Endeavour Silver greenlights Terronera mine despite capex rise

The board of Endeavour Silver (TSX: EDR; NYSE: EXK) has decided to build its Terronera mine 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 underground project will cost US$230 million to build, 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.

Since a 2021 feasibility study on Terronera, changes to the mine design have reduced 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 costs have increased, mostly because of equipment required to achieve the targeted 2,000-tonne-per-day 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 derisked 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 costs, Endeavour has signed a commitment letter with Societe Generale and ING Bank for a senior secured debt facility for up to US$120 million. Before securing this commitment, the board had only approved early expenditures focused on advancing the project in a “disciplined manner” with the aim of derisking Terronera.

The company is now well financed to satisfy the financing requirements of the project, having already invested over US$58 million in direct development to the end of the first quarter of 2023, Endeavour said. However, the silver producer may consider alternatives to raise the capital as required by the terms of the debt facility, including a potential cost overrun facility.

Endeavour says it has made progress on development activities, with long-lead item procurement well advanced and a team of development personnel established on the ground. The project has also seen mobile mining equipment delivered, initial project infrastructure assembled and earthworks have advanced. Underground mine access development has also started.

Construction is expected to take 21 months, including 3 to 6 months of ramp-up to full production, with initial production starting 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% increase over the feasibility study scenario.

Shares of Endeavour Silver were up by 2.9% as of noon E.T. following news of the construction decision. The company has a market capitalization of $1.1 billion.