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Endeavour Silver Corp (NYSE:EXK)
Q3 2019 Earnings Call
Nov 5, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver Corp 2019 Third Quarter Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.[Operator Instructions] I would now like to turn the conference over to Galina Meleger, Director, Investor Relations. Please go ahead.

Galina Meleger -- Director, Investor Relations

Thank you, operator. Good morning, everyone and welcome to the Endeavour Silver 2019 third quarter financial results conference call. With me on the line today, we have the Company's Chief Executive Officer, Bradford Cooke; our Chief Financial Officer, Dan Dickson; and our Chief Operating Officer, Godfrey Walton.

Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws. These may include statements regarding Endeavour's anticipated performance in 2019 and future years, including revenue and cost figures, 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.

On behalf of Endeavour Silver, I'd like to thank you again for joining our call today. And, I'll now turn it over to our CFO, Dan Dickson.

Dan Dickson -- Chief Financial Officer

Thank you, Galina, and welcome everybody to our third quarter conference call. As usual, we'll start off with a high level overview of our third quarter performance and then, we'll open it up for Q&A.

Our financial performance was generally lower year-on-year, largely due to our lower production profile operational challenges that we've previously highlighted, leading to our higher unit costs. Our revenue was down 24% to $28.6 million from the sale of 835,000 ounces of silver and 9,375 ounces of gold, averaging the sale price of $17.52 for silver and $1,489 for gold.

On a year-to-date basis, our revenue now totaled $87.1 million. After quarterly cost of sales of $30.3 million, mine operating earnings amounted to negative $1.7 million from our operations in Mexico, which drove our overall net loss to negative $6.8 million or $0.05 a share for the quarter. If we remove the impacts of non-cash items, we declared an EBITDA of $1 million in Q3 and operational cash flow before working capital changes contributed $2.1 million in Q3.

As per our news release this morning, we are now starting to see improvements from the operational challenges we implemented in the second quarter. Following the company'swide operational review, notwithstanding the recent progress in the operating performance of the mines, we announced in today's news release that management does not expect to meet its 2019 production and cost guidance, and we will not be providing guidance for the balance of the year, as we evaluate alternatives at the El Cubo mine, which includes the possible closure.

We do maintain a strong balance sheet and we finished the quarter with a strong working capital position of $49.4 million and a cash position of $22 million. While our cost profile remain high in Q3, we believe we are now trending in the right direction. In comparison to Q2, we are starting to see positive changes in our unit operating costs. Specifically, operating cash costs dropped by 15% since Q2 to $11.51 and the consolidated direct production cost per tonne dropped by 7%. Most of these improvements are attributed to Guanacevi, as Guanacevi has now started to respond and it continues to respond through the development of the two newer high-grade orebodies of Milache and Santa Cruz Sur.

We're seeing both the tonnes and the grade starting to improve and the unit costs are starting to decreased quarter-over-quarter from a reduction in the workforce, and the reduction of over-reliance of contractors. As a result, cash costs in Q3 at Guanacevi decreased 26%. All-in sustaining costs in Q3 decreased 15% and direct production costs per ton decreased 22%. Looking forward, we expect to see further improvements at Guanacevi in Q4, as Santa Cruz Sur starts production and we expect to see almost 200 tonnes to 300 tonnes per day in Q4 from that area.

At Bolanitos, Q3 production was [Technical Issues] well below plan due to lower tonnes and grades. The fatality at the start of the quarter significantly impacted production. Higher all-in sustaining costs were incurred in Q3 from the purchase of new equipment availability from the old equipment. We're looking to reduce maintenance costs going forward with this new equipment and ultimately improve mine output. We are already averaging over 1,000 tonnes per day in October and expect to get closer to the normalized rate of 1,200 tonnes per day in Q4. At Bolanitos we made our changes in June, July, so the bulk of turnaround is expected here in Q4.

At El Cubo, El Cubo has been our top performing mine in 2018. And this year, we've been operating in an environment with limited reserves. We announced in Q4 2018 that we are reducing the output in 2019 from 1,500 tonnes per day to 750 tonnes per day to focus on exploration and consolidation opportunities and then also evaluate the possible closure. This quarter, the grades were lower than planned due to narrow widths and higher dilution at the V-Ascuncion ore body.

At El Compas, we declared commercial production at the end of Q1 and we are seeing continued improvement with grades and recoveries improvement in Q3. There's still work to do on recoveries at Compas, but now we're getting effectively close to plan. We recognize we had problems in Q2 and we made a number of changes, changes in site leadership and management, reductions in the workforce, new equipment and more to help turnaround our performance, primarily at Guanacevi and secondarily at the other operations. We are now starting to see those improvements.

In terms of growth outlook, our attention has now turned toward Terronera and Parral. Terronera, as a reminder, is proposed to be our next core asset of the Company. We published the feasibility study last year, that it's forecasting over 5 million ounce of annual silver equivalent production over 10 years, which gears the future of the Company. Since the publication of the 2018 PFS, we've continued to improve the project and we'll be publishing a final update of PFS following the completion of a bulk sample test that's being completed now on site. The project is development ready and fully permitted. And we're starting now in the final stages of securing our project financing that will allow us to start construction. The Parral project is a past producing asset and is our largest exploration expenditure this year.

The project continues to deliver an encouraging drill results and we are completing a 2,000 tonne bulk sample, which will be processed at a local toll mill to refine metal recoveries this quarter. We are working toward publishing our first PEA to evaluate a small-scale 200 tonnes per day mining and toll milling operation to generate early cash flow and pay for the [Indecipherable] at Parral.

Operator, with that I'd like to open it up to Q&A.

Questions and Answers:

Operator

Certainly, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Heiko Ihle of H.C. Wainwright & Co. Please go ahead.

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Hey, this is Marcus Giannini, calling in for Heiko. He's on the road and couldn't make the call, but thanks for taking our questions. First question, we're not looking for an overly detailed answer here, but I think it might be worthwhile, given the withdrawal of short-term guidance. We went through the longer-term cash cost per tonne figures you have in your MD&As, so thinking longer term, were your investment objectives on a mine-by-mine basis relative to where they were at the beginning of the year?

Dan Dickson -- Chief Financial Officer

Hey, Marcus. Where are our investment expectations going forward? Is that effectively your question?

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Yeah, essentially.

Dan Dickson -- Chief Financial Officer

Yeah, right now we're -- the biggest question, Marc, for us is El Cubo and you can see the grades kind of through the year. We've fallen from effectively 183 grams at the beginning of the year and fell to about 130 grams silver and gold was averaging at about 1.9 at the beginning of the year. And in Q3, we did about 1.3. We continue to see those lower grades here in October, and ultimately it's a question of meeting a sufficient amount of throughput in 2020 to have economies of scale to make it worthwhile.

And Cubo's actually had negative cash flow for the first time in a long time in Q3. So ultimately we're currently looking at what we can do for 2020 and quite frankly, it might also include the possible closure of the El Cubo asset just from a reserves and resource standpoint. So the investment at El Cubo going forward could effectively be quite low, which is what we're working through.

From Guanacevi and Bolanitos, those standpoint, we have long expected mine lives. You'd be seeing something similar. So historically, we spent about $10 million at Guanacevi for sustaining capital and I expect that to continue. And Milache and Santa Cruz Sur are new orebodies for us. We have -- do have development left to go to get to the bar on those ore bodies.

And then adjacent to historical ore body of ours called Porvenir Cuatro, we signed a deal with Frisco in the second quarter for adjacent property called El Curso, which we know we have extensions on and we've actually been drilling that extension for the last month and a half and we expect to have news out on El Curso's drill results in the coming weeks.

So I expect Guanacevi to be similar going forward, about $10 million of mine development. We replenish the fleet. It's a question of when some of that gets delivered. And then at Bolanitos, we continue to have some drill success there. We expect to extend, but this year we're spending about $4 million on mine development and I think we'll spend that again, but we come out with all this information typically in January -- mid January to late January for guidance for 2020 and we'll be able to give more detail on that at that time.

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Okay, cool. And then sort of building on that, I guess, longer term, call it three years to five years outlook, where do you expect to spend your 2020 focus that may not have been the case, say, two to three quarters ago? And again, that might be answered like you said, in January, but --

Dan Dickson -- Chief Financial Officer

Yeah, from a three to five years' standpoint, it's hard to see changes at Guanacevi or Bolanitos. Ultimately, we hope that our focus is actually on Terronera and ultimately by that time, three to five years, Parral. We communicated exploration success at Parral, we put out a news release in the third quarter, highlighting that exploration success. So we're very encouraged with where Parral is going. We are putting a PEA together this quarter for Parral and that ultimately the future of the Company is Terronera and Parral. So on a long-term outlook, it's that, and we remain inquisitive in this space. Obviously, prices we feel are still repressed and are getting increased. So, our VP of Corp Dev and Bradford Cooke are always inquisitive and we're always looking at things and we still want to grow the Company, we want there to be a long-term future for Endeavour Silver, so we expect to grow.

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Okay and then, lastly on a different note, the payments you make under your royalties are getting quite a bit lower. At What point would it maybe make sense to walk up to the seller and make a lowball offer to buy them back? Is that something considered at all?

Dan Dickson -- Chief Financial Officer

Well, I would never tell the royalty holder that it's a lowball offer, so I -- we always look at those things and ultimately the guys on the other side have to agree to a deal and typically holders of royalties are pretty sophisticated. So whether if -- we ever have the opportunity to buy back our royalty, it's probably going to be a pretty fair price. We look at those things all the time. It's just a matter of -- to get one of those things done is difficult. You need to remember, part of our royalty structure is to the Mexican government, a 0.5% on any precious metals that are mined in Mexico. And then ultimately, it's been the vendors of the properties that hold those other royalties.

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Okay, cool. That's fair enough. Thanks for taking my questions.

Operator

The next question comes from Joseph Reagor of ROTH Capital Partners. Please go ahead.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Morning, thanks for taking my questions. A couple of different things I wanted to touch on. I guess first one, just a point of clarity on the guidance for the 2019. There was revised guidance which is listed in your MD&A. Are you guys saying the revised guidance won't be met or that you're just confident you won't meet the original guidance?

Dan Dickson -- Chief Financial Officer

No. Joseph, to clarify, we revised guidance in July. We don't think we're going to meet the low end of that revised guidance. If you take Q3's production, Guanacevi and Bolanitos both we're behind the plan. We don't expect it to be significantly different, but we do expect it to be better. It's just a question of whether we can get to the bottom end of that guidance. And we think, we'll be about 100,000 ounces of silver equivalent short.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay, fair enough. And then, another point of clarity, on El Cubo, the review you're doing to determine if you're potentially going to shut the mine down, can you give us a little bit more color about what the basis of the review is and what the timing of any announcement there might be?

Dan Dickson -- Chief Financial Officer

Yeah, I mean, at the end of the day it's about reserves and resources and we've seen falling grades for the year. We've already reduced output from 1,500 tonnes down to 750 tonnes per day. And with the falling grades, we actually had negative free cash flow. We did have an exploration program this year. We have extended grades via our -- extended the vein [Phonetic] at Ascuncion, which is the primary ore body where we're mining. Ultimately, those drill holes where we had intersections were narrow. Okay widths, but too narrow to get the tonnage output that we need. There is consolidation opportunity within the area.

Fresnillo owns are significantly around us. We do know extensions go across on to their land. However, obviously, we can't rely on any consolidation, because it takes two to tango in that situation. So ultimately, if we're going to stay at these levels of grades, we're not going to able to make money there. And without reserves and resources or primary exploration target, we have to consider shutting down the mine and ultimately there is a couple of steps that is required to that. One is negotiations with the union where we have 250 employees and trying to determine a timeline with the union of when we can shut down and ultimately lay everybody off. We are in discussions always with the union and we're working toward that and we would have a clarity on that, I would say, in the next four to six weeks.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay, thanks for the detail there. Switching to other mines, El Compas, it seems like the costs on a per tonne basis there, 30-ish percent, 35% above what the original plan was. What can you guys do to get those back down toward, I think, it was like $100 per tonne was kind of the target and it's been in the $130s?

Dan Dickson -- Chief Financial Officer

Yeah, Joseph, the target through the PEA was about $110 per ton, and we thought we could beat that. And you're right, we're sitting at about $130 per ton. We are looking at that for 2020. One of the things that we're looking at is actually replacing the contractor with our own equipment and our own people. And that will save about 30% of our mining costs. So, not a full $130 times 30%, but effectively the mining portion of it. And we did have some severance that went through, we were -- we kind of ramped up and increased our workforce. We scaled that back at the end of the quarter. So as we hit our output levels, we think we can get closer and closer to that $110 and especially going into 2020.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay. And then one big-picture question with the Terronera financing kind of on-deck. What do you guys have left on your ATM and what is the current plan there as far as financing and then timeline to production?

Dan Dickson -- Chief Financial Officer

Yeah, ATM, we used about $10 million of the ATM in the third quarter and there's about $8.6 million remains on that ATM. We haven't had the TAM open for the last two months. Depending on where the market goes, that can open or not open. Obviously it's helped us protect our balance sheet for 2019. We have that ATM available to us until about the end of the March under our base shelf as this. As far as the financing for Terronera going forward, we are looking at a form of debt anywhere to $60 million to $80 million. We're trying to get finalized here in the next four to six weeks, and then it goes into construction.

Construction timeline hasn't significantly changed under the work we've done for the new PFS. Ultimately, we're still looking at about 18 months from when we start. And the first six months of that is just basically earthworks of cutting down a hill, so we can start building the plant. We've got all our permits in place. So it's a question of when we have financing in place and being comfortable to say go.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay. Thanks, I'll turn it over.

Operator

The next question comes from Chris Thompson of PI Financial. Please go ahead.

Chris Thompson -- PI Financial -- Analyst

Hey, guys, good morning. Number of my questions have been answered, but I just wanted to just home in on a couple of little things here. Firstly, Guanacevi, where are we right now in that ramp up to 1,200 tonne a day? I mean, obviously, sitting in early November, you've had -- we've seen October. Where are you right as far as the production rates there?

Dan Dickson -- Chief Financial Officer

Yeah, October came in just under 1,100 tonnes per day for mining. So we've seen partly, maybe the confidence hopefully in my voice a little bit is between Q3 to now, we've seen October have a good month. The other thing that works out well to us that we think going forward is the El Curso property, which is rate adjacent to Porvenir Quattro. So we have a ramp that goes through our core, so we have a right away access with Frisco to get down to Milache. So we do have a ramp that effectively crosses the El Curso property and we've got about 10 drill holes into that property that we expect to release later on. And we believe El Curso will allow us [Technical Issues] to make sure we're at 1,200 tonnes per day.

Godfrey Walton -- President and Chief Operating Officer

Chris, this is Godfrey. I think, I'd just add to that as well. We've actually now built a stockpile at Guanacevi, which we haven't had for many years. We've had a few maintenance issues with the plant, which is why we haven't hit 1,200 already. But we are very confident that those will be behind us here in another couple of weeks. And so for the balance of Q4, we should be it at capacity.

Chris Thompson -- PI Financial -- Analyst

Great, thanks for that, Godfrey. Just I guess looking at the -- when you are fully ramped, I guess, as far as Milache and Santa Cruz Sur, what sort of blended grade to the mill are you anticipating?

Dan Dickson -- Chief Financial Officer

The blended grade to the mill would be about 255 grams silver and 0.661 [Phonetic] grams gold with SCS and Milache blended going through the mill. The big thing that we're going to see when those ramp up is the reduction of the Santa Cruz Sur ore, which has been running lower grade closer to the 200 gram per tonne silver and about 0.5 gram per tonne gold.

Chris Thompson -- PI Financial -- Analyst

Great, thanks for that. And then, just closing the loop, I guess on Guanacevi, unit costs, what do you see as a sort of a nice steady state figure?

Dan Dickson -- Chief Financial Officer

I've touched on this in the past. If we get to 1,200 tonnes per day, I don't see any reason why we can't get back to the $95 cost per tonne. Obviously, this quarter we are about $118 cost per tonne. We had still averaged lower than 1,000 tonnes per day. Having the new equipment arrived and the reduction that we're going to see in maintenance costs will help us there, but I can -- provided we hit our targets $95 to $100 cost per tonne is still our goal.

Chris Thompson -- PI Financial -- Analyst

Okay, great. And then just moving on to Bolanitos, I think that this -- I guess how you handle the high arsenic ore in hand at the moment or is just come as a bit of a surprise to you?

Godfrey Walton -- President and Chief Operating Officer

Hi, Chris. Thanks for the question. This is Godfrey. We've been up and down on the arsenic. One month we figured we've got it handled, on our next month, we continued to have issues, but it's an area within the different horizons that have all come together. So both in La Luz and in Lucero where we're seeing higher arsenic in the actual ore. We do expect to be able to reduce it from where it is now, which is coming in about 1.3% arsenic, back down to the 0.95%, which is what we had anticipated, but we're changing some of the flotation, the concentration ratios to make those adjustments. And so, we're still working on it, but we do feel optimistic that we can get it resolved.

Chris Thompson -- PI Financial -- Analyst

Great, thanks for that --

Bradford Cooke -- Chief Executive Officer

Just to add to that, Chris, we are all coming out of 2019. So every year, we sign agreements with our concentrate buyers. We set kind of the rates and what we're allowed to have effectively from the arsenic level in our concentrates. So once we come out of 2019 and we're in the process now for 2020 of bidding and now signing for concentrate deals next year, which obviously we can build a better range in for ourselves going forward.

Chris Thompson -- PI Financial -- Analyst

Okay, thanks. Just on the mining rates, I mean, you see, you said you want to -- you're anticipating them, I guess, to revert to historical levels in the Q4 here. Would that be the 1,200 mark?

Bradford Cooke -- Chief Executive Officer

We're shooting for the 1,200 mark here in Q4, whether we can get there or not. Even getting to 1,100 or 1,000 to 1,100, it's obviously advantageous for us, but 1,200 is still the goal.

Chris Thompson -- PI Financial -- Analyst

Yeah, it's OK. And I'll get -- yeah.

Godfrey Walton -- President and Chief Operating Officer

We've actually also got a stockpile for the Bolanitos plant as well. And the only issue there is just making adjustments in the flotation circuit for the arsenic and we are optimistic that we'll be at 1,200 in Q4.

Chris Thompson -- PI Financial -- Analyst

All right, so you're expecting any, obviously, a reduction in unit costs as you sort of get to that 1,200 mark from the Q3 levels?

Dan Dickson -- Chief Financial Officer

Yes.

Chris Thompson -- PI Financial -- Analyst

Okay, perfect. All right. And then the final question I guess, and this is the thing I really struggle with, I guess, with Bolanitos, with you're grades. I mean, I look at your reserve, resource from the mine and they're significantly higher than what you're delivering right now. How would you -- or can you talk to that, please?

Godfrey Walton -- President and Chief Operating Officer

Chris, this is Godfrey again. Yeah, we -- a number of areas where we're mining are actually down near the bottom of the routes of both Lucero, Daniela. And those are typically higher gold, but lower silver. And we're also seeing that as well in La Luz, so these just -- it just comes down to the areas that we're mining and not having the silver that we had anticipated, but we're doing better with the gold.

Chris Thompson -- PI Financial -- Analyst

Right, I mean, if I were to sort of, I mean -- I'm looking at my model and it looks, I don't know what it used to be quite honest with you, based on your reserves and resources anymore. I mean, are we -- can we anticipate, so that's going to be the sort of the plan moving forward?

Godfrey Walton -- President and Chief Operating Officer

I think you're going to see more of those kind of numbers going forward, yeah, a little lower silver.

Chris Thompson -- PI Financial -- Analyst

Okay.

Godfrey Walton -- President and Chief Operating Officer

Just because of where we are in the systems.

Chris Thompson -- PI Financial -- Analyst

All right. Okay, guys. All right, thanks a lot.

Operator

[Operator Instructions] The next question comes from Mark Reichman of Noble Capital Markets. Please go ahead.

Mark Reichman -- Noble Capital Markets -- Analyst

Good afternoon. I just wanted to focus a little bit on the costs -- on cash costs and all-in sustaining costs. And I know the last quarter you kind of expected the latter half of the year to be kind of in that $10 to $11 range for the full year and then lower than that in the latter half, net of the any byproduct credits. So it seems to me that some of these -- for some mines, the answer is increasing production. In others, I guess, in the case of El Cubo, it's not to produce.

So just looking out, I mean, what are your -- I know you're not giving any guidance, but what are your expectations on getting these costs down, because, I mean, if I look at 2020, you're going to have additional financing costs related to Terronera, cost associated with shutting down El Cubo potentially and even with a modest increase in commodity prices, the cost just aren't competitive.

Dan Dickson -- Chief Financial Officer

Yeah, Mark, it's a fair question. Something that, I mean obviously as a management group we look at all the time. The cost profile in the first half of the year then ultimately again here in Q4 is not conducive to moving forward at these prices and we manage the Company at these prices, not what we expect silver prices to go. And obviously for Guanacevi, it has been an -- level. I mean, it's a mine that's got capacity at the plant to 1,200 tonnes per day and ultimately has the resources in -- from a labor standpoint for 1,200 tonnes per day and we have the reserves and resources there to meet that output. The absolute cost that we're spending that we're spending is In line with what our budgets were, but what we are not hitting is our production targets and some of that has to do with things that we've changed. And I think at the beginning of the year, we had -- we've determined this, an over-reliance on contractors. If we weren't hitting targets, we hired contractors to try to make it up and kept those employees that inflated our costs.

We've now significantly reduced our contractor levels that Guanacevi and our employee level at Guanacevi, and we've seen tonnes come up, which is great, and which should be reflected in Q4's costs and ultimately in 2020's costs. And if we can get back down to that profile of $95 to $100 per ton, Guanacevi is cash flow positive.

From Bolanitos standpoint, it has been cash flow positive until Q3 of this year and we had a small loss from a free cash flow standpoint, but we've been replenishing our mining fleet there to reduce our operating costs, ultimately what we're spending in our lease payments is less than what we're spending -- we are spending to repair equipment that we had on-site and I think just over the last three years in depressed metal prices, like any mine and especially underground vein mine, you started to mine a little bit of capital and that's come home to roost to this year. And ultimately, we've made those changes to ensure that Bolanitos and Guanacevi going forward are cash positive and can contribute to the Company as a whole, rather than being a liability to the Company.

I think we will be able to speak more of that when we come out with the 2020 guidance. We are going through all our budgeting process and cost profile for next year and we present that to the Board in early or mid-December. And like I say, we always come out mid-January to it and I mean, it's about delivering on that output to make sure we can meet that cost profile.

Mark Reichman -- Noble Capital Markets -- Analyst

So the emphasis is really kind of on Guanacevi and Bolanitos, because you did show improvement from the second quarter into the end of the third quarter on a cash cost basis. I guess Bolanitos went the other way on all-in sustaining costs, El Cubo next year I guess that would be kind of a one-time item, but what about El Compas? What are your thoughts on EL Compass?

Dan Dickson -- Chief Financial Officer

Yeah, no, El Compas, I -- we touched on a little bit earlier. I think Marcus had a question with regards to costs, and we're about $130 cost per tonne right now and trying to drive that down to $110. I think the reality for Compas is it's 1 million silver per ounces a year. So right now, it's not an overly significant asset. We do expect -- we did have positive free cash flow in Q3 about $1.4 million. In 2020, we expect Compas now to be a cash contributor. I mean, obviously, in Q1, we are pre-commercial production and investing the final amounts in to Compas. But for 2020, It will also be a cash contributor and I think Compas is smaller, it's been easier to manage and it's effectively a gold mine and gold prices that we used in the PEA were about $1,375 [Phonetic] and obviously, gold is closer to $1,500 right now, but it hasn't been, for a lack of better term, a problem child. Guanacevi has been a problem for about 2.5 years. And finally, I believe we've cracked that nut.

In Bolanitos, we came up with this arsenic issue that's required us to recycle the mine and ultimately allowed us to kind of review everything at the mine and it was determined that our fleet was too old and we need to replace the fleet that will allow us to reduce operating costs and it's managing that stuff and making sure it contributes cash at these prices going forward.

Mark Reichman -- Noble Capital Markets -- Analyst

Is that $20 delta between the $130 and the $110, is that just purely production?

Dan Dickson -- Chief Financial Officer

No, at Compas, that's not production. That's cost savings, reducing in the use of contractors and putting our own equipment that will have -- potentially become available.

Mark Reichman -- Noble Capital Markets -- Analyst

Okay, great. Thank you very much, Dan

Dan Dickson -- Chief Financial Officer

Thanks, Mark.

Operator

This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Dan Dickson for any closing remarks.

Dan Dickson -- Chief Financial Officer

Well, thank you everyone for joining our call. I'm glad we had -- we're able to have a lots of questions. I think Q4 is going to be a positive quarter for us. We do have some drill results coming in the coming weeks and then look forward to providing guidance for 2020 in the New Year. Thanks for your questions and if anybody has questions, we are available offline and happy to help anytime, thank you.

Operator

[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Galina Meleger -- Director, Investor Relations

Dan Dickson -- Chief Financial Officer

Godfrey Walton -- President and Chief Operating Officer

Bradford Cooke -- Chief Executive Officer

Marcus Giannini -- H.C. Wainwright & Co. -- Analyst

Joseph Reagor -- ROTH Capital Partners -- Analyst

Chris Thompson -- PI Financial -- Analyst

Mark Reichman -- Noble Capital Markets -- Analyst

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