Endeavour Silver (TSX:EDR) Nears Inflection Point with Terronera Commissioning in Mexico

Company Interviews

Interview with Dan Dickson, CEO of Endeavour Silver Corp.

Our previous interview: https://www.cruxinvestor.com/posts/silver-steals-the-spotlight-once-more-5425

Recording date: 8th November 2024

Endeavour Silver, a mid-tier precious metals producer, is on the cusp of a significant growth inflection point as it prepares to bring the Terronera silver project online. Located in Mexico's Jalisco state, Terronera is expected to double Endeavour Silver's production profile to 15 million silver equivalent ounces (AgEq oz) while simultaneously cutting all-in sustaining costs (AISC) in half. This transformational expansion is slated to commence commissioning by year-end 2024.

The Terronera project carries a total price tag of $271 million, of which Endeavour Silver has already invested $258 million. With $55 million in cash on the balance sheet at the end of Q3 and another $35 million in untapped credit, the company appears well-funded to complete the remaining build-out. Once operational, Terronera has the potential to generate robust free cash flow - an estimated $120 million in after-tax FCF in its first full year at current silver prices. This could enable Endeavour Silver to rapidly deleverage, with the potential to pay off the entire $120 million project debt in Year 1.

Beyond Terronera, Endeavour Silver is advancing the Pitarrilla project as the next leg of growth. Acquired in 2022, Pitarrilla hosts an indicated resource of over 693 million AgEq oz (Inferred 151 million AgAq oz), positioning it as one of the world's largest undeveloped silver deposits. With a goal of becoming a senior silver producer (defined as 25 million AgEq oz annually), Endeavour Silver views Pitarrilla as the key to unlocking further scale and margin expansion.

Underpinning Endeavour Silver's growth trajectory is a constructive outlook for silver fundamentals. Silver demand for industrial applications has surged over the past 15 years, rising from 200-250 million ounces to 550 million ounces today. This trend appears well-entrenched, driven by silver's essential role in the electrification and decarbonization of the global economy. Additionally, silver's monetary investment case has begun to reassert itself, with prices rallying from $26 to over $34 per ounce since September. As investor interest in silver's store of value properties continues to build, it could provide a further tailwind to prices.

Given the company's impending production growth, margin expansion potential, and precious metals optionality, this appears inexpensive compared to senior peers. As Terronera ramps up and Pitarrilla advances, investors may start to award Endeavour Silver a greater multiple in recognition of its increased scale and portfolio quality.

Risks remain - namely operational execution at Terronera and continued political stability in Mexico. However, for investors seeking pure-play exposure to silver's myriad demand drivers, Endeavour Silver may offer a compelling organic growth story bolstered by a strong balance sheet and an attractive relative valuation. As the Terronera catalyst approaches, Endeavour Silver feel they are well-positioned to deliver transformational returns.

View Endeavour Silver's company profile: https://www.cruxinvestor.com/companies/endeavour-silver

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