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Endeavour Silver launches major expansion at El Cubo to improve operations, lifts production guidance

Published: 13:48 17 Mar 2015 GMT

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Endeavour Silver (TSE:EDR) (NYSE:EXK) has started a major expansion of its El Cubo mine in Mexico, with plans to ramp up mine output over the next four months from 1,550 tonnes per day (tpd) to 2,200 tpd, as part of efforts to drive costs lower. 

The company has also revised its silver production estimate for the year upwards by 11 percent to a range of 6.3 to 7.0 million ounces, while increasing its gold production guidance by 27 percent to the 60,000 to 66,000 ounce range.

Silver equivalent production, which includes both silver and gold, is now forecast to be approximately 10.4 to 11.6 million ounces in 2015.

The precious metals miner said that the major expansion at El Cubo is meant to drive operating costs lower and to start to generate free cash flow from the site by taking advantage of the available plant capacity at its Bolanitos mine, which is also in Guanajuato State in Mexico, just 18 km away.

The plan is to make El Cubo the company's largest mine by metal production. Endeavour finalized a labour contract for the mine expansion last week, it said.

The additional 650 tonnes per day in output will come mainly from the V-Asuncion area at the mine, which has thicker mineralized zones amenable to long hole mining, Endeavour said. 

Production at Bolanitos will be reduced by a small amount to accomodate the additional processing of the El Cubo ore.

On the back of its El Cubo expansion plans, Endeavour also lowered its 2015 cash cost guidance, with costs now expected to be around $9 to $10 per ounce of silver, net of gold by-product credits. All-in sustaining costs are projected to be about $16 to $17.50 an ounce.

"We fulfilled our initial two year capital expansion and operating turn-around plans at El Cubo in December, but with precious metal prices still falling, it was clear we needed to do more to make El Cubo a viable mine," said chief executive officer Bradford Cooke.

The CEO also said that  the company's revised production guidance for the year is now tracking close to its 2014 performance, while its revised all-in sustaining cost forecast also matches 2014 figures, notwithstanding substantially lower current value of gold credits.

"Management continues to seek opportunities to optimize each of the mining operations to improve their financial performance," he added.

Indeed, at the company's Bolanitos mine, Endeavour recently worked to drive power costs lower at the site by installing a 15 km power line to connect with the high tension power grid, replacing the rental diesel generators being used at the plant. The new line was energized earlier this month. 

The Canadian precious metals producer is looking to invest some $36.5 million on capital projects this year, up by almost $4 million from its original estimate, in order to support the mine expansion at El Cubo. The updated figure includes $30 million on mine development, infrastructure and exploration across its three operating mines in Mexico.

As with many of its precious metals sector peers, Endeavour has endured a difficult period marked by sharp declines for many metals. Silver prices alone have reached five-year lows, making the planned cost savings and operational improvements all the more remarkable. All of Endeavour's three mines were acquired between 2004 and 2012, with the company turning around each operation, expanding production and increasing profitability.

Endeavour said all of the projected capital spend will be covered by its estimated cash flow in 2015. 

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