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 2022 Financial Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Jennifer North, Manager, Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Ltd. Q1 2022 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated May 4, which can be found on our website under News 2022. As well, you may find a link under the Investors tab, then click on Events and you will see the link at the top of that page.
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 of 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 that 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 2022 Financial Results Conference Call and Webcast. Thanks for joining us. Before we begin, please note that the full financial statements and MD&A are now available on our website. On today's call, we will cover the highlights of our first quarter 2022 financial and operating performance and our plans for the second quarter, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.
We had a strong start to the year highlighted by record revenues in mine operating income. Our financial performance in the first quarter demonstrates strong operational achievements that helped to generate revenues of $11.1 million and $4.7 million in mine operating income. Nathan Harte, Avino's CFO, will expand on our financial results later in the call.
We had a very active first quarter, which was highlighted by closing of the La Preciosa's acquisition. La Preciosa hosts one of the largest undeveloped primary silver resources in Mexico and is located adjacent to our existing operations at the Avino mine. This is a major milestone for Avino and sets us on the path of achieving our goals of intermediate producer status.
Also during the quarter, we released drill results from our extensive 2021 exploration program and the target areas included Brecha de Bajo vein below level 17 and west of the current ET mine workings; La Malinche, Neustra Senora, Santiago, El Trompo and San Jorge veins as well as encouraging results from La Potosina and the Oxide Tailings project drilling.
Overall, production in Q1 was slightly down compared to the fourth quarter 2021. This was expected due to mine sequencing. The production came from Avino Mine only, and as compared to Q4 2021, as that was the most recent quarter of consolidated production. The highlights are as follows: Silver equivalent production decreased by 15% to 458,000 ounces. Silver production remained steady at 164,000 ounces. Copper production increased by 8% to 1.2 million pounds. Gold production decreased by 66% to 801 ounces. Mill throughput increased by 7% to 111,138 tonnes. The recoveries for both silver and gold increased by 3% to 92% and 77%, respectively, with the copper recoveries decreasing slightly by 1% to 89%.
We continue moving forward on the capital projects that we outlined for the year. We are making great progress with the dry stack tailings facility and completion is expected near the end of Q2. To reiterate, we chose dry stack for its environmental safety and economic advantages with a high solid content. This significantly improved safety and stability and reduces the need to extract water from local sources by recycling the water removed from the tailings. We aim to be responsible community stewards.
As previously touched on, at the beginning of the quarter, we released drill results from Phase 2 of the 2021 drill campaign and had completed over 15,500 meters of drilling, focusing on several targets. In addition, the initial results from La Potosina were announced in early March and included 2,400 meters of drilling. This area of the Avino property has been known to host high-grade, low sulphidation style mineralization similar to what we saw at our San Gonzalo mine. La Potosina area is only 3 kilometers from San Gonzalo and just 5 kilometers from the mill facility at the Avino Mine.
We are excited to continue exploring La Potosina as it factors in prominently as one of our high-grade near-surface targets. We believe La Potosina has the potential to supplement our current mill feed from Avino in the near to medium term. Also, just subsequent to the end of Q1, we released results from the 110 hole drill program on the oxide tailings project, which included 3,645 meters of drilling. And since we have drilled a further 17 holes on the oxide tailings project, samples are being prepared for metallurgical test work as recommended in the 2017 preliminary economic assessment.
We are thrilled to be able to advance another Avino asset. The results from the program showed the gold grades are better than anticipated, and we are excited to understand the implications for the total resource. To date, the company has completed 5,075 meters of drilling in 2022. With the dry stack tailings facility nearing completion, this means we are closer than ever to decommissioning the current tailings pond, TSF #1, we call it. The team in Durango continued to make significant progress during Q1 on the facility, which includes the infrastructure associated with transporting the dry tailings.
As mentioned, this project is expected to be fully operational in the second half of this year and brings the company towards achieving the guidelines with the global industry standards on tailings management, along with previously mentioned community stewardship. We have posted a great time-lapse video on the website that shows the construction of the tailings filter plant. So I encourage you to go to the video section of our website under the Investor tab and watch it.
On March 21 this year, we announced the closing of the acquisition of La Preciosa project from Coeur Mining. I've always believed that the Avino and La Preciosa projects belonged under one common ownership, given the clear synergies and common infrastructure. La Preciosa is an excellent strategic fit within Avino's existing operations and further strengthens our presence in Durango by adding not only a large high-quality silver development project with near-term production potential to our portfolio, but also increasing our mineral exploration concessions by more than sevenfold to over 7,000 hectares. We are moving ahead with our internal mine plans, focusing on Gloria and Abundancia veins. Our goal is to be producing from Gloria vein by late 2023, early 2024, which would add 300 to 500 tonnes per day with the longer-term outlook being to add 1,500 tonnes per day from Gloria, Abundancia and Martha veins.
Our ESG initiatives continue to move forward as we incorporate principals of sustainability and social responsibility. During the first quarter, the company continued its training of local workforce at the mine. ESG initiatives completed during the first quarter were: community road repairs to improve visibility of speed reducers and cattle guards for safer driving conditions, delivered water tank with capacity of 5,000 liters to the primary school in the community of San Jose de Avino, supplies delivered to health center of Zaragoza to help with building improvements. Recycled containers for waste collection were given to the high school and Zaragoza. Sport and recreation are important to the communities and the company repaired some lighting in its sports complex in San Jose de Avino as well as donating volley balls to support them in their local tournament. Avino hosted a Mining in My Community conference at the High School in Zaragoza, and the students were provided with general knowledge of the mining processes as well as the importance of the industry in the development of other sectors.
Avino continues to offer inclusive opportunities by hiring locally, training women for many different roles at site, including underground heavy equivalent operators, rock breakers at surface, in the mill and in the assay lab. The metal markets for the first quarter have been bumpy with volatility brought on by the global crisis. The Russian evasion of Ukraine, which is nearing its third month, has added uncertainty to the global economy just as the world was emerging slowly from the 2-year pandemic.
We've seen a range in silver prices since the beginning of the year from $22 to $25 in the beginning of March. It has since tapered down and sits between $21 to $22. According to the World Silver Institute, with no clear end to the Russian-Ukraine war, the near-term outlook remains uncertain with the jump in energy prices, ongoing supply chain disruptions and the reemergence of COVID cases in China, all of this points to downward risk to the global economy.
With the Fed rate hikes coming, these factors, along with high inflation, could mean investment inflows to silver. We continue to believe that the outlook for silver is positive and that demand should see solid growth from 2022 onwards and will be driven by record silver industrial fabrication, increase in green technology and investment demand for physical silver. All of this bodes well for the silver miners and their shareholders. The best leverage to metals is owning producers such as Avino. I will now ask Nathan, our CFO, to present the financial results. Nathan?
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. Following a strong end to 2021, Avino continued to deliver with great financial results in the first quarter of 2022. We set records for both quarterly revenues and mine operating income. And on a cash operating basis, we generated a mine operating margin of 47%. The company also generated $3.7 million in operating cash flows before working capital changes and $0.03 per share in adjusted earnings.
On top of our strong results, and as David previously mentioned, we are thrilled to announce that we have closed the strategic acquisition of the neighboring La Preciosa project from Coeur Mining. This project adds over 135 million silver-equivalent resource ounces on a property within 20 kilometers of the current Avino mining and milling operation. In total, Avino now holds over 290 million silver-equivalent resource ounces with 190 million or 65% of these ounces being silver.
Following the acquisition payment, the company remains well funded with $11.7 million in cash available at the end of the quarter, which represents a net increase of $2.2 million at the end of the year after factoring in the acquisition payment made in March.
During Q1, we reported net revenues of $11.1 million from 495,000 silver-equivalent payable ounces sold, which resulted in mine operating income of $4.7 million for the quarter. This includes noncash depreciation and depletion. And on a cash basis, mine operating income was $5.2 million for the first quarter. Avino reported net income after taxes of $0.6 million or $0.01 per share for the first quarter of 2022.
As you can see, Q1 continued to build off our strong fourth quarter for Avino as we continued to demonstrate strong operating margins. This was despite significant inflationary pressures seen around the world, and I want to commend our team in Mexico for the diligent work in keeping our cost structure intact. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $2.8 million for the quarter, and adjusted earnings was $3.4 million or $0.03 per share. Cash flow from operations before changes in working capital was $3.7 million or $0.03 per share on a diluted basis.
Capital expenditures for Q1 2022 was $0.9 million on a cash basis with total additions being approximately $2 million as the company continues to work with our partners to finance equipment at below or at market interest rates. Capital expenditures for this quarter related to the addition of a new underground mining scoop to assist with the ramp-up of mining operations as well as exploration expenditures at La Potosina and below the current mining operations at ET. Also included was additional drilling on our oxide tailings resource as we completed another 17 step-out holes to increase the footprint of the resource. This project continues to move forward towards the pre-feasibility level in the near term.
Rounding things out, and most importantly, Avino generated net income for the second consecutive quarter and $2.5 million in free cash flow, net of capital expenditures and working capital movements, which brings our total up to $5 million in free cash flow generated over the last 2 quarters. Cash cost for silver-equivalent payable ounce for the first quarter were $11.81 and all-in sustaining cash costs were $19.90. As we continue to ramp up, we expect the all-in sustaining cash cost figures to continue to decline due to increased ounces sold and lower per unit variable costs.
With Q1 marking the second quarter of uninterrupted mining operations since 2019, I am pleased to report that the financial outlook for Avino is very positive. With strong operating margins and cash on hand of $11.7 million following the completed upfront consideration payments, our focus is on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022. I will now hand it back over to David for a discussion on what Avino has planned for the rest of the year.
Thank you, Nathan. To recap, the first quarter was busy with the completion of La Preciosa acquisition drove results from several areas on the Avino property and the ongoing construction of the dry stack tailings. Activities at the mine site during the second quarter include continuing production ramp-up at the Avino Mine, ongoing training, dry stack facility nearing completion. We currently have drills turning on La Potosina at ET below level 17 and Brecha de Bajo veins. Moving forward with a comprehensive metallurgical test work program on the oxide tailings project to move it to development stage. Internal mine plan focused on Gloria and Abundancia veins at La Preciosa, production for the full year is on track between 2.2 million to 2.6 million ounces of silver equivalent.
We expect to generate significant operating cash flow this year, which we plan to reinvest in exploration and further mine development. Also, in keeping with our strategy of divesting of noncore assets, we announced last week that we had granted an option to Endurance Gold to acquire the Olympic Claims, which are located on the south side of Carpenter Lake in the Lillooet Mining Division, near Bralorne in British Columbia. The closing of the acquisition of La Preciosa sets us on a pathway to expand our current mining complex through regional growth and the goal of achieving intermediate producer status together with exciting drill results from La Potosina and the oxide tailings, the events of the quarter are just the beginning of an important time in Avino's history, and we are looking forward to the remainder of the year and beyond. The first quarter is behind us, and we are well into the second quarter, and we are excited as we look forward to keeping the momentum going. We would now like to move the call to question-and-answer portion. Operator?
[Operator Instructions] Our first question comes from Jake Sekelsky of Alliance Global Partners.
Just starting with costs. I mean, Nathan, you mentioned this, obviously, we've seen industry-wide cost inflation across the board. Keeping all spending costs below $20 an ounce in the first quarter was quite impressive. I mean, can you maybe just touch on some of the things you're doing and some proactive steps that you're taking to manage cost inflation going forward, whether it's labor, energy, consumables, anything like that?
Sure. That's a good question, Jake, especially given where the world is right now. Some of the things that Avino is doing really is just continue what we've always done. I think we've always maintained a pretty strong cost structure. And to get ahead of the curve on the inflation side, we have done a bit of stockpiling at site, and that's more just to deal with any supply chain disruptions, not just the cost side of things. So we're just continuing to maintain what we've always done and making sure that we're ready for any interruptions moving forward.
Yes. And during the COVID shutdown, we increased our inventory of parts and reagents and consumables. So we're sitting in a good position.
Yes. Got it. Got it. Okay. And then just on La Preciosa, I mean the acquisition is closed now. When do you think we might see some type of formal work or exploration program announced there? Is that a midyear type event you think?
Currently, we're working on the social aspects, getting an agreement with [ hetos ]. There's 3 different [ heto ] groups. And there's agreements pending. So we think probably within 6 or 7 months, we'll have those in place, and then we'll roll out our plans following that.
Okay. So this time we might see some activity there in the first half of next year or first end of the year?
Yes. I mean based on the internal mine plan -- planning, we expect to start surface works early next year. And we also have the dedicated power line, the 20-kilometer dedicated power line cable of 5 megawatts, only utilizing 3. We're planning to extend that over to La Preciosa to the portal where we're planning a new portal. We're planning to put in a decline in 6 or 7 levels.
And so that development work will be underway early next year and possibly be generating ore by late next year. Also, there's 50,000 tonnes of ore sitting on surface from when Luismin had it in the '80s and '90s, and that was never processed. So that's a little gift there that's worth about $5 million or $6 million that's probably going to pay for the portal and the surface works. So we're in discussions with the locals there to remove that. So that could happen this year.
Our next question comes from Heiko Ihle of H.C. Wainwright.
Building on what Jake just asked, would you be willing to eventually guess on how much you spend on La Preciosa in the last 2 months?
Sure, Nathan here. So far, not a whole lot, given we're just working on the integration and just making sure that the transition goes smoothly. We're still pretty focused on Avino and ramping up there. And then our focus will shift once we have the proper agreements in place, and we can start on the surface works and some more exploration.
Fair. And I mean is -- do you have a figure that you'd be willing to say that we should expect and spend for the rest of '22 or for all '22?
Is that specific to Preciosa or company-wide on capital?
Yes. Yes, Preciosa.
On La Preciosa? It really depends, again, on the timing of getting all the proper social licenses and agreements in place. So I can't say for sure it would -- it really depends on that timing. I would say any spend would come later in the year, and we're not thinking multimillions here. It's not going to be fairly significant as any development to likely start in 2023.
Got it. And then finally, David, you mentioned earlier on this call that you always thought that Preciosa should be under the same umbrella.
Yes.
Are there any quantifiable advantages that you can already take advantage of? I mean access to a different drilling site or road access or anything like that, that you didn't have before since closing?
Yes. I mean, Heiko, I can probably take that one back. I think the most important thing is going to be low -- having one giant -- one management operation and one operating asset really in one location. And I think the synergies there and the cost structure there will be extremely beneficial and will save us on infrastructure and development. And I think that's why Avino was able to be so competitive in acquiring this.
Yes. But also the oxide tailings project. If we need to build the leach pads out in the valley, we've got more ground now available. So we could be trucking oxide tailings material in one direction and bringing ore back in another direction. So yes, I mean, that's a pretty good synergy there.
Yes. And given the goals of increasing production and overall ounces produced at Avino, this is probably the best, most accretive way to do it versus acquiring something in another state or another area because we can -- we have the administrative team already in place, and we just need to expand on that to manage it.
Yes. And there's no competition for labor. I mean I was after Mitch, for years, telling them that if Newmont and Barrick can do it in Nevada, we should be looking at operational synergies here. And I thought that they would take the bull by the horns. But apparently, they turned over the reins to us. So it makes sense to what we're doing because we have the expertise in the area with Carlos and his team.
Our next question comes from Matthew O'Keefe of Cantor Fitzgerald.
Just a quick question for me on the -- on Avino, your throughput. What's your throughput now, I guess, because you're still ramping up. Where are we with throughput sort of end of Q1 and now as we're well into Q2? Where are we in? Is that continuing to rise through the year? What are the bottlenecks there?
Right, Matt. Yes, thanks for the question. I think I'll answer that last part first, actually. The bottlenecks right now, we have to improve the quality of the ramp from a physical standpoint, just smooth that out to increase the speed for trucks and reduce kind of maintenance there in addition to some operator training. So that's kind of the key focus for us is getting qualified, trained underground miners to help us ramp up production because we're currently mine limited at this point. So that's our focus.
Okay. Do you -- can you tell us what your throughput is right now? Or...
Yes, on a daily basis or a monthly basis?
Yes. Yes.
We're looking to transition some time into Q3 to get us up to that nameplate production up to 2,500 -- or 2,200 to 2,500 tonnes per day. Right now, we're operating about 1,400 to 1,900 tonnes per day.
Okay. So pretty much on track, I think, from what we talked about last time.
Yes. Yes, we're hoping to.
Okay. And then just one other question on CapEx. I know Heiko touched on this, but what is the sort of estimate for the balance of the year company-wide on CapEx spend?
Yes. So I think at the beginning of the year, we put out our guidance around both in the $8 million range, and that was including all exploration. We think it might be a bit less on a cash basis just because of some of the larger pieces we are leasing. And so that -- those costs will be spread out over a few years. But I still think we have probably in the range of about $4 million to $5 million left included in Q2, and that includes exploration as we drill at a fairly low cost. And again, I want to emphasize that it's not including La Preciosa, which will start in '23.
Right. So no real inflationary hits to you there.
No, we factored those into our budgets pretty heavily already at the beginning of the year. We kind of -- everyone saw the freight train coming. So we think that we're still going to be well within or under our guidance of I think it was $7 million to $9 million.
$7 million to $8 million.
[Operator Instructions] Our next question comes from Joseph Reagor of ROTH Capital Partners.
So most of the things I wanted to touch on were already asked by prior callers, but just thinking about how the markets are right now. Are there any precautions you guys are taking from a balance sheet standpoint or from -- as you make decisions on capital spending over the rest of the year to maintain your strong balance sheet?
Yes, Joe, good question. Nathan here. I think we're continuing to monitor everything as far as what's going on with silver and copper and gold prices and what's going on in the market. We don't need to raise money. I mean I think we've gotten that question a number of times, but we definitely do not need to raise money to continue funding our general operating and capital activities. There's not really any pressure there. So some of the things we're doing just to preserve that. Again, just checking in daily, monthly, weekly on the progress of our projects. All of them are financed as it stands now. So we're not overly concerned. But again, just ensuring that we're maintaining the cost structure that I touched on earlier in the call.
And filling the mill is our #1 priority.
Yes. Yes, and bringing our per unit cost down, as David mentioned by filling the mill.
Okay. And then I noticed during the quarter there was -- looked like there was a bit of an inventory sale. Your silver equivalent sold was greater than the production. Was that intentional or just a timing thing?
I would say a bit of both. We -- obviously, we're building inventory in Q4. Production was well over -- close to 520,000 ounces of silver equivalent, and we only sold about 80% of that. So we did have a bit of an inventory build at the end of December, which was subsequently sold in January, February. It wasn't really intentional per se to hold it back, but we were -- we did receive some benefits as far as pricing goes on that standpoint. So we're happy with how that turned out. And yes, our inventory did decline a bit at the end of Q1 compared to the end of the year.
This concludes the question-and-answer session. I would like to turn the conference back over to David Wolfin, President and CEO, for any closing remarks.
Thanks, operator, and thanks, everyone. We're thrilled about our Q1 financial performance with record revenue and closing of La Preciosa was a major milestone for us, puts us on a path to achieving intermediate producer status, which we'll share with everyone as we develop those plans. So thank you very much, 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.