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' 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 Jennifer North, Investor Relations Manager. Please go ahead.
Thank you, Operator. Good morning, everyone and welcome to the Avino Silver & Gold Mines Ltd. Third Quarter 2020 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 details 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 Q3 2020 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 third quarter of 2020 financial and operating performance and then we'll open it up for questions.
Please note that all figures are stated in U.S. dollars unless otherwise noted. Firstly, I'd like to thank our shareholders for their support and patience during the third quarter while the Avino mine was closed due to the strike. This was difficult for everyone and we were especially appreciative of all who stood by and understood the process we had to go through. In addition, I would like to extend my gratitude to the management team in Mexico led by Carlos Rodriguez, who navigated and negotiate as a successful resolution.
The strike ended in early October and due to an extended period of inactivity at the mine and before the company can restart operations, a comprehensive evaluation of all underground milling and surface equipment is underway to ensure all are in excellent working condition.
Our third quarter operational performance was directly impacted by the 12-week strike action at the Avino mine, which resulted in a decrease production profile for the quarter. During the three months ended September 30, 2020, no mining activity took place. We are setting our sights on 2021 as we look forward to commencing operations and embarking on the exploration program that was delayed during the pandemic and the strike.
We will be poised to capitalize on increased metal prices when operations returned to normal. During the quarter, Avino continued to move forward with the proposed dry stack tailings storage facility, TSF number 2 we're calling it, which is on privately owned Avino land, is permanent and is currently in the final stage prior to commencing construction. The company is looking forward to positive discussions between the community of Pánuco de Coronado and the state government which should help to provide the social approval to move forward with the construction of TSF number 2.
Their combined support is important to the vitality of the community and will aid in restarting production activities. The restart production activities is expected to provide significant direct economic benefits and stimulus for the local communities. In August, Avino granted Gray Rock, which has since rebranded as Silver Wolf Exploration the exclusive right to acquire 100% interest in Avino's Ana Maria and El Laberinto properties in Mexico.
The details of the option agreement are as follows. Avino to receive 300,000 share purchase warrants of Silver Wolf at $0.20 for a period of 36 months; Avino to receive CAD600,000 Canadian in cash or common shares over four years, with the first CAD50,000 in common shares in 30 days of exchange approval; Silver Wolf to incur a total of 750,000 in exploration expenditures on the properties over four years.
By divesting of these two assets, Avino limits the cost of maintaining the properties while retaining exposure to any exploration upside through the issuance of shares, or warrants. Both properties are on paved road to Avino which may in the future prove to be beneficial to Avino, which has the right of first refusal to purchase and process any ore concentrate extracted from the properties for processing.
During the quarter, silver and gold prices were volatile, but stayed close to the highest reached in the second quarter, with gold price reaching a high of $2,067 [ph] in August and silver reaching a high of $28.85 in September. Today we have a gold price above $1,900 which has backed off slightly and the silver price is sitting around $24.
I will now ask Nathan Harte, Anvino's Chief Financial Officer to present the financial results for Q3 2020.
Thank you, David. It is my pleasure to be on the call and I would like to welcome everyone who has joined us and is doing our presentation today. As you can imagine, Avino's operating results were impacted by the previously mentioned strike action at the Avino mine. Having said that, the financial health of the company remains strong as Avino continues with its plan to reduce its debt load during 2020, having lowered its debt liabilities by further $2 million during the third quarter. This brings total debt reduction for 2020 up to $6.1 million.
Working Capital at September 30 was $16.9 million, compared to $13.8 million at June 30 and $13.2 million at the end of 2019. Our cash balance at the end of the quarter was $12.5 million, up from $10.4 million at June 30 and $9.6 million at the end of 2019. During Q3, we generated revenues for mining operations of $2.7 million, which was down 61% compared to Q3 2019. Avino also reported minor operating losses of 200,000 to the third quarter, which remains unchanged when compared to Q3 2019.
Losses before interest, taxes, depreciation and amortization were $4.3 million compared to $1.6 million for Q3 2019 and adjusted losses for Q3 2020 were $0.7 million compared to $100,000 in Q3 of 2019. Avino reported net losses after taxes from continuing operations of $4.6 million compared to $1.5 million in Q3 2019, which translates to a loss per share of $0.5 from continuing operations for the third quarter of 2020, compared to $0.3 in Q3 2019.
It should be noted that net losses for Q3 2020 did include non-cash losses to $2.7 million relating to the exercise of warrants in which Avino received proceeds of well over $3 million, as well as unrealized losses on the company's investments in Talisker resources of $1.2 million. Our third quarter consolidated cash costs remain fairly stable at $12.56 compared to $12.74 in Q3 2019. However, our all-in sustaining cash costs comparable [ph] silver equivalent ounce did increase to $31.61 when compared to $18.62 for Q3 2019. The increase is a direct result of fewer ounces sold during Q3 2020, as well as additional standby costs of $900,000 associated with maintaining operations during the strike action.
Our revenues from mining operations of $2.7 million in Q3 2020 were derived of 31% from silver, 25% from gold and 44% from copper. Our capital expenditures for Q3 2020 were $400,000, compared to $2.3 million in Q3 of 2019. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the third quarter. All necessary upgrades and projects have continued on as planned, including the new dry stack tailings storage facility equipment.
Finally, I want to reiterate that Avino remains financially strong and exited the third quarter with its strongest balance sheet in almost four years. We have made significant strides in reducing our debt and currently maintain over $20 million in liquidity, including our investment holdings. With current debt representing less than 50% of our cash balance, I'm confident that Avino is ready for any market uncertainties and to take advantage of the strong metals market moving into 2021.
I will now hand it over to David for discussion on our plans for the remainder of 2020.
Thank you, Nathan. Our plans for the final quarter of the year include: one, continuing with the comprehensive evaluation at the mine site before ramp up of operations; two, resume the connection between underground levels at the Avino mine; three, move forward with building the exploration team; four, independent evaluation of structural controls on the property; five, and a structural interpretation to provide better understanding in defining new targets within the dozens of veins that exist on the property.
The last two quarters have been particularly challenging, but we are rounding the corner. And I want to ensure our shareholders that our focus hasn't changed and we look forward to resuming normal operations and exploration activities as soon as we can. We thank you for your patience and understanding. We are optimistic for the future and to return to business as usual. And finally, I would like to say another thank you to the teams in Canada and Mexico for their dedication, hard work and contributions.
We would now like to move the call to question-and-answer portion. Operator?
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jake Sekelsky from Alliance Global Partners. Please go ahead.
Hey, guys. Thanks for taking my question.
Good morning, Jake.
Just looking at TSF#2, are you able to give us any additional color on the timeline and budget there? Is it something you still expect to have completed by early next year?
Pete, do you want to talk about the timeline?
Sure, yes. And then I'll pass it over to Nathan to talk about budget. Yes it's going to be ongoing next year. We're going to manage the construction of TSF#2 with the amount of space that we have in TSF#1 as well as the open pit. So we're going to proceed along as fast as we can construct that project.
Yes and Jake, from a budget perspective, we're expecting total costs come in around $4 million for just about everything involved, all encompassing. We've paid a bit already on some larger equipment and we're expecting to make another sizable payments by the end of the year. And then the rest of it will be labor and materials as we build the foundations, as well as a lot of dozing workouts on site.
And the [indiscernible] will be ready for pickup on December 15. So we're going to put it on freighter to Mexico. So we'll have it possibly by year end or in January. And steel construction work has commenced in Durango.
Yes, the steel construction is underway.
Okay, that's helpful. And then just on the exploration. It seems like that's something that's going to be a top priority heading into next year. You mentioned, David, you're building up the exploration team. So do you have any update on when we should expect to see some details on next year's program and budget?
Yes, in December, mid-December. We'll disclose our budgets. We're just going over that now. But it's going to be a minimum of what we had budgeted for this year. 11,500 meters, possibly more, depending on the targets.
Fair enough. That's all from on my end. I'll hop back in the queue. Thanks.
Thanks, Jake.
The next question comes from Heiko Ihle from H.C. Wainwright. Please go ahead.
Hey, guys. Thanks for taking my questions.
Good morning, Heiko.
Just filling a bit on what Jake had said. You're talking about your secure deposits on the long lead items for the TSF. Can you just sort of give a little bit more color on what is left both on which equipment? And how much in dollar terms?
Pete, you want to talk about the…
Yes, sure. Dry stack process, the main component is going to be the filter presses. So those are the things that we've already put a down payment on. Regarding the steel structure, that's just the building, essentially. And that's an open-air building because of the climactic conditions in Mexico, as you know and then there's conveyors. And those would be the three main components if we just lump those into three things. So we've started on the steel structure, as I said, and started incurring costs on that, we've placed a deposit on the filter press and yet we haven't yet purchased the converse.
Does that answer your question? Or do you want more specific details with respect to the budget?
Well, if you're willing to provide more color, that'd be great.
Yes, Heiko, it's Nathan here. I can provide a bit of color. So as I mentioned, responding to Jake, I spoke $4 million all in, filter press come in just over a million. The steel construction and the labor associated with that will be somewhere in the range of $1.5 million to $2 million. And then the remaining conveyors and other pieces, we'll round it out to the $4 million we talked about.
You got your G&A down until less than $700,000 [ph]. I assume a good part of that is the lack of travel. But are you looking into any other cost savings measures going forward being? And I know you hinted at it in the release that you did something. And if so, what is it and how much do you think you can squeeze out?
Yeah, sure, I'll Heiko, I'll take that one. We made a lot of efforts, especially after 2018 and in 2019 to reduce our DNA down from close to $1 million in a quarter, if not higher, in many quarters. And so we're still looking for improvements there. Obviously, you can see we've made a few additional ones this quarter. Yes, lots of travel, but we are doing some more marketing and a lot more virtual presentations and virtual conferences and getting the message out there about Avino. And of course, with us being down for a few months, yes, we took a hard look at everything again for, the third, the fourth, fifth time, but we're going to do what we can to try and squeeze them more out but at the same time, we understand there's marketing efforts that need to be incurred and a lot of other professional fees that students still do need to be incurred on a quarterly basis.
And purely out of curiosity -- and in this will obviously make a big difference in my model. But I noticed that you still had a small loss from discontinued ops related to Bralorne and your MD&A, it says it's for a settlement of working capital items. Just making sure, what's the last thing related to Bralorne. Is there any other thing coming in the quarters to come?
No, there's nothing coming. That was just some final settlements more in Q2 and a couple movements, like little movements in Q3. But that's it.
That's what I thought. Very helpful. Thank you, guys.
Thank you Heiko.
The next question comes from Joseph Reagor from ROTH Capital Partners. Please go ahead.
Hey, guys. Thanks for taking the questions.
Hey Joe.
So most of what I wanted to ask has already been touched on but I guess on the strike and the restart. It didn't sound like you guys had a specific time frame you were willing to give for getting back to full operations and there's some tone about looking forward to next year. What should we be expecting as far as production rates for this quarter. Do you think you're going to get one full month of production? A month and-a-half? What does that look like?
We're not planning to restart. So until next year unless the negotiations with Pánuco go very quickly. So don't look at this year. Start at January.
Okay. And then when you guys do restart -- probably a question for Nathan -- what do you think the working capital swing would be on a cash basis?
Hey, Jeff, good question. So we think there's going to be some additional startup costs of a couple million. Obviously, we'll be able to start underground operating activities sooner than we will milling activities. So there will be a lag from getting mining underground, [indiscernible] mail and then sold off to our buyers. So I think if I were you, I would say about a month and a half lag or a month to a month and-a-half lag. So maybe we'll incur a couple million in costs that we won't get paid for until, say, 45 days down the road. One of the things we do want to highlight is we have some fairly strong liquidity and a decent balance sheet and very low debt at this time. So we're feeling pretty confident that we'll be able to go through and not take a massive hit to our balance sheet.
Okay, thanks. It's helpful.
Thank you.
The next question comes from Matthew O'Keefe from Cantor Fitzgerald. Please go ahead.
Thanks, operator. Good morning. Yes, just to follow on Reagor's comments there, the startup. What's the sort of delay in getting restarted again, because after the COVID shut down, which I know was a lot shorter, it was like two or three weeks and you're up and running. Just wondering why it's taking longer this time and if there's anything else that you can be doing at this time, we had the development or other things that don't require an impact on tailings?
Sure, we will. We're hoping to start to get in the underground before the year is over and start the underground development work. But during the pandemic and the strike and the closure, we've decided that this is the best time to negotiate with the townspeople and on the new code to Coronado. There are a few people there that had opposed traditional tailings. So we've got the Governor's office helping us to educate them and get their blessing to proceed with construction so we're not interrupted, because we had started on that a while ago, probably a couple of years ago and then there were some issues. So we found other areas to put tailings but we don't want to have that problem anymore. We want to go to full construction on TSF#2. So we're hoping to get their blessing in the next couple of weeks here.
Okay. And I apologize if you mentioned this already. So what's the tailings capacity? Outside of that right now, it's quite limited then, I'm guessing?
Yes, there's probably about a quarter, or just over a quarter, and maybe three or four month's capacity in TSF#1, it could be expanded, but we don't really want to. We could build another [indiscernible] and then in the open pit, there's probably three or four months of capacity. So once we nail down the timing on getting the social blessing and construction, then we're going to time when we're going to start up milling activities. So we're hoping that this will be all done very shortly.
Okay, great. And then just switching gears a bit on the on the development. I know one of the things was connecting the two portals. So you'd be able to improve your throughput. What's the timing on that? And what will your mining rates be sort of limited to until you get until you get that development completed?
Hey Carlos, are you on the line? Do you want to mention when you think we can link up and how long it will take to get level nine to level six?
Yes. Sure, David. Thank you, Matthew, for your question. Carlos here. So we have discussed this connection for the last few quarters. But yes, we aren't [ph] allowed 400 meters as we have mentioned before, to connect both portals. So, it will take something from five to six months to complete the job. We get the equipment just -- start mining there and rehire the jumbo operators and all miners and everything. So five months, I would say five months to complete the job portal.
Okay, and your throughput, what's kind of your throughput going to be limited to until you get that completed? And then where do you expect to go after that's completed?
Yes, we had discussed this also in the past. Yes, at the moment, we have a new capacity for 2,500 pounds per day. So I think, easily we can reach 2,600, 2,700, 2800 pounds per day. So how [indiscernible] booster on surface. So I think that we will cover by that.
Okay. Okay. No, that's fine. I was just trying to look ahead here a little bit as a requirement model. Thanks very much.
Thank you. [Operator Instructions] The next question comes from Bruce Shapiro [ph], a private investor. Please go ahead.
Good morning, thank you for taking my call. Most of my questions were commencement of operations were answered prior. But I'm curious about the strike itself. Can you discuss what was asked for and what was given to settle the strike?
Well, that's not disclosed, but the strike threat started last year when we close the [indiscernible] mine because we're laying off 75 workers. We made some concessions and we moved half those people over to A vino mines and then the local labor leaders kept making more demands -- not financial, but operational -- and we couldn't live with that so they struck and then we made a settlement which is being finalized now.
Thank you. Was the strike in any way connected with the coronavirus and concern about that?
No.
All right. Thank you.
Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Mr. David Wolfin for any closing remarks.
Thank you to everyone that took the time today to listen to our Q3 Earnings Call and Webcast. As I said earlier, we appreciate the patience of all our stakeholders and we look forward to resuming normal operations as soon as we can. As we look towards the future, we are optimistic that metal prices will continue to rise and we believe that the demand for metals will continue to grow. Further, Avino has fostered its resiliency initiative and enterprise over its 52-year history by having a large land position in a prolific area with a producing mine and multiple exploration targets surviving the lean times, implementing cost reduction initiatives when needed and knowing the right time to expand that will improve operations. We are committed to bringing value to our shareholders. We hope that everyone is staying healthy and safe during COVID.
And just yesterday Pfizer said that early data shows that their vaccine to be 90% effective. So we hope that this is the case, that more vaccines around the world will start proving the same. Thanks again, everyone, and have a good day.
Thank you. This conclude today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.