   $ 3,096   $ 3,253   $ 88,333  
At March 31, 2020 $ 44,452   $ 10,866   $ 29,049   $ 3,016   $ 3,016   $ 90,399  

Included in Mineral properties is $12,775 in acquisition costs for exploration and evaluation properties (December 31, 2019 – $12,619).

As of March 31, 2020, the Company has $1,198 committed to capital equipment purchases.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

8. LOANS PAYABLE

    March 31,     December 31,  
    2020     2019  
Balance at the beginning of the period $ 8,875   $ -  
Net proceeds from software and equipment financing   3,487     10,218  
Finance cost   196     301  
Repayments of principal   (772 )   (1,343 )
Repayments of finance costs   (196 )   (301 )
Effects of movements in exchange rates   (46 )      
Balance at the end of the period $ 11,544   $ 8,875  
             
Statements of Financial Position Presentation            
Current loans payable $ 3,946   $ 2,958  
Non-Current loans payable   7,598     5,917  
Total $ 11,544   $ 8,875  

The Company has entered into financing arrangements for software licenses totaling $1,086 and equipment totaling $12,620, with terms ranging from 1 year to 4 years. The agreements require either monthly or quarterly payments of principal and interest with a weighted-average interest rate of 8%.

The equipment financing is secured by the underlying equipment purchased and is subject to various covenants and as at March 31, 2020 the Company was in compliance with these covenants. As at March 31, 2020, the net book value of equipment includes $12.9 million of equipment pledged as security for the equipment financing.

Subsequent to March 31, 2020 the Company entered into an agreement to defer principal repayments for a 3-month period on $8.5 million of the equipment loans.

9. LEASE LIABILITIES

The Company leases office space, warehouse space and the El Compas plant. These leases are for periods of one to ten years. Certain leases include an option to renew the lease after the end of the contract term and/ or provide for payments that are indexed to local inflation rates.

The following table presents the lease obligations of the Company:

    For the three
months ended
    For the year ended  
    March 31,     December 31,  
    2020     2019  
Lease liabilities at the beginning of the period $ 1,238   $ 1,422  
Additions   29     8  
Interest   22     93  
Payments   (65 )   (339 )
Effects of movement in exchange rates   (126 )   54  
Balance at the end of the period   1,098     1,238  
             
Less: Current portion   (160 )   (164 )
Non-Current Lease Liabilities $ 938   $ 1,074  

The following table presents lease liability maturity – contractual undiscounted cash flows for the Company:

    March 31,     December 31,  
    2020     2019  
Less than one year $ 262   $ 240  
One to five years   707     724  
More than five years   546     586  
Total $ 1,515   $ 1,550  



ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

The following amounts have been recognized in Profit or Loss:

     Three months ended  
    March 31, 2020     March 31, 2019  
Interest on lease liabilities $ 22   $ 18  
Foreign exchange $ (126 ) $ 26  
Expenses related to short-term leases $ 216   $ 45  

As at March 31, 2020, the lease liabilities have a weighted-average interest rate of 7.5%. For the three months ended March 31, 2020, the Company recognized $22, in interest expense on the lease liabilities (March 31, 2019 - $18) and $ $216 related to short term rental (March 31, 2019 - $45), primarily for rented mining equipment and employee housing.

10. SHARE CAPITAL

(a) Public Offerings

In April 2018, the Company filed a short form base shelf prospectus that qualifies for the distribution of up to CAN$150 million of common shares, debt securities, warrants or units of the Company comprising any combination of common shares and warrants (the “Securities”). The Company filed a corresponding registration statement in the United States registering the Securities under United States federal securities laws. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are “At-The-Market” (“ATM”) distributions.

On June 13, 2018, the Company entered into an ATM equity facility with BMO Capital Markets (the lead agent), CIBC Capital Markets, H.C. Wainwright & Co., HSBC and TD Securities (together, the “Agents”). Under the terms of this ATM facility, the Company may, from time to time, sell common stock having an aggregate offering value of up to $35.7 million on the New York Stock Exchange. The Company determines, at its sole discretion, the timing and number of shares to be sold under the ATM facility.

During the three months ended March 31, 2020, the Company issued 940,126 common shares under the ATM facility at an average price of $1.58 per share for gross proceeds of $1,486, less commission of $33.

During the three months ended March 31, 2020, the Company also recognized $60 of additional transaction costs related to the ATM financing as share issuance costs, which have been presented net of share capital.

Included in the 940,126 shares issued under the ATM facility for the three months ended March 31, 2020 are 17,200 shares that were sold by the Company at the end of the period, for net proceeds of $23, and are reserved for issuance. Settlement of the shares occurred in the first few days of April 2020.

Subsequent to March 31, 2020, the Company issued an additional 1,223,993 common shares under the ATM facility at an average price of $1.54 per share for gross proceeds of $1,882 less commission of $42.

In April 2020 the Company filed a short form base shelf prospectus that qualifies for the distribution of up to CAN$150 million of common shares, debt securities, warrants or units of the Company comprising any combination of common shares and warrants (the “Securities”). The Company filed a corresponding registration statement in the United States registering the Securities under United States federal securities laws. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are ATM distributions.

(b) Purchase Options

Options to purchase common shares have been granted to directors, officers, employees and consultants pursuant to the Company’s current stock option plan, approved by the Company’s shareholders in fiscal 2009 and re-ratified in 2018, at exercise prices determined by reference to the market value on the date of grant. The stock option plan allows for, with approval by the Board, granting of options to its directors, officers, employees and consultants to acquire up to 7.0% of the issued and outstanding shares at any time.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

The following table summarizes the status of the Company’s stock option plan and changes during the year:

Expressed in Canadian dollars   Three Months Ended     Year Ended  
    March 31, 2020     December 31,2019  
          Weighted           Weighted  
    Number     average     Number of     average  
    of shares     exercise price     shares     exercise price  
Outstanding ,beginning of the year   6,923,000   $ 3.74     5,987,800   $ 3.96  
Granted   2,380,000   $ 2.14     1,759,000   $ 3.22  
Exercised   (6,000 ) $ 2.65     (170,000 ) $ 2.65  
Expired and forfeited   (125,200 ) $ 3.43     (653,800 ) $ 4.58  
Outstanding, end of the period   9,171,800   $ 3.33     6,923,000   $ 3.74  
                         
Options exercisable at the end of the period   6,398,900   $ 3.68     5,614,300   $ 3.84  

During the three months ended March 31, 2020, the weighted-average share price at the date of exercise was $3.08 (Year ended December 31, 2019 - $3.24)

The following table summarizes the information about stock options outstanding at March 31, 2020:

Expressed in Canadian dollars

 

 

 

 

 

 

Options Outstanding

 

Options exercisable

 

Number

Weighted Average

Weighted

Number

Weighted

 

Outstanding

Remaining

Average

Exercisable

Average

Price

as at

Contractual Life

Exercise

as at

Exercise

Intervals

March 31, 2020

(Number of Years)

Price

March 31, 2020

Price

$2.00 - $2.99

3,238,500

3.7

$2.28

1,319,500

$2.47

$3.00 - $3.99

2,816,300

3.6

$3.47

1,962,400

$3.51

$4.00 - $4.99

3,117,000

1.6

$4.31

3,117,000

$4.31

 

9,171,800

2.9

$3.33

6,398,900

$3.68

During the three months ended March 31, 2020, the Company recognized share-based compensation expense of $588 (March 31, 2019 - $804) based on the fair value of the vested portion of options granted in the current and prior years.

The weighted-average fair values of stock options granted and the assumptions used to calculate the related compensation expense have been estimated using the Black-Scholes Option Pricing Model with the following assumptions:

 

Three months ended

Three months ended

 

March 31, 2020

March 31, 2019

Weighted-average fair value of option in CAN $

$0.98

$1.57

Risk-free interest rate

1.11%

1.75%

Expected dividend yield

0%

0%

Expected stock price volatility

61%

64%

Expected option life in years

3.83

3.83




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

(c) Performance Share Units Plan

The Company has a Performance Share Unit (“PSU”) plan whereby performance share units may be granted to employees of the Company. Once performance conditions have been met, a PSU is redeemable into one common share entitling the holder to receive the common share for no additional consideration. The maximum number of common shares authorized for issuance from treasury under the PSU plan is 2,000,000.

    Three Months Ended     Year Ended  
    March 31, 2020     December 31, 2019  
             
    Number of units     Number of units  
Outstanding,beginning of year   1,219,000     616,000  
Granted   882,000     603,000  
Cancelled   (126,000)     -  
             
Outstanding,end of period   1,975,000     1,219,000  

There were 882,000 PSUs granted during the three months ended March 31, 2020 (March 31, 2019 – 603,000). The PSUs vest at the end of a three-year period if certain pre-determined performance and vesting criteria are achieved. Performance criteria is based on the Company’s share price performance relative to a representative group of other mining companies. 170,000 PSUs vest on May 3, 2020, 388,000 PSUs vest on May 3, 2021, 535,000 PSUs vest on March 3, 2022 and 882,000 PSUs vest on March 1, 2023.

During the three months ended March 31, 2020, the Company recognized share-based compensation expense of $157 related to the PSUs (March 31, 2019 –$195).

(d) Deferred Share Units

The Company has a Deferred Share Unit (“DSU”) plan whereby deferred share units may be granted to independent directors of the Company in lieu of compensation in cash or share purchase options. The DSUs vest immediately and are redeemable for cash based on the market value of the units at the time of a director’s retirement.

Expressed in Canadian dollars   Three Months Ended     Year Ended  
    March 31, 2020     December 31, 2019  
          Weighted           Weighted  
    Number     Average Grant     Number     Average Grant  
    of units     Price     of units     Price  
Outstanding, beginning of year   889,385   $ 3.36     652,276   $ 3.48  
Granted   359,041   $ 2.11     237,109   $ 3.02  
Outstanding, end of period   1,248,426   $ 3.00     889,385   $ 3.36  
Fair value at period end   1,248,426   $ 1.89     889,385   $ 3.13  

During the three months ended March 31, 2020, the Company recognized a recovery on director’s compensation related to DSUs, which is included in general and administrative salaries, wages and benefits, of $474 (March 31, 2019 - expense $511) based on the fair value of new grants and the change in the fair value of the DSUs granted in the current and prior years. As of March 31, 2020, there are 1,248,426 deferred share units outstanding (December 31, 2019 – 889,385) with a fair market value of $1,664 (December 31, 2019 - $2,138) recognized in accounts payable and accrued liabilities.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

11. REVENUE

    Three Months Ended  
    March 31,     March 31,  
    2020     2019  
             
Silver Sales (1) $ 10,199   $ 16,574  
Gold Sales (1)   12,173     12,569  
Less:smelting and refining costs   (445 )   (1,122 )
Revenue $ 21,927   $ 28,021  

(1) Changes in fair value from provisional pricing in the period are included in silver and gold sales.

    Three months ended  
    March 31,     March 31,  
Revenue by product   2020     2019  
             
Concentrate sales $ 10,046   $ 19,596  
Provisional pricing adjustments   (90 )   176  
Total revenue from concentrate sales   9,956     19,772  
Dore sales   11,971     8,249  
Total revenue $ 21,927   $ 28,021  

Provisional pricing adjustments on sales of concentrate consist of provisional and final pricing adjustments made prior to the finalization of the sales contract. The Company’s sales contracts are provisionally priced with provisional pricing periods lasting typically one to three months with provisional pricing adjustments recorded to revenue as market prices vary.

12. EXPLORATION

    Three Months Ended  
    March 31     March 31  
    2020      2019  
             
Depreciation and depletion $ 90   $ 38  
Share-based compensation   (118 )   163  
Salaries, wages and benefits   670     872  
Direct exploration expenditures   1,740     1,260  
  $ 2,382   $ 2,333  



ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

13. GENERAL AND ADMINISTRATIVE

    Three Months Ended  
    March 31     March 31  
    2020     2019  
Depreciation and depletion $ 55   $ 73  
Share-based compensation   772     781  
Salaries, wages and benefits   213     1,378  
Direct general and administrative   965     810  
  $ 2,005   $ 3,042  

Included in salaries, wages and benefits is an expense recovery of $474 on directors’ deferred share units for the three months ended March 31, 2020 (March 31, 2019 – expense of $511).

14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

    Three Months Ended  
    March 31,     March 31,  
    2020     2019  
Net changes in non-cash working capital:            
Accounts receivable $ 6,365   $ (561 )
Inventories   280     (1,943 )
Prepaid expenses   (1,768 )   (102 )
Accounts payable and accrued liabilities   (1,370 )   (2,166 )
Income taxes payable   (885 )   (1,932 )
  $ 2,622   $ (6,704 )
Non-cash financing and investing activities:            
Fair value of exercised options allocated to share capital   6     -  
Fair value of capital assets acquired under finance loans   3,487     1,035  
             
Other cash disbursements:            
Income taxes paid   702     1,209  
Special mining duty paid   -     1,670  



ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(expressed in thousands of US dollars, unless otherwise stated)

15. SEGMENT DISCLOSURES

The Company’s operating segments are based on internal management reports that are reviewed by the Company’s executives (the chief operating decision makers) in assessing performance. The Company has three operating mining segments located in Mexico, Guanaceví, Bolañitos and El Compas, the El Cubo mine which is on care and maintenance, as well as Exploration and Corporate segments. The Exploration segment consists of projects in the exploration and evaluation phases in Mexico and Chile.

 

March 31, 2020  
    Corporate     Exploration     Guanaceví     Bolanitos     El Compas     El Cubo     Total  
Cash and cash equivalents $ 7,909   $ 622   $ 4,327   $ 1,393   $ 626   $ 113   $ 14,990  
Other Investments   76     -     -     -     -     -     76  
Accounts receivables   186     1,686     2,196     3,681     3,791     2,685     14,225  
Income tax receivable   -     501     1,340     1,470     -     17     3,328  
Inventories   -     -     8,221     3,111     1,367     373     13,072  
Prepaid expenses   609     1,096     1,786     946     496     118     5,051  
Non-current deposits   76     -     306     137     -     74     593  
Non-current IVA receivable   -     311     653     -     -     116     1,080  
Deferred income tax asset   -     -     2,447     2,907     -     -     5,354  
Intangible assets   17     128     240     192     119     157     853  
Right-of-use leased assets   719                 181     343           1,243  
Mineral property, plant and equipment   365     13,137     36,389     22,230     14,602     3,676     90,399  
Total assets $ 9,957   $ 17,481   $ 57,905   $ 36,248   $ 21,344   $ 7,329   $ 150,264  
                                           
Accounts payable and accrued liabilities $ 4,614   $ 774   $ 7,775   $ 3,325   $ 1,480   $ 424   $ 18,392  
Income taxes payable   31     -     781     248     -     2     1,062  
Loans payable   643     -     3,797     7,104                 11,544  
Lease obligations   943     -     -     155     -     -     1,098  
Provision for reclamation and rehabilitation   -     -     2,191     1,856     126     4,323     8,496  
Deferred income tax liability   -     -     -     487     169     -     656  
Total liabilities $ 6,231   $ 774   $ 14,544   $ 13,175   $ 1,775   $ 4,749   $ 41,248  
                                     
December 31, 2019  
    Corporate     Exploration     Guanaceví     Bolanitos     El Compas     El Cubo     Total  
Cash and cash equivalents $ 13,065   $ 855   $ 7,372   $ 1,700   $ 353   $ 23   $ 23,368  
Other Investments   69     -     -     -     -     -     69  
Accounts receivables   1,068     2,568     4,574     6,999     4,819     2,922     22,950  
Inventories   -     -     7,441     2,426     2,094     1,628     13,589  
Prepaid expenses   905     1,029     619     572     25     152     3,302  
Non-current deposits   76     -     305     151     -     74     606  
Non-current IVA receivable   -     355     824     -     -     869     2,048  
Deferred income tax asset   -     -     2,837     4,299     -     -     7,136  
Intangible assets   28     160     269     224     137     157     975  
Right-of-use leased assets   745                 175     417           1,337  
Mineral property, plant and equipment   380     13,064     34,006     19,757     17,106     4,020     88,333  
Total assets $ 16,336   $ 18,031   $ 58,247   $ 36,303   $ 24,951   $ 9,845   $ 163,713  
                                           
Accounts payable and accrued liabilities $ 6,729   $ 855   $ 7,079   $ 2,872   $ 1,403   $ 837   $ 19,775  
Income taxes payable   368     -     696     840     -     43     1,947  
Loans payable   774     -     2,058     6,043                 8,875  
Lease obligations   1,050     -     -     188     -     -     1,238  
Provision for reclamation and rehabilitation   -     -     2,182     1,848     124     4,249     8,403  
Deferred income tax liability   -     -     -     513     169     -     682  
Total liabilities $ 8,921   $ 855   $ 12,015   $ 12,304   $ 1,696   $ 5,129   $ 40,920  



ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Compas     El Cubo     Total  
Three months ended March 31, 2020  
Silver sales $ -   $ -   $ 8,884   $ 1,002   $ 313   $ -   $ 10,199  
Gold sales   -     -     3,087     6,092     2,994     -   $ 12,173  
Less: smelting and refining costs                     (341 )   (104 )       $ (445 )
Total revenue $ -   $ -   $ 11,971   $ 6,753   $ 3,203   $ -   $ 21,927  
                                           
Salaries, wages and benefits:                                          
mining $ -   $ -   $ 1,177   $ 1,003   $ 127   $ -   $ 2,307  
processing   -     -     452     336     269     -     1,057  
administrative   -     -     530     666     255     -     1,451  
stock based compensation   -     -     30     31     30     -     91  
change in inventory   -     -     (430 )   (47 )   (23 )   -     (500 )
Total salaries, wages and benefits   -     -     1,759     1,989     658     -     4,406  
                                           
Direct costs:                                          
mining   -     -     4,239     2,112     1,045     -     7,396  
processing   -     -     2,216     803     594     -     3,613  
administrative   -     -     791     468     303     -     1,562  
change in inventory   -     -     (540 )   (46 )   500     -     (86 )
Total direct production costs   -     -     6,706     3,337     2,442     -     12,485  
                                           
Depreciation and depletion:                                          
depreciation and depletion   -     -     2,011     2,205     2,110     -     6,326  
change in inventory   -     -     (402 )   (133 )   232     -     (303 )
Total depreciation and depletion   -     -     1,609     2,072     2,342     -     6,023  
                                           
Royalties   -     -     678     37     142     -     857  
Write down of inventory to NRV   -     -     -     -     1,042     -     1,042  
Total cost of sales $ -   $ -   $ 10,752   $ 7,435   $ 6,626   $ -   $ 24,813  
Care and maintenance costs   -     -     -     -     -     1,345     1,345  
                                           
Earnings (loss) before taxes $ (7,183 ) $ (2,382 ) $ 1,219   $ (682 ) $ (3,423 ) $ (1,345 ) $ (13,796 )
                                           
Current income tax expense (recovery)   -     -     158     85     19     4     266  
Deferred income tax expense (recovery)   -     -     388     1,392     84     -     1,864  
Total income tax expense (recovery)   -     -     546     1,477     103     4     2,130  
Net earnings (loss) $ (7,183 ) $ (2,382 ) $ 673   $ (2,159 ) $ (3,526 ) $ (1,349 ) $ (15,926 )

The Exploration segment included $338 of costs incurred in Chile for the three months ended March 31, 2020 (March 31, 2019 - $155).




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Compas     El Cubo     Total  
Three months ended March 31, 2019
Silver sales $ -   $ -   $ 6,856   $ 3,003   $ -   $ 6,715   $ 16,574  
Gold sales   -     -     1,394     5,575     -     5,600     12,569  
Less: smelting and refining costs   -     -     -     (456 )         (666 )   (1,122 )
Total revenue $ -   $ -   $ 8,250   $ 8,122   $ -   $ 11,649   $ 28,021  
                                           
Salaries, wages and benefits:                                          
mining $ -   $ -   $ 1,531   $ 1,098   $ -   $ 1,866   $ 4,495  
processing   -     -     365     276     -     371     1,012  
administrative   -     -     710     462     -     844     2,016  
stock based compensation   -     -     19     18     -     18     55  
change in inventory   -     -     (75 )   12     -     125     62  
Total salaries, wages and benefits   -     -     2,550     1,866     -     3,224     7,640  
                                           
Direct costs:                                          
mining   -     -     4,886     2,490     -     2,995     10,371  
processing   -     -     1,600     994     -     861     3,455  
administrative   -     -     553     303     -     572     1,428  
change in inventory   -     -     (157 )   184     -     206     233  
Total direct production costs   -     -     6,882     3,971     -     4,634     15,487  
                                           
Depreciation and depletion:                                          
depreciation and depletion   -     -     4,065     1,081     -     2,048     7,194  
change in inventory   -     -     (3 )   (214 )   -     139     (78 )
Total depreciation and depletion   -     -     4,062     867     -     2,187     7,116  
                                           
Royalties   -     -     220     40     -     57     317  
Write down of inventory to NRV   -     -     2,114     -     1,098     -     3,212  
Total cost of sales $ -   $ -   $ 15,828   $ 6,744   $ 1,098   $ 10,102   $ 33,772  
                                           
Severance costs   -     -     -     -     -     1,100     1,100  
                                           
Earnings (loss) before taxes $ (3,260 ) $ (2,318 ) $ (7,578 ) $ 1,378   $ (1,599 ) $ 447   $ (12,930 )
                                           
Current income tax expense (recovery)   -     -     159     338     -     201     698  
Deferred income tax expense (recovery)   -     -     (236 )   (643 )   -     529     (350 )
Total income tax expense (recovery)   -     -     (77 )   (305 )   -     730     348  
Net earnings (loss) $ (3,260 ) $ (2,318 ) $ (7,501 ) $ 1,683   $ (1,599 ) $ (283 ) $ (13,278 )

The prior period direct processing costs and total revenue have been presented to reflect a change to present revenue net of concentrate smelting and refining costs.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

16. INCOME TAXES

Tax Assessments

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. In June 2016, the Company received a MXN 122.9 million ($5,200) tax assessment based on the June 2015 ruling. The 2016 tax assessment comprised of MXN 41.8 million owed ($1,800) in taxes, MXN 17.7 million ($700) in inflationary charges, MXN 40.4 million ($1,700) in interest and MXN 23.0 million ($1,000) in penalties. The 2016 tax assessment was issued for failure to provide the appropriate support for certain expense deductions taken in MSCG’s 2006 tax return and failure to provide appropriate support for loans made to MSCG from affiliated companies. The MXN 122.9 million assessment includes interest and penalties. 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.

The Company filed an appeal against the June 2016 tax assessment on the basis certain items rejected by the courts were included in the new tax assessment, while a number of deficiencies exist within the assessment. Since issuance of the assessment interest charges of MXN 7.6 million ($300) and inflationary charges of MXN 11.5 million ($500) has accumulated.

Included in the Company’s consolidated financial statements, are net assets of $595, including $42 in cash, held by 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 December 31, 2019, the Company’s income tax payable includes an allowance for transferring the shares and assets of MSCG amounting to $595. The Company is currently assessing MSCG’s settlement options based on on-going court proceedings and discussion with the tax authorities.

Compania Minera Del Cubo SA de CV (“Cubo”), a subsidiary of the Company, received a MXN 58.5 million ($2,500) assessment in 2019 by Mexican fiscal authorities for alleged failure to provide the appropriate support for depreciation deductions taken in the Cubo 2016 tax return and denied eligibility of deductions of certain suppliers. The tax assessment consists of MXN 24.1 million ($1,000) for taxes, MXN 21.0 million ($900) for penalties, MXN 10.4 million ($400) for interest and MXN 3.0 million ($100) for inflation.

Due to the denial of certain suppliers for income tax purposes, the invoices are deemed ineligible for refunds of IVA paid on the invoices. The assessment includes MXN 14.7 million ($600) for re-payment of IVA (value added taxes) refunded on these supplier payments. In the Company’s judgement the suppliers and invoices meet the necessary requirements to be deductible for income tax purposes and the recovery of IVA.

The Company has filed an administrative appeal related to the 2016 Cubo Tax assessment. Cubo has provided a lien on certain El Cubo mining concessions during the appeal process. Since issuance of the assessment interest charges of MXN 4.9 million ($200) and inflationary charges of MXN 0.9 million ($100) has accumulated.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

17. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

(a) Financial assets and liabilities

As at March 31, 2020, the carrying and fair values of the Company’s financial instruments by category are as follows:

    Fair value                    
    through profit or     Amortized     Carrying        
    loss     cost     value     Fair value  
    $     $     $     $  
Financial assets:                        
Cash and cash equivalents   -     14,990     14,990     14,990  
Other Investments   76     -     76     76  
Trade receivables   4,769     276     5,045     5,045  
Other receivables   -     345     345     345  
Total financial assets   4,845     15,611     20,456     20,456  
                         
Financial liabilities:                        
Accounts payable and accrued liabilities   1,668     16,724     18,392     18,392  
Loans payable   -     11,544     11,544     11,544  
Total financial liabilities   1,668     28,268     29,936     29,936  

Fair value measurements

Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

Level 1:

Other investments, which are comprised of Marketable securities, are determined based on a market approach reflecting the closing price of each particular security at the reporting date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security. As a result, these financial assets have been included in Level 1 of the fair value hierarchy.

Deferred share units are determined based on a market approach reflecting the Company’s closing share price.

Level 2:

The Company determines the fair value of the embedded derivatives related to its trade receivables based on the quoted closing price obtained from the silver and gold metal exchanges.

The Company determines the fair value of the SARs liability using an option-pricing model.

Level 3:

The Company has no assets or liabilities included in Level 3 of the fair value hierarchy

There were no transfers between levels 1, 2 and 3 during the period ended March 31, 2020.




ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

Assets and liabilities as at March 31, 2020 measured at fair value on a recurring basis include:

    Total     Level 1     Level 2     Level 3  
    $     $     $     $  
                         
Financial assets:                        
Investments   76     76     -     -  
Trade receivables   4,769     -     4,769     -  
Total financial assets   4,845     76     4,769     -  
                         
Financial liabilities:                        
Deferred share units   1,664     1,664     -     -  
Share appreciation rights   4     -     4     -  
Total financial liabilities   1,668     1,664     4     -  



ENDEAVOUR SILVER CORP.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Three months ended March 31, 2020 and 2019

(unaudited – prepared by management)

(expressed in thousands of US dollars, unless otherwise stated)

HEAD OFFICE

Suite #1130, 609 Granville Street

 

Vancouver, BC, Canada V7Y 1G5

 

Telephone:

(604) 685-9775

 

 

1-877-685-9775

 

Facsimile:(604) 685-9744

 

Website:

www.edrsilver.com

     

DIRECTORS

Geoff Handley

 

 

Margaret Beck

 

 

Ricardo Campoy

 

 

Bradford Cooke

 

 

Rex McLennan

 

 

Kenneth Pickering

 

 

Mario Szotlender

 

   

OFFICERS

Bradford Cooke - Chief Executive Officer

 

Godfrey Walton - President and Chief Operating Officer

 

Dan Dickson - Chief Financial Officer

 

Nicholas Shakesby – Vice President, Operations

 

Luis Castro - Vice-President, Exploration

 

Dale Mah - Vice-President, Corporate Development

 

Christine West – Vice-President, Controller

 

Bernard Poznanski - Corporate Secretary

   

REGISTRAR AND

Computershare Trust Company of Canada

TRANSFER AGENT

3rd Floor - 510 Burrard Street

 

Vancouver, BC, V6C 3B9

     

AUDITORS

KPMG LLP

 

 

777 Dunsmuir Street

 

 

Vancouver, BC, V7Y 1K3

     

SOLICITORS

Koffman Kalef LLP

 

 

19th Floor – 885 West Georgia Street

 

Vancouver, BC, V6C 3H4

   

SHARES LISTED

Toronto Stock Exchange

 

Trading Symbol - EDR

 

New York Stock Exchange

  Trading Symbol – EXK

 



Endeavour Silver Corp.: Exhibit 99.2 - Filed by newsfilecorp.com



MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE PERIOD ENDED MARCH 31, 2020

This Management Discussion and Analysis ("MD&A") should be read in conjunction with the condensed consolidated interim financial statements of Endeavour Silver Corp. ("Endeavour" or "the Company") for the three months ended March 31, 2020 and the related notes contained therein, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). In addition, the following should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 and the related MD&A. The Company uses certain non-IFRS financial measures in this MD&A as described under "Non-IFRS Measures". Additional information relating to the Company, including the most recent Annual Information Form (the "Annual Information Form"), is available on SEDAR at www.sedar.com, and the Company's most recent annual report on Form 40-F has been filed with the U.S. Securities and Exchange Commission (the "SEC"). This MD&A contains "forward-looking statements" that are subject to risk factors set out in a cautionary note contained herein. All dollar amounts are expressed in United States ("U.S.") dollars and tabular amounts are expressed in thousands of U.S. dollars unless otherwise indicated. This MD&A is dated as of May 6, 2020 and all information contained is current as of May 6, 2020 unless otherwise stated.

Cautionary Note to U.S. Investors concerning Estimates of Mineral Reserves and Measured, Indicated and Inferred Mineral Resources:


This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws.  The terms "mineral reserve", "proven mineral reserve" and "probable mineral reserve" are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ materially from the definitions in SEC Industry Guide 7 under the U.S. 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 SEC Industry Guide 7 reserves.  "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.  Disclosure of "contained ounces" in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute "reserves" by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures

Accordingly, information contained in this MD&A contains descriptions of the Company's 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 U.S. federal securities laws and the rules and regulations thereunder, including SEC Industry Guide 7.

 

609 Granville Street, Suite 1130, PO Box #10328, Vancouver, B.C., Canada V7Y 1G5
Phone: 604.685.9775  |  Fax: 604.685.9744  | Toll Free: 1.877.685.9775  Email: info@edrsilver.com
www.edrsilver.com


Forward-Looking Statements

This MD&A contains "forward-looking statements" within the meaning of the U.S. Securities Litigation Reform Act of 1995, as amended and "forward-looking information" within the meaning of applicable Canadian securities legislation.  Such forward-looking statements and information include, but are not limited to, statements regarding Endeavour's anticipated performance in 2020, including silver and gold production, financial results, timing and expenditures to develop new silver mines and mineralized zones, silver and gold grades and recoveries, cash costs per ounce, capital expenditures and sustaining capital and the impact of the COVID 19 pandemic on operations. Forward-looking statements are frequently characterized by words such as "plan", "expect", "forecast", "project", "intend", "believe", "anticipate", "outlook" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward- looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements.

The Company does not intend to, and does not assume any obligation to, update such forward-looking statements or information, other than as required by applicable law.  Forward-looking statements or information involve known and unknown risks, uncertainties and other factors and are based on assumptions that may cause the actual results, level of activity, performance or achievements of the Company and its operations to be materially different from those expressed or implied by such statements. Such factors and assumptions include, among others: the ultimate impact of the COVID 19 pandemic on operations and results, fluctuations in the prices of silver and gold, fluctuations in the currency markets (particularly the Mexican peso, Chilean peso, Canadian dollar and U.S. dollar); changes in national and local governments, legislation, taxation, controls, regulations and political or economic developments in Canada and Mexico; operating or technical difficulties in mineral exploration, development and mining activities; risks and hazards of mineral exploration, development and mining (including, but not limited to environmental hazards, industrial accidents, unusual or unexpected geological conditions, pressures, cave-ins and flooding); inadequate insurance, or inability to obtain insurance; availability of and costs associated with mining inputs and labour; the speculative nature of mineral exploration and development, diminishing quantities or grades of mineral reserves as properties are mined; the ability to successfully integrate acquisitions; risks in obtaining necessary licenses and permits, and challenges to the Company's title to properties; as well as those factors described under "Risk Factors" in the Company's Annual Information Form. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or information, there may be other factors that cause results to be materially different from those anticipated, described, estimated, assessed or intended. There can be no assurance that any forward-looking statements or information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements or information. Accordingly, readers should not place undue reliance on forward-looking statements or information.

Qualified Person

The scientific and technical information contained in this MD&A relating to the Company's mines and mineral projects has been reviewed and approved by Godfrey Walton, M.Sc., P.Geo., President and Chief Operating Officer of Endeavour, a Qualified Person within the meaning of NI 43-101.

 


TABLE OF CONTENTS

OPERATING HIGHLIGHTS 4
   
HISTORY AND STRATEGY 5
   
REVIEW OF OPERATING RESULTS 6
   
GUANACEVÍ OPERATIONS 8
   
BOLAÑITOS OPERATIONS 9
   
EL COMPAS OPERATIONS 10
   
EL CUBO OPERATIONS 12
   
DEVELOPMENT ACTIVITIES 13
   
EXPLORATION RESULTS 13
   
CONSOLIDATED FINANCIAL RESULTS 14
   
NON-IFRS MEASURES 15
   
QUARTERLY RESULTS AND TRENDS 20
   
ANNUAL OUTLOOK 25
   
LIQUIDITY AND CAPITAL RESOURCES 25
   
CHANGES IN ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES 31
   
CRITICAL ACCOUNTING ESTIMATES 31
   
CONTROLS AND PROCEDURES 31

OPERATING HIGHLIGHTS



Q1 2020 Highlights Three Months Ended March 31
 

2020

2019 % Change
Production

Silver ounces produced

857,659

1,071,355

(20%)

Gold ounces produced

8,476

10,055

(16%)

Payable silver ounces produced

849,791

1,050,215

(19%)

Payable gold ounces produced

8,320

9,809

(15%)

Silver equivalent ounces produced (1)

1,535,739

1,875,755

(18%)

Cash costs per silver ounce(2)(3)

7.85

12.55

(37%)

Total production costs per ounce(2)(4)

16.35

20.12

(19%)

All-in sustaining costs per ounce(2)(5)

18.38

19.37

(5%)

Processed tonnes

199,327

246,519

(19%)

Direct production costs per tonne(2)(6)

101.63

105.84

(4%)

Silver co-product cash costs(7)

11.51

13.56

(15%)

Gold co-product cash costs(7)

1,226

1,150

7%

Financial

Revenue (11) ($ millions)

21.9

28.0

(22%)

Silver ounces sold

665,500

1,069,385

(38%)

Gold ounces sold

7,454

9,559

(22%)

Realized silver price per ounce

15.33

15.50

(1%)

Realized gold price per ounce

1,633

1,315

24%

Net earnings (loss) ($ millions)

(15.9)

(13.3)

(20%)

Mine operating earnings ($ millions)

(2.9)

(5.8)

50%

Mine operating cash flow(8) ($ millions)

4.3

4.6

(8%)

Operating cash flow before working capital changes (9)

(5.0)

(2.1)

(133%)

Earnings before ITDA (10)($ millions)

(6.7)

(4.6)

(46%)

Working capital ($ millions)

27.2

46 .8

(42%)

Shareholders

Earnings (loss) per share – basic

(0.11)

(0.10)

(10%)

Operating cash flow before working capital changes per share (9)

(0.04)

(0.02)

(100%)

Weighted average shares outstanding

141,810,208

131,395,790

8%

(1) Silver equivalents are calculated using an 80:1 ratio. 

(2) The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Company's mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliations to IFRS beginning on page 15.

(3) Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17

(4) Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17.

(5) All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18.

(6) Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17.

(7) Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value.  See Reconciliation to IFRS on page 19.

(8) Mine operating cash flow is calculated by adding back amortization, depletion, inventory write-downs and share-based compensation to mine operating earnings. Mine operating earnings and mine operating cash flow are before taxes. See Reconciliation to IFRS on page 15.

(9) See Reconciliation to IFRS on page 15for the reconciliation of operating cash flow before working capital changes and for the operating cash flow before working capital changes per share.

(10) See Reconciliation of Earnings before interest, taxes, depreciation and amortization on page16.

(11) The Company has changed its presentation of concentrate treatment and refining costs of sales to presenting as a reduction in revenue.  The prior period revenue has been reclassified.

The above highlights are key measures used by management, however they should not be the sole measures used in determining the performance of the Company's operations.


 

HISTORY AND STRATEGY

The Company is engaged in silver mining in Mexico and related activities including property acquisition, exploration, development, mineral extraction, processing, refining and reclamation.  The Company is also engaged in exploration activities in Chile.

Since 2002, the Company's business strategy has been to focus on acquiring advanced-stage silver mining properties in Mexico.  Mexico, despite its long and prolific history of metal production, appears to be relatively under-explored using modern exploration techniques and offers promising geological potential for precious metals exploration and production.

The Company's Guanaceví and Bolañitos mines acquired in 2004 and 2007, respectively, demonstrate its business model of acquiring fully built and permitted silver mines that were about to close for lack of ore.  By bringing the money and expertise needed to find new silver ore-bodies, the Company successfully re-opened and expanded these mines to develop their full potential.  The benefit of acquiring fully built and permitted mining and milling infrastructure is that, if new exploration efforts are successful, the mine development cycle from discovery to production only takes a matter of months instead of the several years normally required in the traditional mining business model.

In addition to operating the Guanaceví and Bolañitos mines, the Company commissioned the El Compas mine in March 2019.  The Company is advancing the Terronera development project and several exploration projects in order to achieve its goal to become a premier senior producer in the silver mining sector.

In 2012, the Company acquired the El Cubo silver-gold mine located in Guanajuato, Mexico, which operated until November 2019

The Company has historically funded its acquisition, exploration and development activities through equity financings, debt facilities and convertible debentures.  In recent years, the Company has financed most of its acquisition, exploration, development and operating activities from production cash flows, treasury and equity financings. The Company may choose to undertake equity, debt, convertible debt or other financings, on an as-needed basis, in order to facilitate its growth.

As of March 31, 2020, the Mexican government declared a national health emergency with extraordinary measures due to the COVID-19 pandemic. Numerous health precautions have been decreed, including the suspension of non-essential businesses, with only essential services to remain open. Mining does not qualify as an essential service so for the protection of the Company's staff, employees, contractors and communities, the Company suspended its three mining operations in Mexico as of April 1, 2020 as mandated by the Mexican government. The Company is retaining essential personnel at each mine site during the suspension period to maintain safety protocols, environmental monitoring, security measures and equipment maintenance. Essential personnel are following the Company's strict COVID-19 safety protocols and non-essential employees have been sent home to self-isolate and stay healthy, while continuing to receive their base pay. The suspension of activities may not be applicable after May 18, 2020, to municipalities that present low or no known cases or transmission of the COVID-19 virus. All three of the Company operating mines are located in municipalities that currently present low to no cases and the Company is planning to re-start operations on this premise. 

The Company implemented plans to minimize the risks of the COVID-19 virus, both to employees and to the business.  At each site, Endeavour is following government health protocols and is closely monitoring the situation with local health authorities.  The Company has posted health advisories to educate employees about the COVID-19 symptoms, best practices to avoid contracting and spreading the virus, and procedures to follow if symptoms are experienced.

As the COVID-19 health emergency is dynamic and, given that the ultimate duration of the suspension period is uncertain, the impact on the Company's 2020 production and costs is presently indeterminable. Due to this, the Company announced on April 2, 2020 the withdrawal of its production and cost guidance for 2020 until further notice.


The Company's long-term business could be significantly adversely affected by the effects the COVID-19 pandemic. The Company cannot accurately predict the impact COVID-19 will have on third parties' ability to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In particular, the continued spread of the COVID-19 globally could materially and adversely impact the Company's business including without limitation, employee health, limitations on travel, the availability of industry experts and personnel, on-going restrictions to mining and processing operations and drill programs, and other factors that will depend on future developments beyond the Company's control. In addition, the COVID 19 pandemic could adversely affect the economies and financial markets of many countries (including those in which the Company operates), resulting in an economic downturn that could negatively impact the Company's operating results and ability to raise capital. As of March 31, 2020, the Company held $15.0 million in cash and $27.2 million in working capital, however the temporary suspension imposed by the Mexican government will have a material effect on the Company's financial position. Management believes there is sufficient working capital to meets its current obligations, however the ultimate duration of the suspension or other future suspensions will impact liquidity.

REVIEW OF OPERATING RESULTS

The Company operates the Guanaceví and Bolañitos mines and the recently commissioned El Compas mine, which attained commercial production in March 2019.  The Company suspended mining operations at the El Cubo mine on November 30, 2019 due to exhaustion of reserves.

Consolidated Production Results for the Three Months Ended March 31, 2020 and 2019

CONSOLIDATED

Three Months Ended March 31

 

2020

219

% Change

Ore tonnes processed

199,327

246,519

(19%)

Average silver grade (gpt)

155

154

1%

Silver recovery (%)

86.1

87.7

(2%)

Total silver ounces produced

857,659

1,071,355

(20%)

Payable silver ounces produced

849,791

1,050,215

(19%)

Average gold grade (gpt)

1.57

1.45

8%

Gold recovery (%)

84.4

87.4

(3%)

Total gold ounces produced

8,476

10,055

(16%)

Payable gold ounces produced

8,320

9,809

(15%)

Silver equivalent ounces produced (1)

1,535,739

1,875,755

(18%)

Cash costs per silver ounce(2)(3)

7.85

12.55

(37%)

Total production costs per ounce(2)(4)

16.35

20.12

(19%)

All in sustaining cost per ounce (2)(5)

18.38

19.37

(5%)

Direct production costs per tonne(2)(6)

101.63

105.84

(4%)

Silver co-product cash costs(7)

11.51

13.56

(15%)

Gold co-product cash costs(7)

1,226

1,150

7%

 

(1) Silver equivalents are calculated using an 80:1 ratio..

(2) The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Company's mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliations to IFRS on page 15.

(3) Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17.

(4) Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17.

(5) All-in sustaining costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18.

(6) Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17.

(7) Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value.  See Reconciliation to IFRS on page 19.


Consolidated Production

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Consolidated silver production during Q1, 2020 was 857,659 ounces (oz), a decrease of 20% compared to 1,071,355 oz in Q1, 2019, and gold production was 8,476 oz, a decrease of 16% compared to 10,055 oz in Q1, 2019.  Plant throughput was 199,327 tonnes at average grades of 155 grams per tonne (gpt) silver and 1.57 gpt gold, a throughput decrease of 19% compared to 246,519 tonnes grading 154 gpt silver and 1.45 gpt gold in Q1, 2019.  The 20% lower silver production and 16% lower gold production compared to Q1, 2019 is primarily due to the suspension of mining operations at the El Cubo mine in Q4, 2019. Excluding El Cubo, production increased significantly due to improved throughput and ore grades at Guanaceví and commercial production at El Compas, partly offset by lower production at Bolañitos which was driven primarily by lower grades.

For the first quarter of 2020, silver equivalent production was in line with guidance. However, the Company has withdrawn guidance because of the decree issued by the Mexican government.  The Company was planning for output increases in the second quarter of 2020 prior to the suspension of operations. The Company will provide updated guidance when it is determined the operations can safely re-start and forecast with more certainty.

Consolidated Operating Costs

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Direct production costs per tonne in Q1, 2020 decreased 4%, to $101.63 compared with Q1, 2019 due to lower operating costs at Guanaceví operation, offset by the higher costs at the El Compas and the exclusion the El Cubo operation which suspended activities in Q4, 2019. 

Consolidated cash costs per oz, net of by-product credits (a non-IFRS measure and a standard of the Silver Institute) decreased 37% to $7.85 primarily due to lower operating costs per tonne, higher gold grades and higher realized gold price that increased the by-product credit compared to the same period in 2019.  All-in sustaining costs (also a non-IFRS measure) decreased 5% to $18.38 per oz in Q1, 2020as a result of lower operating costs offset by higher proportional allocation of corporate general and administrative costs, increased exploration expenditures at each operation and increased capital expenditures at Guanaceví and Bolañitos due to accelerated mine development.

A Company-wide review of operations in 2019 identified several deficiencies in the operating performance.  As a result, management initiated multiple remedial measures including changes of mine-site management and mining contractors, changes to shift and contractor supervision, renting used mining equipment, leasing new mining equipment and reducing the work force.

The goal of these remedial actions was to improve safety, reduce operating costs and generate free cash flow at current metal prices.  Management notes that while the remedial actions started to have a positive impact on mine operating performance in Q4, 2019, the full benefit of these initiatives is expected to be realized in 2020.


GUANACEVÍ OPERATIONS

The Guanaceví operation is currently producing from three underground silver-gold mines along a five kilometre length of the prolific Santa Cruz vein.  Guanaceví provides steady employment to over 475 people and engages over 385 contractors.  Guanaceví mine production operated below plant capacity due to the operational issues in 2019.  The development of two new orebodies, Milache and SCS and the acquisition of the Ocampo concession rights have provided sufficient ore and flexibility to meet the designed capacity of the plant in 2020.  The Company successfully drilled the projected extensions of the previously mined Porvenir Cuatro and Porvenir ore bodies onto the Ocampo concessions.  The Company commenced mining from the Porvenir Cuatro extension (P4E) and the Porvenir extension (PNE) late in 2019.

During 2019, the Company acquired a 10 year right to explore and exploit the El Porvenir and El Curso concessions from Ocampo Mining SA de CV ("Ocampo"), a subsidiary of Grupo Frisco.  The Company has agreed to meet certain minimum production targets from the properties, subject to various terms and conditions and pay Ocampo a $12 fixed per tonne production payment plus a floating net smelter return royalty based on the spot silver price. The Company paid a 4% royalty on sales below $15.00 per ounce and 9% above $15.00 per ounce, based on then current prices.   

Production Results for the Three Months Ended March 31, 2020 and 2019

GUANACEVÍ

Three Months Ended March 31

 

2020

2019

% Change

Ore tonnes processed

94,207

76,557

23%

Average silver grade (g/ t)

280

206

36%

Silver recovery (%)

87.9

90.4

(3%)

Total silver ounces produced

745,114

458,144

63%

Payable silver ounces produced

742,998

457,686

62%

Average gold grade (g/ t)

0.87

0.52

67%

Gold recovery (%)

92.1

88.9

4%

Total gold ounces produced

2,427

1,138

113%

Payable gold ounces produced

2,421

1,137

113%

Silver equivalent ounces produced(1)

939,274

549,184

71%

Cash costs per silver ounce(2)(3)

9.01

21.06

(57%)

Total production costs per ounce(2)(4)

11.73

31.18

(62%)

All in sustaining cost per ounce (2)(5)

14.61

27.56

(47%)

Direct production costs per tonne(2)(6)

111.89

145.37

(23%)

Silver co-product cash costs(7)

10.50

20.06

(48%)

Gold co-product cash costs(7)

1,119

1,702

(34%)

(1) Silver equivalents are calculated using an 80:1 ratio. 

(2) The Company reports non-IFRS measures which include cash costs net of by-product on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Company's mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15.

(3) Cash costs net of by-product per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17.

(4) Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17.

(5) All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18.

(6) Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17.

(7) Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value.  See Reconciliation to IFRS on page 19.


Guanaceví Production Results

Management guided 2020 production at Guanaceví to range from 2.4 to 2.7 million oz silver and 6,000 to 7,000 oz gold prior to the withdrawal of guidance on April 2, 2020. 

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Silver production at the Guanaceví mine during Q1, 2020 was 745,114 oz, an increase of 63% compared to 458,144 oz in Q1, 2019, and gold production was 2,427 oz, an increase of 113% compared to 1,138 oz in Q1, 2019.  Plant throughput was 94,207 tonnes at average grades of 280 gpt silver and 0.87 gpt gold, compared to 76,557 tonnes grading 206 gpt silver and 0.52 gpt gold in Q1, 2019. Production increased compared to Q1, 2019 primarily due to higher throughput and higher ore grades.  Throughput and ore grades increased as a result of operational changes and increased access to the higher grade ores in the Milache, SCS and Porvenir Cuatro Extension (P4E) orebodies. These areas replaced production from the lower grade Porvenir Norte and Santa Cruz orebodies, which are now closed.  Mine development of the Milache and P4E orebodies were on plan but development of the SCS orebody is behind plan.

Guanaceví Operating Costs

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Direct production costs per tonne for the three months ended March 31, 2020 fell 23% compared with the same period in 2019, as a result of the improved mine output partial offset by, royalties paid for ore mined from the Porvenir Cuatro extension.  Cash costs per oz, net of by-product credits (a non-IFRS measure and a standard of the Silver Institute) were $9.01, 57% lower due to the lower cost per tonne, higher metal grades and higher gold credit. Similarly, all-in sustaining costs (also a non-IFRS measure) fell 46% to $14.85 per oz for the three months ended March 31, 2020.  The decrease in cash costs was the primary driver of lower all in sustaining costs, as higher capital and exploration expenditures and allocation of general and administration expenses partly offset the operating gains compared to the same period in 2019.

BOLAÑITOS OPERATIONS

The Bolañitos operation encompasses three underground silver-gold mines and a flotation plant.  Bolañitos provides steady employment for over 350 people and engages over 180 contractors.

Production Results for the Three Months Ended March 31, 2020 and 2019

BOLAÑITOS

Three Months Ended March 31

 

2020

2019

% Change

Ore tonnes processed

83,217

86,634

(4%)

Average silver grade (g/ t)

40

86

(53%)

Silver recovery (%)

80.5

81.8

(2%)

Total silver ounces produced

86,125

196,010

(56%)

Payable silver ounces produced

81,006

189,035

(57%)

Average gold grade (g/ t)

1.71

1.82

(6%)

Gold recovery (%)

85.7

87.4

(2%)

Total gold ounces produced

3,922

4,430

(11%)

Payable gold ounces produced

3,817

4,302

(11%)

Silver equivalent ounces produced (1)

399,885

550,410

(27%)

Cash costs per silver ounce(2)(3)

(7.32)

2.43

(401%)

Total production costs per ounce(2)(4)

19.63

8.11

142%

All in sustaining cost per ounce (2)(5)

44.17

16.36

170%

Direct production costs per tonne(2)(6)

68 .65

70.87

(3%)

Silver co-product cash costs(7)

11.34

10.74

6%

Gold co-product cash costs(7)

1,208

911

33%

 


(1) Silver equivalents are calculated using an 80:1 ratio.

(2) The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Company's mines. These measures, some established by the Silver Institute (Production Cost Standards, September 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15.

(3) Cash costs net of by-product per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17.

(4) Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17.

(5) All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18.

(6) Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17.

(7) Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value.  See Reconciliation to IFRS on page 19.

Bolañitos Production Results

Management guided 2020 production at Bolañitos to range from 0.5 to 0.6 million oz silver and 22,000 to 25,000 oz gold prior to the withdrawal of guidance on April 2, 2020.

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Silver production at the Bolañitos mine was 86,125 oz in Q1, 2020, a decrease of 56% compared to 196,010 oz in Q1, 2019, and gold production was 3,922 oz in Q1, 2020, a decrease of 11% compared to 4,430 oz in Q1, 2019.  Plant throughput in Q1, 2020 was 83,217 tonnes at average grades of 40 gpt silver and 1.71 gpt gold, compared to 86,634 tonnes grading 86 gpt silver and 1.82 gpt gold in Q1, 2019.  The Bolañitos mine is mining areas with lower silver grades compared to historical grades. Bolañitos production was below plan due to slower than expected mine development in two new areas. The areas are expected to provide higher grade material and allow the mine to operate to capacity. 

Bolañitos Operating Costs

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

Direct production costs per tonne in Q1, 2020 decreased 3% to $68.65 per tonne due to normal variations, including the depreciation of the Mexican peso at the end of the period.  The significantly lower silver grades resulted in lower silver production, however cash costs net of by-product credits (which is a non-IFRS measure and a standard of the Silver Institute), were negative $7.32 per oz of payable silver in Q1, 2020 compared to $2.43 per oz in Q1, 2019 as gold price increased 24% in the same period.  The Company invested in new mine equipment to improve fleet operating costs and equipment availability and increase mine development in 2020. As a result, all-in sustaining costs (also a non-IFRS measure) increased in Q1, 2020 were $44.17 per oz due to the $3.5 million of capital investments in the period. 

EL COMPAS OPERATIONS

The El Compas operation is a small but high grade, permitted gold-silver mine with a small leased flotation plant in the historic silver mining district of Zacatecas, with good exploration potential to expand resources and scale up production.  There is also potential for the Company to acquire other properties in the area to consolidate resources and exploration targets in the district. El Compas has a nominal plant capacity of 250 tonnes per day (tpd) targeting recovery rates of 83% gold and 67% silver.

El Compas currently employs over 180 people and engages over 65 contractors and achieved commercial production during Q1, 2019. The Company considers the El Compas Preliminary Economic Assessment dated May 11, 2017 ("El Compas PEA") which is incorporated by reference in the Company's Annual Information Form dated March 5, 2020 to be no longer current and the Company is no longer relying on the information contained in El Compas PEA.


Production Results for the Three Months Ended March 31, 2020 and 2019

El Compas

Three Months Ended March 31

 

2020

2019

% Change

Ore tonnes processed

21,903

3,790

478%

Average silver grade (g/ t)

58

61

(5%)

Silver recovery (%)

64.7

43.3

49%

Total silver ounces produced

26,420

3,218

721%

Payable silver ounces produced

25,787

3,041

748%

Average gold grade (g/ t)

4.02

3.656

10%

Gold recovery (%)

75.1

76 .8

(2%)

Total gold ounces produced

2,127

342

522%

Payable gold ounces produced

2,082

335

521%

Silver equivalent ounces produced(1)

196,580

30,578

543%

Cash costs per silver ounce(2)(3)

22.10

(5.59)

(495%)

Total production costs per ounce(2)(4)

138.95

53.27

161%

All in sustaining cost per ounce (2)(5)

45.98

18.55

148%

Direct production costs per tonne(2)(6)

182.81

110.03

66%

Silver co-product cash costs(7)

15.83

12.94

22%

Gold co-product cash costs(7)

1,686

1,098

54%

(1) Silver equivalents are calculated using an 80:1 ratio.

(2) The Company reports non-IFRS measures which include cash costs net of by-products on a payable silver basis, total production costs per ounce, all-in sustaining costs per ounce and direct production costs per tonne, in order to manage and evaluate operating performance at each of the Company's mines. These measures, some established by the Silver Institute (Production Cost Standards, June 2011), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning. These measures are reported on a production basis. See Reconciliation to IFRS on page 15.

(3) Cash costs net of by-products per payable silver ounce include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead, net of gold credits. See Reconciliation to IFRS on page 17.

(4) Total production costs per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, amortization, depletion and amortization at the operation sites. See Reconciliation to IFRS on page 17.

(5) All-in sustaining cost per ounce include mining, processing (including smelting, refining, transportation and selling costs), direct overhead, corporate general and administration, on-site exploration, share-based compensation, reclamation and sustaining capital net of gold credits. See Reconciliation to IFRS on page 18.

(6) Direct production costs per tonne include mining, processing (including smelting, refining, transportation and selling costs) and direct overhead at the operation sites. See Reconciliation to IFRS on page 17.

(7) Silver co-product cash cost and gold co-product cash cost include mining, processing (including smelting, refining, transportation and selling costs), and direct overhead allocated on pro-rated basis of realized metal value.  See Reconciliation to IFRS on page 19.


El Compas Production Results

Management guided 2020 production at El Compas to be 0.1-0.2 million oz silver and range from 10,000 to 12,000 oz gold prior to the withdrawal of guidance on April 2, 2020.

Three months ended March 31, 2020

Silver production at the El Compas mine was 26,420 oz and gold production was 2,127 oz in Q1, 2020.  Plant throughput in Q1, 2020 was 21,903 tonnes at average grades of 58 gpt silver and 4.02 gpt gold.  Commercial production was declared March 15, 2019 with plant throughput of 3,790 tonnes at average grades of 61 gpt silver and 3.66 gpt gold during Q1, 2019. Compared to Q4, 2019 throughput decreased 4% due to normal day-to-day variations, while grades were lower due to grade variations within the orebodies. El Compas production was close to plan with higher throughput offset by lower grades. Management replaced the mining contractor with new mine employees in March and adjusted the mining methods to reduce dilution and costs going forward.

El Compas Operating Costs

Three months ended March 31, 2020

Direct production costs were $182.81 per tonne in Q1, 2020, the fourth full quarter of production, an increase from Q4 2019 as the Company replaced mine contractors with employees and expensed development expenditures.  As a result, cash costs, (a standard of the Silver Institute) were $22.10 per oz of payable silver in Q1, 2020, higher than Q4, 2019 due to the higher operating costs, offset by higher gold price from the gold credit.  Similarly, all-in sustaining costs were $45.98 per oz in Q1, 2020, due to higher operating costs, higher exploration expenditures and the larger allocation of general and administrative expenses. 

The cost metrics are expected to improve in 2020 as the Company has reduced contractors on site and implemented improved processes to reduce the movement of waste tonnes. In March, the Company incurred contractor and employee costs, including termination, onboarding and training.

EL CUBO OPERATIONS

The El Cubo operation included two operating underground silver-gold mines and a flotation plant. El Cubo employed over 350 people and engaged over 200 contractors until the suspension of operations at the end of November 2019 as the reserves were exhausted. The mine, plant and tailings facilities are on short term care and maintenance, while management conducts an evaluation of the alternatives including final closure. 

Company management and contract personnel continue to maintain the security of the mine, plant and tailings facilities. Management is evaluating alternatives for the plant and related facilities including moving certain components to other mines or development projects such as Terronera and Parral to reduce their future capital costs. The mining equipment has been relocated to Endeavour's other operating mines, particularly Bolañitos, to contribute to increasing mine output to maximize plant capacities.

In Q1, 2020 the Company incurred $1,045,000, in legal costs, administrative and care and maintenance expenses, $200,000 in severance costs and $100,000 in building and office depreciation. The suspension of operation is complete, while all equipment not transferred to other operations has now been properly serviced to idle while the operation is shutdown.

The Company maintains a security team, an administrative staff, maintenance group and environmental staff which the ongoing costs of is estimated to be significantly lower than costs incurred in Q1, 2020.


DEVELOPMENT ACTIVITIES

Terronera Project

The Terronera project, located 40 kilometres northeast of Puerto Vallarta in the state of Jalisco, Mexico, features a newly discovered high-grade silver-gold mineralized zone in the Terronera vein, which is now over 1,400 metres long, 400 metres deep, 3 to 16 metres thick, and remains open along strike to the southeast and down dip.

In 2019, the Company engaged an external consultant to update the current NI 43-101 Technical Report titled "Updated Technical Report for the Terronera Project, Jalisco State, Mexico" dated April 30, 2019 (effective February 12, 2019) (PFS). In Q1, 2020, the Company received an economic summary of an updated pre-feasibility study. Significant changes were made to the operations plan, capital and operating costs compared to the current PFS and, as a result, although still positive, the economic summary returned less robust economics.

The Company is conducting a complete review of the PFS and updated economic study in order to assess all assumptions and optimize the project design and economics for an internal updated pre-feasibility study prior to potentially proceeding to an independent feasibility study.

EXPLORATION RESULTS

In 2020, the Company planned to spend $5.4 million drilling 18,500 metres of core on brownfields projects, greenfields exploration and development engineering across its portfolio of mines and properties. At the three operating mines, 10,500 metres of core drilling are planned at a cost of $2.0 million to replace reserves and expand resources.

On the exploration and development projects, expenditures of $3.4 million were planned to fund 8,000 metres of core drilling, advance engineering studies at Terronera and Parral, and drill the Paloma gold project in Chile, where initial exploration results were positive.

Due to COVID-19 crisis health emergency and, given that the ultimate duration of the suspension period is uncertain, the Company's ability to execute its activities is presently indeterminable.

In Q1, 2020 at Guanaceví the Company drilled 2,508 metres in 7 holes to test the extension of the Porvernir Cuatro ore body. Drilling intersected significant mineralization with similar ore grades and vein widths as the 2019 intersections. The drill program is intended to continue to the northwest to see if it connects with the Milache ore body.

In Q1, 2020 at Bolañitos the Company drilled 2,000 metres in 8 holes to target the Melladito vein and vein splays. The Company intersected significant mineralization with ore grades over mineable widths, located about 300 metres from current and historic mine workings.  Management is considering alternatives of further drilling or a crosscut to the vein when operations resume.

In Q1, 2020 at El Compas the Company drilled 2,054 metres in 9 holes to targeting extensions of the Compas vein system. The Company has intersected mineralization west of the current workings, however further drilling is required to properly define results.

In Q1, 2020, at Parral the Company mined 2,000 tonnes for a bulk sample metallurgical testing at a local toll plant. The processing program is currently on hold due to the COVID crisis.


CONSOLIDATED FINANCIAL RESULTS

Three months ended March 31, 2020 (compared to the three months ended March 31, 2019)

In Q1, 2020, the Company's mine operating loss was $2.9 million (Q1, 2019: mine operating loss $5.8 million) on net revenue of $21.9 million (Q1, 2019: $28.0 million) with cost of sales of $24.8 million (Q1, 2019: $33.8 million).

In Q1, 2020, the Company had an operating loss of $8.6 million (Q1, 2019: $12.2 million) after exploration costs of $2.4 million (Q1, 2019: $2.3 million) and general and administrative costs of $2.0 million (Q1, 2019: $3.0 million) and care and maintenance expense for the El Cubo operation of $1.3 million related to the suspension of operations at El Cubo.

The loss before tax for Q1, 2020 was $13.8 million (Q1, 2019: $12.9 million) after finance costs of $0.3 million (Q1, 2019: $0.1 million), a foreign exchange loss of $4.9 million (Q1, 2019: $0.4 million) and investment and other income of $49 thousand (Q1, 2019: expense of $0.2 million).  The Company realized a net loss for the period of $15.9 million (Q1, 2019: $13.3 million) after an income tax expense of $2.1 million (Q1, 2019: $0.4 million).

Net revenue of $21.9 million in Q1, 2020, net of $0.5 million of smelting and refining costs, decreased by 22% compared to $28.0 million, net of $1.1 million of smelting and refining costs.  Gross sales of $22.4 million in Q1, 2020 represented a 23% decrease over the $29.1 million for the same period in 2019. There was a 38% decrease in silver ounces sold and a 1% decrease in the realized silver price resulting in 38% decrease silver sales. There was a 22% decrease in gold ounces sold with a 24% increase in realized gold prices resulting in a 2% decrease in gold sales.  During the period, the Company sold 665,500 oz silver and 7,454 oz gold, for realized prices of $15.33 and $1,633 per oz respectively, compared to sales of 1,069,385 oz silver and 9,559 oz gold, for realized prices of $15.50 and $1,315 per oz, respectively, in the same period of 2019. The realized prices of silver was 9% below average silver price as the Company sold ounces in March as prices fell from the COVID crisis. The realized prices of gold exceeded the quarterly average by 3%. Silver and gold spot prices during the period of $16.90 and $1,583, respectively.

The Company increased its finished goods silver and gold inventory to 279,320 silver oz and 1,452 gold oz, respectively at March 31, 2020 compared to 95,028 oz silver and 587 oz gold at December 31, 2019.  The cost allocated to these finished goods was $4.4 million at March 31, 2020, compared to $2.3 million at December 31, 2019.  At March 31, 2020, the finished goods inventory fair market value was $6.2 million, compared to $2.6 million at December 31, 2019.

Cost of sales for Q1, 2020 was $24.8 million, a decrease of 27% over the cost of sales of $33.8 million for the same period of 2019.  The 27% decrease in cost of sales was primarily related to the 20% decrease in tonnes processed, carrying larger finished good inventory and cost cutting and efficiency measures implemented during 2019. 

Exploration expenses marginally increased in Q1, 2020 to $2.4 million from $2.3 million for the same period of 2019. General and administrative expenses decreased to $2.0 million in Q1, 2020 compared to $3.0 million for the same period of 2019, primarily due to mark-to-market fluctuations for director's deferred share units.

The Company experienced a foreign exchange loss of $4.9 million in Q1, 2020 compared to a foreign exchange loss of $0.4 million in Q1, 2019 due to the depreciation of the Mexican Peso which resulted in lower valuations of peso denominated tax receivables and cash balances. The Company recognized $49 thousand in investment and other income compared to other expenses of $0.2 million in Q1, 2019. There was an income tax expense of $2.1 million in Q1, 2020 compared to $0.4 million in Q1, 2019.  The $2.1 million tax expense is comprised of $0.3 million in current income tax expense (Q1, 2019: $0.7 million) and $1.8 million in deferred income tax (Q1, 2019: $0.4 million deferred income tax recovery). The deferred income tax expense of $1.8 million is primarily due the depreciation the Mexican peso against the US dollar reducing the value of loss carry forwards.

The recoverable amounts of the Company's cash-generating units (CGUs), which include mining properties, plant and equipment are determined at the end of each reporting period, if impairment indicators are identified.  In previous years, commodity price declines led the Company to determine there were impairment indicators and assessed the recoverable amounts of its CGUs. The recoverable amounts were based on each CGUs future cash flows expected to be derived from the Company's mining properties and represent each CGU's value in use.  The cash flows were determined based on the life-of-mine after-tax cash flow forecast which incorporates management's best estimates of future metal prices, production based on current estimates of recoverable reserves and resources, exploration potential, future operating costs and non-expansionary capital expenditures discounted at risk adjusted rates based on the CGUs weighted average cost of capital.


As at December 31, 2019, the Company tested the recoverability of the Guanaceví CGU due to 2019 operational challenges and the El Compas CGU due to increased capital and operating costs than initially projected.  The Company determined that no impairment was required for either CGU.  Subsequent to quarter end, the Company considered the impact of the temporary suspension of operations and determined the timeline of the Mexican government decree does not have material effect on the values in use.

NON-IFRS MEASURES

Mine operating cash flow is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Mine operating cash flow is calculated as revenue minus direct production costs and royalties.  Mine operating cash flow is used by management to assess the performance of the mine operations, excluding corporate and exploration activities and is provided to investors as a measure of the Company's operating performance.

Expressed in thousands US dollars

Three Months Ended March 31

 

2020

2019

Mine operating earnings (loss)

($2,886)

($5,751)

Share-based compensation

91

55

Amortization and depletion

6,023

7,116

Write down of inventory to net realizable value

1,042

3,212

Mine operating cash flow before taxes

$4,270

$4,632

Operating cash flow before working capital adjustment is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Operating cash flow before working capital adjustments is calculated as operating cash flow minus working capital adjustments.  Operating cash flow before working capital adjustments is used by management to assess operating performance irrespective of working capital changes and is provided to investors as a measure of the Company's operating performance.

Expressed in thousands US dollars

Three Months Ended March 31

 

2020

2019

Cash from (used in) operating activities

($2,349)

($8,834)

Net changes in non-cash working capital

2,622

(6,704)

Operating cash flow before working capital adjustments

($4,971)

($2,130)

Operating cash flow per share is a non-IFRS measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Operating cash flow per share is calculated by dividing cash from operating activities by the weighted average shares outstanding. Operating cash flow per share is used by management to assess operating performance irrespective of working capital changes and is provided to investors as a measure of the Company's operating performance.

Expressed in thousands US dollars

Three Months Ended March 31

except for share numbers and per share amounts

2020

2019

Operating cash flow before working capital adjustments

($4,971)

($2,130)

Basic weighted average shares outstanding

141,810,208

131,395,790

Operating cash flow before working capital changes per share

($0.04)

($0.02)

 


EBITDA is a non-IFRS financial measure, which excludes the following from net earnings:

Adjusted EBITDA excludes the following additional items from EBITDA

Management believes EBITDA is a valuable indicator of the Company's ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.  Management uses EBITDA for this purpose.  EBITDA is also frequently used by investors and analysts for valuation purposes whereby EBITDA is multiplied by a factor or "EBITDA multiple" based on an observed or inferred relationship between EBITDA and market values to determine the approximate total enterprise value of a Company.

EBITDA is intended to provide additional information to investors and analysts. It does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of operating performance prepared in accordance with IFRS.  EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined by IFRS.  Other companies may calculate EBITDA and Adjusted EBITDA differently.

Expressed in thousands US dollars

Three Months Ended March 31

 

2020

2019

Net earnings (loss) for the period

($15,926)

($13,278)

Depreciation and depletion – cost of sales

6,023

7,116

Depreciation and depletion – exploration

90

38

Depreciation and depletion – general & administration

55

73

Depreciation and depletion – care & maintenance

100

-

Depreciation and depletion – write down of inventory to net realizable value

500

999

Finance costs

310

92

Current income tax expense

266

698

Deferred income tax expense (recovery)

1,864

(350)

Earnings (loss)before interest, taxes, depletion and amortization

($6,718)

($4,612)

Share based compensation

745

999

Adjusted earnings (loss) before interest, taxes depletion and amortization

($5,973)

($3,613)

 


Cash costs per ounce, total production costs per ounce and direct production costs per tonne are measures developed by precious metals companies in an effort to provide a comparable standard; however, there can be no assurance that the Company's reporting of these non-IFRS measures are similar to those reported by other mining companies. Cash costs per ounce, production costs per ounce and direct production costs per tonne are measures used by the Company to manage and evaluate operating performance at each of the Company's operating mining units. They are widely reported in the silver mining industry as a benchmark for performance, but do not have a standardized meaning and are disclosed in addition to IFRS measures. The following tables provide a detailed reconciliation of these measures to the Company's cost of sales, as reported in its consolidated financial statements. 

 

 

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

  Expressed in thousands US dollars

Guanaceví

Bolañitos

El Compas

El Cubo

Total

Guanaceví

Bolañitos

El Compas

El Cubo

Total

 

Direct costs per financial statements

$8,435

$5,295

$3,070

$-

$16,800

$9,413

$5,819

$ -

$7,840

$23,072

 

Smelting and refining costs included in net revenue

-

341

104

-

445

-

456

 

666

1,122

 

Royalties

678

37

142

-

857

220

40

-

57

317

 

Special mining duty (1)

87

-

-

-

87

-

10

-

174

184

 

Opening finished goods

(1,509)

(219)

(169)

-

(1,897)

(1,247)

(1,457)

-

(502)

(3,206)

 

Finished goods NRV adjustment

-

-

542

-

542

1,255

-

81

-

1,336

 

Closing finished goods

2,850

259

315

-

3,424

1,488

1,272

336

171

3,267

 

Direct production costs

10,541

5,713

4,004

-

20,258

11,129

6,140

417

8,406

26,092

 

By-product gold sales

(3,087)

(6,092)

(2,994)

-

(12,173)

(1,394)

(5,575)

-

(5,600)

(12,569)

 

Opening gold inventory fair market value

437

244

213

-

894

279

1,341

-

604

2,224

 

Closing gold inventory fair market value

(1,197)

(458)

(653)

-

(2,308)

(373)

(1,447)

(434)

(317)

(2,571)

 

Cash costs net of by-product

6,694

(593)

570

-

6,671

9,641

459

(17)

3,093

13,176

 

Amortization and depletion

1,609

2,072

2,342

-

6,023

4,062

867

-

2,187

7,116

 

Share-based compensation

30

31

30

-

91

18

18

-

18

54

 

Opening finished goods depletion

(252)

(43)

(121)

-

(416)

(597)

(64)

-

(186)

(847)

 

NRV cost adjustment

-

-

500

-

500

524

-

35

-

559

 

Closing finished goods depletion

636

123

262

-

1,021

622

254

144

48

1,068

 

Total production costs

$8,717

$1,590

$3,583

$-

$13,890

$14,270

$1,534

$162

$5,160

$21,126

 

 

 

Three Months Ended March 31, 2020

 

 

Three Months Ended March 31, 2019

 

 

Guanaceví

Bolañitos

El Compas

El Cubo

Total

Guanaceví

Bolañitos

El Compas

El Cubo

Total

Throughput tonnes

94,207

83,217

21,903

-

199,327

76,557

86,634

3,790

79,538

246,519

Payable silver ounces

742,998

81,006

25,787

-

849,791

457,686

189,035

3,041

400,453

1,050,215

                     

Cash costs per ounce

$9.01

($7.32)

$22.10

-

$7.85

$21.06

$2.43

($5.59)

$7.72

$12.55

Total production costs per oz

$11.73

$19.63

138.95

-

16.35

$31.18

$8.11

$53.27

$12.89

$20.12

Direct production costs per tonne

$111.89

$68.65

$182.81

-

$101.63

$145.37

$70.87

$110.03

$105.69

$105.84

 

 

 

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019