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At El Cubo, accelerated mine development and underground drilling commenced in Q3, 2012, new mining equipment was acquired in Q4, 2012 and three more scoop trams are scheduled to arrive within the next six weeks. The plant and surface infrastructure rebuild program also commenced in late Q3, 2012 and is currently on time and budget for scheduled completion in Q2, 2013. Shareholders are invited to visit our newly created El Cubo Capital Projects Update page on the website for monthly updates.

Looking forward to 2014 and 2015, Endeavour recognizes additional opportunities to grow production at all three mines. While these growth opportunities are still at the conceptual stage, once the El Cubo capital programs are completed this year, management will prioritize these opportunities and commence planning for future mine and plant expansions.

At Guanacevi, the proposed underground development of the new Milache discovery is awaiting permitting for development in 2013-2014 and production starting in 2015. Initial indications are that mill throughput would stay constant but the higher ore grades at Milache would give Guanacevi production a small boost. Exploration will continue to test new targets in the district.

At Bolanitos, the Cebada, Bolanitos, Lucero, Karina, Fernanda, Daniela and Lana veins are capable of providing up to 2200 tpd of mine output at the present time so management will consider another plant expansion later this year. New exploration targets in the La Luz, Plateros, La Joya and Puertocito veins give management encouragement that Bolanitos continues to offer excellent potential for new discoveries.

At El Cubo, the reconstruction of the wholly owned plant will operate initially at 1200 tpd but will have a capacity of 1600 tpd. The main bottleneck to higher production is the mine output (tonnes and grades), but given Endeavour's exploration programs have just gotten underway to test several exciting new targets over the next two years, management views El Cubo as also having excellent potential for new discoveries.

Operating Costs

Consolidated cash costs of production (net of by-product gold credits) are expected to increase from the current US$6-7 per oz range to the $9-10 range in 2013, largely due to the rising production from the higher cost El Cubo mine and the lower grades being mined at Guanacevi. However, El Cubo cash costs should decline in 2013 due to rising operating efficiencies and once the capital projects are completed.

Assuming US$30 silver and US$1650 gold, Endeavour anticipates its mine operating (gross) profit margin will be around US$20-21 per oz in 2013. For every $100 increase in the price of gold, Endeavour's cash cost of production should drop by about $0.90-1.00 per oz of silver produced and the mine operating profit margin should climb by a similar amount per oz of silver production.

Capital Budget

Endeavour plans to invest $85.8 million on capital projects in 2013, including $52.6 million on mine development, infrastructure, equipment and exploration in approximately equal amounts at all three mines, and $33.2 million on plant re-construction, infrastructure, equipment and buildings primarily at El Cubo.

The Company has budgeted US$44.9 million at El Cubo, $21.4 million at Bolanitos and $19.5 million at Guanacevi, all of which should be covered by the Company's anticipated 2013 cash-flow. However, the bulk of the capital investments will be made in the first half of the year so Endeavour expects to utilize its $75 million line of credit as needed until cash flows catch up later in the year.