Avino Silver & Gold Mines Ltd
TSX:ASM
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Avino Silver & Gold Mines Ltd
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Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines First Quarter 2021 Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Jennifer North, Manager of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Ltd. Q1 2021 Financial Results Conference Call and Webcast. On the call today, we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; and our VP, Technical Services, Peter Latta.Before we get started, please note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements.The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. For more information, we refer you to our detailed cautionary note in the presentation accompanying this call or on our press release of yesterday's date.I would like to remind everyone, this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on the website. Thank you.I will now turn the call over to Avino's President and CEO, David Wolfin. David?
Thanks, Jen. Good morning, everyone, and welcome to Avino's Q1 2021 Financial Results Conference Call and Webcast. Thanks for joining us.Before we begin, please note that the full financial statements and the MD&A are now available on our website. On today's call, we will cover the highlights of our first quarter 2021 financial and operating performance and our plans for Q2 2021, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.It's hard to believe that it has been more than a year since we were first faced with the pandemic and the forced operational shutdowns. As I mentioned during our previous quarter and year-end call, I would like to say a special thank you to the management team in Mexico, led by Carlos Rodriguez, who adapted quickly and carried out critical tasks at the mine to ensure the safety of our employees and surrounding communities. In addition, I would like to extend my appreciation to our shareholders for their support and patience during last year while we experienced the temporary shutdowns due to COVID-19 and the temporary shutdown due to the strike at the mine.The 12-week strike lasted from July to October 2020. As the labor authority office in Mexico City remains closed due to COVID-19 protocols, the company is working diligently with its partners to ratify the agreement. The company is committed towards restarting production and mining operations as soon as possible.Mining in Mexico, in general, was significantly interrupted last year as a result of COVID-19 with most lines and projects suspended for a number of months before resuming operations under strict health guidelines. Global production of silver declined in 2020 by 5.9% to hit 784 million ounces as reported by Metals Focus. However, global production is expected to rebound strongly in 2021, with an increase estimated at 8.2% to 848 million ounces.According to the Chamber of Mexico, sector-wide investment fell 50% compared to pre-COVID estimates dropping from $5 billion to $2.5 billion. However, the industry is set for a rebound in 2021, with many companies announcing increased investments in projects across Mexico. This also goes for Avino, as we announced during the first quarter, an increase in our capital expenditures and exploration budget from $6 million to $8 million, up to between $9 million and $11 million. Additionally, hiring has begun for experienced mine workers at site. We are definitely moving closer to a recommencement of operational activities. Our goal is to ensure that we reopen properly with all guidelines, including labor and health in place.During the quarter, the 2021 drill program remains a top focus with the objectives of locating new mineralized zones within the property and to confirm continuity of mineralization in the current Avino ET production area. At the end of Q1, 1,870 meters were drilled at Santiago and El Trompo veins.Also in the quarter, we continued moving forward with the proposed dry stack tailings storage facility, TSF #2, which is on privately owned Avino land is permitted and is currently in a final stage prior to commencing construction. We expect this project will now be completed during Q4 2021, and it should add an additional 8 to 10 years of tailing capacity based on the current mill throughput rate.We chose dry stack tailings for its environmental safety and economic advantages with its high solid content. This significantly improves safety and stability and reduces the need to extract water from local sources by recycling the water removed from the tailings. In addition, it requires less land, which in turn results in a small -- in smaller environmental footprint.Over the years, we have been proactive in developing a partnership between Avino and the people of Durango and the 4 communities surrounding the mine site. We're pleased to announce that Avino has just recently hired an ESG manager in Durango to help drive ESG initiatives forward and contribute to the operational continuity of the business under the principles of sustaining and social responsibility.During the quarter, we have helped in many ways, including supported the town of San Jose de Avino by loaning our CAT dozer, paying for the fuel and operator time to help expand the town cemetery. We provided multiple bags of cement to fix access roads in the town. Provided information to the communities on the safety of dry stack tailings, and we'll follow up again with the new ESG manager.Even though we still have not recommenced operations, the community surrounding the mine site know that Avino will lend a supportive hand when needed. In addition, we have received PPE and hundreds of rapid tests to ensure the safety and good health of our workforce. Avino is the only source of employment in the area. And once we are fully operational again, we will provide steady employment to the people of the Durango and nearby communities.Many people in the communities are keen to get back to work at the mine, and Avino has the full support of the local and state governments. The restart of production activities is expected to provide significant direct economic benefits and stimulus for the local communities.During the first quarter, silver was a bit slow to move with an 8.2% decrease compared to the full year 2020. The price range from a low of $24.67 on March 25 to a high of $29.59 on the first of February. Coincidentally, this was the day of the propelled silver squeeze. Gold prices range from a low of $16.83 on March 30 to a high of $19.43 on January 4. The metal prices have continued to be volatile, with silver currently in the low $27 range and gold staying slightly above $1,800 level. With rapid transition to clean technology being legislated in the U.S.A., silver and gold will be in demand, and we expect both will shine.Not to be overlooked is the price of copper. It has been on the tear and will play a key role in the new green economy. This is definitely worth mentioning for Avino as copper makes up at least 1/3 of our revenue contribution when in production. Last quarter, copper was sitting around $3.50 per pound, and now it's closing in on $4.75 per pound.The copper price is steadily moving upward on low inventories and anticipated rebounds of the global economy: growth of industrial activity, strong demand by China, clean energy drive, global vaccination rollout and a weaker U.S. dollar. We believe that the push towards a green economy and the fact that we mine metals needed, we certainly benefit -- will certainly benefit our shareholders going forward.I wanted to touch briefly on February 1, silver squeeze propelled Avino share price to a high of USD 2.82 on a volume of 130 million on that 1 day. We also have the power of the Reddit traders and the social media drove up the price of silver and silver mining stocks that gained and created a trading frenzy. We look forward to growing demand from these new investors and increasing the diversity of our shareholder base.We encourage our shareholders new and long term to check out our website often for news releases, presentations and all public information.I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q1 2021.
Thank you, David. It's my pleasure to be on the call, and I would like to welcome everyone who has joined us and is viewing our presentation today.As you can imagine, Avino's operating results were impacted by a lack of production at the Avino mine. Having said that, we are now in the strongest financial position in Avino's 53-year existence. Our cash position at the end of the quarter was $27 million, which represents 125% increase compared to $12 million at the beginning of the year. Working capital at quarter end was $31 million compared to $15 million at the beginning of the year, which represents an increase of over 100%.We continued with our plans to reduce debt during Q1, having lowered debt liabilities by a further $800,000 during the first quarter. This brings total debt reduction since the beginning of 2020 up to $8 million. We are happy to report that we expect to be debt-free other than payables and equipment leases by the end of Q3 of 2021, which allows Avino to maintain significant financial flexibility moving forward.During Q1, renewal revenues were generated. Any revenues generated were a result of settlement of final invoices from 2020 as and the renewal concentrate shipments during Q1 2021 and as such, no silver equivalent ounces sold. Avino reported mine operating losses of $700,000 for the first quarter, which is made up of $200,000 in standby care and maintenance costs and $500,000 in depreciation and depletion.Losses before interest, taxes, depreciation and amortization were $1.7 million compared to earnings of $0.4 million in Q1 of 2020. Adjusted losses for Q1 2021 were $900,000 compared to adjusted earnings of $400,000 in Q1 of 2020. Avino reported net losses after taxes from continuing operations of $1.8 million or $0.02 per share for the first quarter, which includes noncash losses of $1 million relating to the exercise of warrants in which Avino received proceeds of over $700,000 during the quarter.Capital expenditures for the first quarter were $400,000. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the quarter, except for exploration activities, which have continued to ramp up. Any necessary projects have continued as planned and include the new dry stack tailing storage facility equipment. We expect that capital and exploration expenditures will increase over the coming quarters as we ramp up exploration and move forward with the tailings upgrades.Finally, I want to reiterate the strength of Avino's financial position. As David previously mentioned, February 1 had quite an impact on our financial position, and I want to thank all of our corporate partners and stakeholders who are working diligently alongside us and ensuring that we are well prepared to take advantage of the increased valuation on this day. It is because of everyone's hard work in preparation that we're in a position to bolster our treasury by an additional $17 million at a valuation over 50% higher than today's current share price.We believe that this is a sign of things to come and that Avino continues to remain undervalued with a significant resource base and a balance sheet that would allow Avino to create future shareholder value.We continue with our plans to reducing debt. And at the end of the quarter, we maintained over $30 million in liquidity, including our investment holdings. With cash representing over 7x our debt liabilities at the end of the quarter, we are moving forward with increased exploration activities and continuing with our plans to add value for our shareholders and stakeholders throughout the rest of 2021.I will now hand it back over to David for a discussion on exploration and what Avino has planned for Q2.
Thank you, Nathan. Our regional plans for the year called for a 12,000 meter drill program, which was increased in March to a total of 30,600 meters of drilling. The increased drilling program is fully funded. We will continue in Q2 to target several areas of the Avino property, including the Avino vein, the Santiago vein and the El Trompo vein.To date, 3,763 meters have been drilled. We are currently waiting for assays to be received. Another potential high-grade target that has been tested is called the La Malinche vein, which is -- which will be tested in Phase 2. It is similar in style to the San Gonzalo vein, a low-sulphidization epithermal vein. More exploration work is needed to confirm our understanding of the system.It is said that this vein was named hundreds of years ago. And the Avino mine was discovered in 1558 by Captain Ibarra of Cortez's army. It's quite possible the vein was named at that time by the miners in honor of Marina, La Malinche, who is the mother of Cortez's children. Future exploration targets may not be limited to these 3 areas. And during the year, our priority targets may change in geological interpretations on other areas present enhanced opportunity.Preparations in Q2 are ongoing to recommence operations. The dry stack tailings project is going well and the completion will be pushed to Q4. Improvements to the Circuit 4 are ongoing. That will improve gold and silver recoveries through the use of new equipment. Avino's main focus for the next quarter is to recommence operating activities at the mine and carry on with the exploration program focused on locating new mineralized zones within the property and confirming continuity of mineralization in the current Avino ET production area.Finally, it has always been our intention to ensure the health and safety of our employees and communities. And we continue to analyze situations in the Vancouver and Mexico and collaborate together to make best decisions that are most beneficial to the widest group, including all stakeholders.We look forward to a productive second quarter and remainder of 2021. We anticipate a brighter rest of the year, including successful vaccine rollouts worldwide, unrestricted travel and hopefully, our Canadian borders will open up.We'd now like to move the call to the question-and-answer portion. Operator?
[Operator Instructions] The first question comes from Jake Sekelsky from Alliance Global Partners.
Just starting with exploration, you mentioned that you're waiting for assays to come in. Any color on the time line here? And then are you seeing any delays in turnaround times due to COVID?
It has been slow in getting them. Some have trickled in, but we're waiting for -- we want to complete the program on a particular vein before we release results. So it's hard to say, but in the next few weeks, we should have some news.
Got it. Okay. And then just on the back of that, are the Phase 1 and Phase 2 programs, are they sequential or concurrent?
Jake, this is Peter here. Regarding the program, there are some areas like, for example, below ET that we have to wait until there's underground access. So we're kind of jumping back and forth just depending on drill availability and relative location. So to answer your question, I guess they would be more concurrent.
Okay. That's helpful. And then just lastly on the tailings project. You mentioned that you might move forward with the PFS later this year. Assuming you do that and the PFS is positive, are you comfortable making a production decision on the back of the PFS? Or do you think you'd move forward with a full phase?
Saying we'll have the PFS this year is probably a little aggressive. I mean we're drilling, and it takes time to do that. So it really depends on the results of the PFS before we make a construction decision.
Okay. But you'd be comfortable making a construction decision off the PFS, not necessarily moving to full feasibility.
Jake, Peter here once again. I think it just depends on the risk that we're looking at in terms of that particular project. I think there's limited geological risk given that the tailings are equally disseminated. And that depends on the metallurgical work and the variability at that point in time. So I think it's too early to say at this point in time. But certainly, pending the results of the PFS, we'll evaluate and then make a decision at that point.
The next question comes from Heiko Ihle from H.C. Wainwright.
This is Tyler Bisset on for Heiko. You talked about your drilling program in the release, and it's nice to see the increase in holes drilled that was initially announced on March 8. You mentioned that you're waiting for some assay results in the recent release. But from what you can see thus far, can you sort of guide us through the potential continuity you think you might see at Avino ET?
Sure. I can jump in there. So with respect to ET, a lot of those holes are drilled from underground. Well, all of those holes are drilled from underground. I should take that back. So we haven't started that drilling there as we have to do a bit of work in the underground, and then we have to blast a drift, cross-cut actually. So we can drill back across the deposits.So the drilling for this quarter of Q1 was really focused on El Trompo and Santiago, with Trompo being that offshoot of the Avino vein and Santiago being that crosscutting the structure across San Gonzalo vein. So to answer your question, we haven't yet tested the continuity of Avino, both down-dip and on-strike.
Got you. And any expectation on when you guys may start that drilling?
We have people in there now. They're servicing the pumps and the electrical system down there. So we're bringing back people. So it's hard to say because we want to get the drilling and the blasting and the mining going first, and then we're going to look at drifting away from the vein and then setting up the drill station. So it's going to be in the second half of this year.
Okay. I appreciate that. And what do you think we will see in the total expenses for the ramp-up in Q2? And how much have you incurred as of today, given we're halfway through the quarter? And maybe, if possible, give us some guidance for spend during Q3 as well.
Sure, Tyler. It's Nathan here. So are you referring to ramping up, getting closer to production? Or are you talking about exploration spend?
Exploration spend.
Sure. Yes.
Unless you can talk about production.
No, I'll talk about exploration spend. So we're expecting that to increase. Obviously, we announced up to 30,000 meters, and we're ramping up. April was a lot obviously heavier than March was as far as meterage, and we're continuing on that path in March -- or in May, June and further into the second half. We've got all 3 drills turning right now, which is great.So we kind of -- we're expecting that if we continue on the same meterage about anywhere from $0.5 million to close to $0.75 million maybe on a monthly basis. So we're expecting a couple of million dollars per quarter as a maximum, and that depends obviously on how quick we're able to move the drills around, too.
[Operator Instructions] The next question comes from Matthew O'Keefe from Cantor Fitzgerald.
Just a question. You had a pretty busy quarter on the finance side. So you've got $27 million in cash here, now $11 million -- or actually $30 million in working capital and $9 million to $11 million budget. So that's still a pretty healthy cushion, assuming you're going to get back into production between now and the end of the year. So what are your plans for that additional cash?
Nathan here, Matt. It's a good question. Obviously, we are looking forward to kind of getting back to production activities first. But I mean this is kind of a historic quarter for Avino and it's the first time we've really been in a comfortable -- a very comfortable cash position. And we're looking forward to reinvesting in the mine, and we're just -- we're evaluating opportunities as they come in, right? There's a lot of activity in Mexico and a lot of projects that we always have our eye on. But at the same time, we don't want to make any hasty decisions. So we're...
And we're looking at improving recovery rates through automation.
Yes. We've got a lot of capital improvements. We want to make it first and then we'll kind of sit back and take kind of a 10,000-foot view of what's best for Avino and for our shareholders.
Okay. And then -- so you're not looking at other -- well, you're always looking -- I guess, looking at other projects that might be in and around. But would your first choice be something that has some synergies with Avino or something a little bit different? And would it be more on the cash flowing side or the development side?
That's a tough question to answer. I think we're pretty agnostic as far as what we're looking at. We like exploration stories. We like past producing stories. Like there's a lot of stuff that we like. But at the same time, we're going to be very, very cautious with our funds. And we want -- we are still focused on Mexico and we plan -- at the very least, we plan to remain that way.
We want to find higher-grade material on our property. We want to lower our all-in sustaining costs back to where it was when we were mining San Gonzalo, which was around $10. So that's our goal.
Yes. That's the big focus is to get everything -- we have a large mill circuit, and if we can find higher grade and running some of that material through our mill, we're pretty confident that costs will come down and we'll be in a much better positioning for the future.
Okay. No, that's great. It sounds like it's -- most of it's earmarked for current -- unlocking the current potential at Avino.
Thanks, Matt.
This concludes the question-and-answer session. I would like to turn the conference back over to David Wolfin for any closing remarks.
Thank you, everyone, for taking the time to listen today. We appreciate the patience of all our stakeholders and look forward to resuming normal operations soon. We look forward to a productive second quarter and remainder of 2021. Thanks again for listening, and have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.