The board of Endeavour Silver (NYSE: EXK; TSX: EDR) has decided to proceed with the construction of an underground mine and mill at the Terronera project in Jalisco state, Mexico, despite cost pressures that have emerged from systemic inflation and constrained global supply chains.
“With official board approval now in hand, the path is cleared to advance construction of the Terronera project, which will be Endeavour’s next producing mine,” Dan Dickson, Endeavour’s CEO, stated in a news release.
According to the company's revised scenario, the Terronera project will have an initial capital expenditure cost of US$230 million, a 32% rise over the previous estimate, partially offset by a decrease in sustaining capital to US$88.3 million over the life of the mine.
Compared to its 2021 feasibility study, the mine design has been optimized to reduce initial underground mine access development, which Endeavour believes will result in slightly lower operating costs on a per-tonne basis. The processing plant and tailing storage facility capital expenditures have increased primarily for equipment required to achieve the targeted 2,000 t/d capacity.
“The optimization work on the project over the past year has captured opportunities for higher throughput and improved metallurgical recoveries. At the same time, technical risks have been mitigated by further study, engineering, testing and early works,” said Don Gray, Endeavour’s COO.
“Overall, we are very fortunate we started with pre-development activities well in advance of this construction decision. This has significantly de-risked the project, as we have been able to secure several procurement contracts before certain inflationary cost spikes and supply chain constraints," he added.
To fund the capital expenditures, Endeavour has entered into a commitment letter with Societe Generale and ING Bank for a senior secured debt facility for up to US$120 million. Prior to securing this commitment, the board had only approved early expenditures focused on advancing the project in a "disciplined manner" to de-risk various aspects prior to the final construction decision.
The company is now well-financed to satisfy the financing requirements of the project, having already invested over US$58 million in direct development expenditures to the end of Q1 2023, Endeavour said. However, the silver producer may consider various additional alternatives to raise the required projected capital as required by the terms of the debt facility, including a potential cost overrun facility.
To date, Endeavour has made "significant progress" on development activities, with long-lead item procurement well advanced and a team of development personnel established on the ground. Additional activities include onsite delivery of mobile mining equipment, assembly of initial project infrastructure and advanced earthworks with commencement of underground mine access development.
It is expected that construction will take 21 months, including 3 to 6 months of ramp up to full production, with initial production expected in the fourth quarter of 2024.
Under the optimized mine scenario, the Terronera project is expected to produce nearly 70 million oz. of silver equivalent over a 10-year mine life, representing an 18% output increase over the 2021 FS.
Shares of Endeavour Silver were up by 2.9% as of noon EDT following the mine construction decision. The company has a market capitalization of $1.1 billion.