Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp 2017 Third Quarter Earnings Conference Call. As a remainder, all participants are in listen-only mode, and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Galina Meleger, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Endeavour Silver Corp 2017 third quarter earnings conference call. On the line today, we have the Company's CEO, Brad Cooke, as well as our President and COO, Godfrey Walton, our CFO, Dan Dickson, and our VP of Corporate Development, Dale Mah. Before we get started, I'm required to remind you that certain statements on this call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in 2017 and future years, including revenue and cost forecasts, silver and gold production, grades and recoveries, and the timing and expenditures required to develop new silver mines in mineralized zones. We do not intend to and do not assume any obligation to update such forward-looking information, other than as required by applicable law. With that, I'll turn over our call to our CEO, Brad Cooke.

Thank you very much, Galena, and welcome, everyone, to this conference call and our third quarter financial results released this morning. Our financial performance in the third quarter was down compared to the third quarter last year, primarily due to lower production, higher operating costs and increased expenditures on exploration and development. Production was also slightly lower in the third quarter compared to last year's quarter, due primarily to some operating issues at our first mine at Guanaceví. Those issues are now partly resolved and the performance of the mine has been improving month to month. And we did, as a result of the operating issues, revise our annual mine plan, which led to lower throughput for the 9 months ended September 30. However, the production in Q3 was actually higher than Q2, primarily due to the improved performance of all 3 mines. And as a result, our financial performance in the third quarter was also up significantly compared to the second quarter of this year, with higher revenues up 22%, cash flow up 30% and higher EBITDA up 65% as well as positive earnings. So the highlights for the third quarter include net earnings of $1 million, with year-to-date earnings of $7 million. EBITDA was down a little bit year-on-year, but up quarter-on-quarter to $6.1 million. Cash flow was $5.7 million, year-to-date $19 million. And revenue was $40 million, year-to-date $109 million. Cash costs were up compared to the same quarter last year in the $8.11 range per ounce of payable silver produced. And all-in sustaining costs were also up around 53% to $17.53 per ounce, again, per ounce of silver – payable silver. Cash costs were up primarily because of the operating issues at Guanaceví, which really dragged down our consolidated performance. But obviously, with most of those…

Certainly [Operator Instructions] Our first question comes from Heiko Ihle of HCW.

Hey guys, it's Heiko from HCW.

Hello, Heiko, how are you?

Excellent, excellent. Galina, welcome to the team and good quarter guys.

Thank you.

Yeah, thanks Heiko.

So at Guanaceví, you mentioned a need for Milache and Santa Cruz Sur as necessary obviously. I assume there is no real scientific answer to this. But with Milache coming online in the second half of next year, can you just sort of walk us through what your budgeting in regards to CapEx spending to get there?

CapEx is a Dan question.

Yes. For the Milache, the total development over the Milache whole orebody is $12 million. To get there, we have just over a kilometer – 1.8 kilometers. Right now, I believe we're about 600 meters into that. So total spend for next year I would estimate about an additional $3 million to $4 million over and above what we've spent this year. We'll come out in January with our 2018 capital expenditure guidance on not only Milache but also, hopefully, Santa Cruz Sur as well.

Got you. I guess that was a more scientific answer than I expected to get. So well done. So I was playing around with the interim financials on SEDAR earlier a little bit. And I realized that accounts receivable has gone up $10 million since December 31. And another $5 million since June 30. Walk me through some of the costs. I mean in the MD&A it mentions the peso exchange fluctuations, it mentions the IVA receivables. Is there anything I'm missing?

No, there's nothing that you're missing, Heiko. You kind of touched on it right there, it's IVA receivables. So our value-added tax. There's been significant delays through Mexico not just with Endeavour and not with just mining companies, but across the business world. And it's just the slowness of the Mexican government to recover our VAT. Subsequently, since the quarter end, we actually recovered $4 million. We've been in disputes on certain items that we won in court, and it's just been delays out of Mexico. And like I say, it's not specific to Endeavour and not specific to mining. We've seen this VAT slowness of getting paid across Mexico. But the slowness of continuing new money shouldn't be a surprise. Sorry?

And if I can add color in a broader sense. I was just going to add some color in a broader sense on that issue. That's a country issue. And the mining industry in Mexico has been particularly good at making delays about getting our refundable sales tax back. And as a result, we were actually seeing some progress sign. It's obviously not an ideal system with delays on almost every filing. But as an example, Goldcorp were running almost $300 million of receivables on their IVA. And in October, they got $90 million back, 9-0 million back. So there is progress out there. But you have to make a lot of noise. And we're making our share of the noise.

As you should. I mean, it shouldn't come as a surprise to anybody that they don't feel like paying you money. So walk me through the leaps of logical follow-up question though. Walk me through your hope as to the timing to recover the rest. And you said you got $4 million. Is it fair to assume $4 million a quarter until it's done? Is it the easy $4 million that you got back and the rest may not come anytime soon?

Yes, Heiko, it's difficult to predict when it's coming back. I mean, it comes down to bigger growth coming into an election year in 2018 in Mexico. And we see spurts, where a lot of it gets paid back relatively quickly and then we'll see a slowness of maybe 6 months and nothing gets paid back. And sometimes, it's the individual that gets assigned to your file and the number of requests that make. Effectively, they audit every submission that we make. So those audit sometimes are quick and other times, they'll ask for documents they received multiple times just to fill their file. So it's hard to predict when it's going to come. We've been on top of these guys really since 2015, some of these items date back to. And we expect some more resolution in March. But we're going into the 2018 election in midyear. Right now, I would deem it to be a little bit unpredictable.

Got you. Good answers. Thanks guys and we’ll talk soon.

Thanks Heiko.

Our next question comes from Ryan Thompson of BMO.

Hey Brad and Dan.

Hey Ryan.

Hi, just had a quick question about your gold guidance at both Bolañitos and Cubo. It looks like in the MD&A you guys reiterated guidance. If I kind of do the math on Bolañitos, it looks like you're tracking well above guidance on the gold. Should we expect grades to come off there? Or you think that you just going to beat guidance and sort of the opposite at Guanaceví. It looks like you are tracking – sorry, at Cubo you're tracking a little bit below guidance there on the gold?

Yes. So to Bolañitos, we have better-than-planned grades. And we're running slightly higher-than-planned throughput. At Cubo, it's kind of the opposite. We're running a little bit lower on grade and throughput.

Okay. So I guess, it's safe to assume that grades are kind of going to track to where they have been in the previous few quarters.

Yes. We're working on recoveries. It's really the only productivity tool left for us at those 2 operations. And well, we won't have anything for this calendar year. We hope the studies will be complete and the pilot testing will be complete for some minor plant modifications at both Bolañitos and El Cubo for next year to tweak the recoveries by up to 5% at Bolañitos and up to 3% at Cubo. But we do expect that the current profile of tonnes and grades should be – should continue going forward.

Okay. All right. Yes, that's helpful. And then I guess, just a follow-up question. You mentioned that El Compas environmental tax. Could you just elaborate on that a little bit?

Well, if you recall last year, the state of Zacatecas brought new environmental tax. It's not just the mining guys. It's the beer guys and the manufactures and everybody in the state. It was really a tax grab by a governor who owes the Teachers' Union a bunch of money. And it was, by many people, deemed to be unconstitutional. Our lawyer certainly agreed that its unconstitutional. The lawyers for the federal government thought it was unconstitutional and filed what's called an amparo to basically block it. Many individual companies have also filed such amparos to block it. And while it was passed into law, if it's an unconstitutional law, and it's obviously subject to appeal right now, then it will have to be withdrawn and rewritten. We're not going that route because what we were told by the Secretary of Economy from the state is that they expect to insert a small miners exemption. And El Compas would fall under that exemption. Even if it didn't, given that we are basically leasing a government-owned plant and government-owned tailings facility, the whole idea of taxing dumps and tailings is kind of a weird one, because we don't actually own them. The state would be taxing itself in the case of our plant. So while we're looking for clarity obviously on this law, from a practical point of view we really don't expect that it will apply to El Compas.

Okay. All right. Yeah thanks for elaborating on that and that’s all I had today. Thanks.

Thanks Ryan.

Our next question comes from Chris Thompson from Raymond James.

Good morning guys. Congratulations on a good quarter. Just want to chime in on – we'll start up with Guanaceví. But I just don't understand I guess the mine plan that's envisaged when you bring Milache and Santa Cruz here on. Are we looking for potential for higher sort of a mining rate, milling rate?

Yes. so, as you know, Guanaceví's throughput has fallen in last 2 years as we got deeper and deeper into the Santa Cruz and Porvenir Norte orebodies. We found that stilt development and production wasn't able to keep up with plant capacity. We also redid the mine plan at the end of the June simply because of the water incursions and electrical outages that we suffered there. So how to get back to plant capacity? We're clearly developing 2 new higher grade and, in the case of Santa Cruz, shallower orebodies will do wonders for the economic performance of Guanaceví. It should, according to our plan, take the throughput back up to plant capacity. It will bulk the grade profile. And while recoveries – we're not modeling any different recoveries really. We are also actually starting some testing to improve recoveries at Guanaceví. More on that in the new year. So long answer to a short question, but basically, it's critical for the long-term future of Guanaceví for us to develop these 2 orebodies and get back to the plant capacity.

Okay. Great answer. Just looking at I guess, to the costs. I mean, you guys probably be hopeful for bringing down those costs on a dollar to tonne basis as well?

Well, clearly, and again, while we're trying to do as much as we can with Santa Cruz and Porvenir Norte, it's really the new orebodies that will drive our costs per tonne down.

So I guess, as far as time lines, still quite a bit of work needs to be done, I would imagine, positive results potentially by year-end next year or...

So in general, we're targeting to contact the Milache orebody by midyear, send development mud to plant in the third quarter and ore to the plant in the fourth quarter from Milache. We're looking at the same schedule for Santa Cruz Sur because it's a lot shallower. There's a lot shorter time frame of ramp development to contact ore. So we haven't started Santa Cruz Sur development yet, and we'll obviously consider that in our guidance in January.

All right. Just moving on I guess, to El Cubo. Just looking at this, I guess, the mining milling rate at the moment, I mean, are you comfortable with that? Do you think that's sustainable through potentially to – through next year?

Yes, Chris, Dan here. You've seen our milling rate go up a little bit here in the back half of the year. We reached as high as 2,200 tonnes per day there back in 2015. And we dialed it back to about 1,400 to 1,500 tonnes per day. I think that's generally, where we're going to sit through 2017 and into 2018.

And really, the constraint on pushing throughput higher is twofold. We did view a tailings expansion in Q3. It was a small one, but it obviously impacted our all-in costs during the quarter. And we're still looking at a more longer-term tailings development probably starting next year. So that's one constraint on pushing the throughput. The other, of course, is reserves and resources, and we're very actively drilling to try and improve the mine life at Cubo.

Okay. I guess, you did mention something earlier about recoveries, slightly lower I guess. I mean, is this a trend. I mean, can we expect the same sort of recoveries in Q4? And you did mention obviously some modifications to the plant you're looking at for next year. So just trying to sort of work my way around the time line here.

Yes, recoveries is an interesting thing, right now. As Brad touched on in the introduction, we hired a VP of Engineering and he's build out a team to help kind of – a technical team to facilitate some work at all 3 operations and one of the programs that they're starting right now is trying to improve recoveries at all operations. And they have – we have a new metallurgist in that group, who may have some really interesting ideas. As far as getting through though the concepts and putting them into the plan, we're probably still looking at about 6 months. The impact to recoveries, obviously, we've got pretty good recoveries at each operation. But we hopefully, any incremental gain is positive to the bottom line. So if we can get a 10% above what we're at now, so going up 6% to 8%, obviously that has a significant impact on each operation. As far as recoveries for this quarter versus Q1 and Q2, they did dip a little bit, but I just think that's kind of the just normal variations from quarter-to-quarter. I'd expect recoveries to be very similar to what they are, probably on the average of the 9 – for the 9 months or the 3 quarters.

Okay. And just – and then a final question if you would. Again, just looking at the comps, I guess, at El Cubo. They seemed to tracking, I guess, on the higher end of the 70s rather than the low end such as what we saw in Q1. Again, is this sort of more what we should expect I guess moving forward here? I'm talking a dollar per tonne milled.

Yes. On a per tonne basis we're pretty much where we're at. I would expect this to continue through Q4 and into 2018.

Perfect. Thank you guys, Thanks.

Thanks Chris.

[Operator Instructions] Our next question comes from Steve Epstein, a Private Investor.

Good morning. Good afternoon.

Hello Steve.

Hi, I just have a kind of bigger-picture question I guess. I've heard a lot of the discussion about the general state of the political environment down there. And kind of putting it all together, with the political risk, the currency exchange risk between the peso, the Canadian, the U.S. dollar, and kind of in a bigger picture, how do you feel the market has treated the share price over the last number of months? I've been with you guys for a long time. And I noticed the last couple of years there's been a great range that I'm not sure how much of it is overblown, how much of it is underappreciated. But I'm just curious – I'd be very curious your thoughts if you're able to speak to that if the regulators will allow you.

Well, I'll let Dan speak to the currencies, and then I'll talk about the market.

Yes. I mean, the currencies is a big macro question and obviously, we've seen a big flight to the U.S. dollars and belief in the U.S. economy and movements from the world and also from gold into the U.S. dollar. The peso – however, starting this year the peso has significantly appreciated. It really kind of got back into the norms of where we're seeing – in 2016. The peso basically fell off the cliff and went from 15 all the way up to 22.1 in U.S. dollar terms and got back to 17. And quite honestly since quarter-end, it's got back up to 19.5. So the velocity and the volatility inside the peso and compared to U.S. dollar is big. Obviously, we benefit from an operating cost standpoint as the peso depreciates against the U.S. dollar. But at the same time, when we see the U.S. dollar strengthening that impacts silver and gold prices, which is obviously our main driver. So we have a natural hedge built in on that. As far as the impact to our – to how we kind of plan. It makes it a little bit more difficult when you see that velocity change in a currency, where 66% of our costs are driven by the peso, half of that being labor. So it's something that we monitor quite closely. It's something we obviously have no control over, and we just have to kind of guess to where we can go and plan accordingly. And one of the things that Endeavour has been great over the last 10 years is we're very flexible in making adjustments when we need to be. So with that, I'll let Brad talk about the stock and kind of the volatility that we've seen in our stock over the last 1, 1.5 years.

Thanks, Dan. And maybe I'll just throw my two bits working on the currency. With the currency of the peso, the trend is your friend. The long-term trend since we went to Mexico in 2003 is almost 80% decline in the purchasing power of the peso relative to the dollar. And the year-to-year variations are basically around the straight line. And so we appear to revert to that straight line, which effectively reflects about 5% or 6% annual inflation in Mexico. That's what the peso is reflecting. And because we obviously spend most of our operating expenditures in pesos, the majority of them, but our earnings are in U.S. dollars, it's good for the company. It's good for the industry. So that's my only comment on the peso. With regard to the stock market, obviously, that's a completely different kettle of fish and there's many other drivers, both short and long term. I mean, our focus is clearly, the long-term value creation. And we've had a great run for 13 years. We had a pretty tough 5-year bear market. That came to screeching halt last year. And even though this year's gold and silver price action has been almost boring, and it's pretty much a consolidation from the last year's bounce and very much a sideways move this year. This is a classic setup for the next leg of precious metal cycle. So we are expecting positive movement of prices starting at year-end. And we'll budget accordingly. So looking at the short-term action in the stock, which obviously is influenced mostly by the metal prices. It's been a tough year for us because overlaid on that kind of sideways gold, silver move was the operating issues at Guanaceví, which really dragged down our consolidated performance and that we are a bit of laggard in the silver group compared to our peers. Obviously, we think with getting most of those problems at Guanaceví behind us should allow us to bounce back. And so while we still see some short-term volatility in our shares, I think the medium-term picture of improving operations plus building new mines – our fourth mine at El Compas will be up and running, with initial production by the end of the first quarter next year and full production mid- to late year. So we are expecting obviously to get back into our growth cycle here. And this is not just one mine. We want to see the Terronera mine developed right after El Compas with production late 2019. And even the possibility conceptually of developing a sixth mine at Parral. Still early days yet, because it's an exploration project. But with the 32 million ounces historic reserves, it's clearly an opportunity to fast track Parral. So that combination of optimizing our mature mines and building some new mines does 2 wonderful things for our outlook. It grows our production and shrinks our costs. So that's my kind of global comment on the market.

Very good, I do appreciate that; I knew you have a very full plate and you have been doing fantastic work and keep it up. I appreciate the opportunity to ask and hear your thoughts.

Very much. Thanks very much Steve.

Our next question comes from Anil Nimmagadda, a Private Investor.

Hi, hello guys, this is Anil. And I'm a proud shareholder of Endeavour Silver. My question is about – I have listened to some of the very informational videos posted on your website, including the interviews of Brad Cooke. And in one of the videos you mentioned a very significant point, which is in the United States if the stock price is less than $3, then that exposes Endeavour Silver to some very nonfundamental reasons for the stock to go down because of margin requirements. And so I'm going to throw this question out. Would you consider a reverse split just to get rid of this purely technical issue?

Well, thanks for your question, Anil. I guess, the short answer is no. We don't focus on short-term blips in the market, and we certainly wouldn't consider a reverse split just for that. For most of the last 10 years, Endeavour has been a more than $3 stock. And we fully expect to get back there. Obviously that's a forward-looking statement. But if we can deliver the types of results in the operations and the growth that we're forecasting, then surely the stock will respond. So no I don't think it would be something that we would consider. But thanks for your question.

We have no more questions in the queue. This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Brad Cooke for any closing remarks.

Well, thank you very much operator. And I think maybe I'll just look forward to the next few quarters and say that the main value drivers are to continue our improvement of our operations at Guanaceví and in fact, all 3 mines. It's clearly a short-term value driver. Getting our El Compas line up and running, another great value-creation opportunity for the company. Finishing off the permitting on Terronera and breaking ground next year on Terronera would be also good news. Lots of drill news coming on Parral, again, to help drive value for the shares. And on the M&A side, Dale Mah, who's here with us from the boardroom has been very active this year on the El Compas area, with several packages of the historic mines that have never been drilled are now in our portfolio for future reserves expansion. We're doing now the same thing at Parral. We have a core asset at Parral. But there's still lots of parts of that district that we think are interesting and prospectively available to us. So we're still busy on the M&A front as well. So those are the value drivers I think short term. And stay tuned for our year-end call. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.