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 Q3 2021 Financial Results Conference Call. [Operator Instructions] 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 Limited Q3 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 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 from 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 Q3 2021 Financial Results Conference Call and Webcast. Thank you 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 2021 financial and operating performance, our plans for the fourth quarter as well as recent announcement on the acquisition of La Preciosa project, and what that means for Avino and then we will go open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.During the third quarter, we focused on finalizing work and activities at the mine site, leading up to a recommencement of operations, which was announced on August 3. We were extremely pleased to restart operations, and it is because of the hard work of the team in Mexico that it came to fruition. The work included hiring mine personnel and reestablishing the mill circuits.In addition, in early July, we announced initial drill results from Phase 1 of the campaign. There were significant grades received at each location. We had results from El Trompo, Santiago and La Malinche veins. At the end of September, 12,179 meters of drilling was completed. And as of today, we've drilled 13,427 meters. For the quarter, there was 4,931 meters drilled. The main areas for the third quarter of exploration, included La Potosina with 601 meters, the Oxide Tailings with 1,931 meters and the Avino vein with 2,399 meters. Assay results are pending due to the long turnaround times at the laboratories and will be released once received and interpreted.Based on historical mapping of the Oxide Tailings, we've completed the drilling at the required spacing to move the project to the first steps of commencing a prefeasibility study.During the third quarter, we reported an increase in production compared to Q2 2020, which was the most recent quarter of production. The production came primarily from the Avino Mine. We are currently mining and milling from the Avino Mine only. As part of the ramp-up of operations, we did also process just over 10,000 tonnes of historic aboveground stockpile material.Production from this material totaled 1,784 silver equivalent ounces consisting of just over 9,300 ounces of silver, 58 ounces of gold and 12,500 pounds of copper. There are no other comparable production from Q2 2020 from historic aboveground stockpiles.The Avino Mine production highlights are as follows: compared to Q2 2020, silver equivalent production increased 70% to just under 270,000 ounces; copper production by 46% to 673,000 pounds; silver production increased by 36% to 68,600 ounces; gold production increased by 179% to 1,125 ounces.The consolidated production was as follows: 285,000 silver equivalent ounces, consisting of 78,000 ounces of silver, almost 1,200 ounces of gold and 686,000 pounds of copper. Also in the quarter, we continued progress in the dry stack tailing storage facility, TSF #2, with expected completion in the first half of 2022. We've been working on the mill recovery upgrade to Circuit 4 and mill automation project to increase productivity and recoveries.In addition, the company has been training a local workforce at the mine as it endeavors to support nearby towns and strengthen the collaboration between the surrounding communities and the company. As a major employer in the area, it is important that there is a steady group of trained mine workers available as we ramp up production.The training programs are aimed at increasing inclusion and diversity as well as fostering opportunities for both women and men. With this objective in mind, the company is pleased to have trained its first female scoop town operator. The company is currently debt-free having made the final payment on its $10 million term facility with Samsung during the quarter. I will let Nathan touch on that shortly.On October 27, we were extremely excited to announce the acquisition of La Preciosa to the market. I have always believed that Avino and La Preciosa belong under 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 mineralized exploration concessions by more than sevenfold to over 7,000 hectares.Work is already underway to determine how to best integrate La Preciosa into Avino's production operations, given the proximity to the current processing facility and infrastructure. We expect a large portion of the existing La Preciosa resource could be mined via underground operations to potentially improve Avino's production and organic growth profile. This is important transformational transaction for Avino.The strategic, financial and operational advantages are as follows: elevates Avino's potential as a silver producer and developer; unique operational synergies due to La Preciosa strategic location with our boundaries within 2 kilometers of each other; positive results from initial metallurgical test work; reduces development time line and risk; reduces environmental footprint; substantially increases Avino's silver and silver equivalent mineral resources by increasing Avino's consolidated NI43-101 mineral resources to over 235 million ounces of silver equivalent; enhances Avino's already robust land position in Durango; presents exploration upside potential at La Preciosa.Looking at other junior comparable company that this acquisition should elevate Avino within the silver sector. The transaction repositions Avino as a silver producer boasting one of the largest endowments of measured and indicated silver resources. We believe our shares are well positioned for evaluation rerating. There are going to be exciting times ahead as we continue to create growth in Mexico.Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. During the third quarter, as I mentioned earlier, the company has been training a local workforce at the mine.Other ESG initiatives completed during the quarter include school supplies were delivered to the schools and the local communities for all children's from kindergarten to middle school, supplied cleaning kits for the schools and our 3 main communities, helped maintain a clean and self environment for students, assisted the community of Panuco de Coronado, community to fix roads that were damaged due to the rainy season.Avino has been invited for the first time to participate in the Francisco Madera Parade. This is a local town fair Supported Panuco's middle school to reestablish electricity after technical issues, supporting the community of Zaragoza and Avino with local waste dump cleanup, provide ongoing yearly road maintenance within the town, streets of our communities, frequent communications with the Mayor of Francisco Madero and the Ahedo representatives to maintain good relationships.We are committed to growing in a sustainable way that supports the well-being of our communities and the environment in which we operate. We also continue to believe that the outlook for silver is positive. The green energy revolution is building steam and is showing an increased demand for silver.As Canada, The U.S. and many other countries have all set net-zero pledges for 2050, this will, in turn, create huge demand for silver. Industry experts expect demand to reach 1 billion ounces by 2025 as silver is one of the industrial metals that will be needed in manufacturings of electric vehicles, solar panels, electronics and medicine, just to name a few.To achieve these ambitions, we need more metals, and this is where mining comes in. To meet this demand, more mines need to be discovered, permitted, financed and developed. What do we think this means for silver miners? We will see a rise in stock prices as demand for metal grows in several green energy applications. The best leverage to metal is owning producers.At Avino, we are targeting 2022 production between 2.5 million to 3 million ounces of silver equivalent and estimating all-in sustaining cash costs at pre-COVID levels. We expect to generate significant operating cash flow next year, which we plan to reinvest in exploration and further mine development.Current producers will become much larger companies as profits grow from higher price pressure. With the recent acquisition of La Preciosa, we will be able to supply the silver for many years to come.I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q3 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. We are extremely pleased with the successful restart of mining operations at the Avino Mine as well as the subsequent announcement of the strategic La Preciosa acquisition from Coeur Mining.The company remains well funded with $22.3 million in cash and $28.9 million in working capital available at the end of the quarter, which represents a significant increase to the $12 million and $15 million available at the beginning of the year.Further, we are excited to announce that concentrate sales resumed during the third quarter, which represents our first sales in 2021. We are also happy to report that Avino is now debt-free, having made the final scheduled repayment to the $10 million term facility, which was advanced by our partners at Samsung C&T. This step allows Avino to maintain significant financial flexibility in our next stage of growth as we look forward to move our new and existing projects forward.During Q3, we reported net revenues of $1.9 million with 107,000 silver equivalent ounces sold. Avino reported mine operating income of $0.8 million for the third quarter, which includes $300,000 in depreciation and depletion. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $0.2 million compared to a loss of $4.6 million in Q3 2020. Adjusted losses for Q3 2021 was $700,000 with no significant changes from Q3 of 2020. We reported net losses after taxes from continuing operations of $200,000 or $0.00 per share for the third quarter compared to a loss of $4.6 million or $0.05 per share in Q3 2020.Capital expenditures for the first 9 months of 2021 were $2.1 million, with the majority coming in the third quarter. Capital expenditures for this quarter related to exploration and resource drilling at Avino and included the recommended drilling on our Oxide Tailings resource as we look to move that project forward to a prefeasibility level. We do expect that capital and exploration expenditures will continue over the coming quarters as we continue with exploration and move forward with the dry stack tailings upgrades.Cash cost for silver equivalent payable ounce for the third quarter was $6.75, a decrease of 46% compared to $12.56 in Q3 2020. All-in sustaining cash costs for the quarter was $25.60, a decrease of 19% compared to $31.61 during Q3. As we move forward with consistent production and sales, we expect these figures to normalize. Expectations for Q4 are for lower all-in sustaining costs as QT represented less than a month's worth of ounces sold and a full quarter of administration and sustaining capital expenditures.Finally, I want to reiterate the strength of Avino's financial position. We successfully executed on our plans to reduce debt, and at the end of the quarter, we maintained working capital of almost $29 million. This financial strength allows us to ensure that the acquisition of La Preciosa is fully funded and aligns with our plans to add value for our shareholders and stakeholders throughout the rest of 2021 and into 2022.I will now hand it back over to David for a discussion on what Avino is planning for the rest of the year.
Thank you, Nathan. Q3 was very busy with all the projects ongoing and recommencing operations at the Avino Mine. There is a lot to look forward to during the final quarter of this year. Production continues to ramp up at Avino. Training is ongoing, waiting for additional assays to be received. Work is already underway to determine how best to integrate La Preciosa into Avino's production operations, given the proximity to the current processing facilities and infrastructure.We expect a large portion of existing La Preciosa resource could be mined via underground operations to potentially improve Avino's production and organic growth profile. The dry stack tailings project is ongoing well. And with long lead items on site now, prefab building to be erected soon with the concrete having already been poured. Improvements to Circuit 4 are ongoing that will improve gold and silver recovery through the use of new equipment.Avino's main focus for the next quarter is to ramp up the production levels and operating activities at the mine, keeping moving forward with the exploration program as well as plans for integration of La Preciosa. The closing of the transaction is expected to occur during the first quarter of 2022. We were very pleased with the progress made in Q3 and look forward to a busy Q4.We would now like to move the call to the question-and-answer portion. Operator?
[Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright.
In your release, you mentioned on this part, I quote, "mining activities continue to ramp up and management expects to reach previous production levels during Q4 '21 or Q1 '22." Just thinking about level here, we're essentially halfway through Q4 and especially so if one considers that the holiday season is coming up in less than 1.5 months.So my question is that, are the bottlenecks and other -- what exactly are the bottlenecks and the other capacity constraints that you're currently dealing with during this ramp up? What are you seeing? What's the view from the ground?
Yes. Thanks, Heiko. Thanks for the question. This is Peter Latta here. Just to address that, I mean, the main bottleneck, as David mentioned on the call, is just training up the locals, and that's kind of a strategic move for us to really strengthen the local community. What we're seeing on the ground, though, is kind of an increased rate of production, kind of a steady increase as we continue to ramp up from Q3 into Q4. And what we're seeing on the ground is that the local community is really excited to be back at work. And there's a big stack of resumes that we have in the HR office there, and we're just being very strategic with how we hire and train so that we can have a labor force long into the future that wants to collaborate with us.
Fair enough. A slightly different question. You drilled about 5,000 meters in Q3 as per your prepared remarks and also the press release. Given the La Preciosa acquisition and the fact that you mentioned the exploration upside at that site in your prepared remarks as well, should we expect to see a meaningful impact on Q1 drilling expenses after a transaction actually closes? And on that same token, is there an assay bottleneck that you might see with those drilling results? And could that become a setback or rather an opportunity once these things improve properly?
Heiko, David here. The budgets for next year haven't been finalized yet. So we'll let you know when that's ready. So I'm not sure if we'll see meaningful exploration in Q1 just yet. What was the other question?
Well, I get the other question was building on it with the assays or the delays that you're seeing?
Well, the last time we put out an exploration news release was in July. So just so you know how long it's taken to get more assays. So we're not sitting on them. We're waiting. So they're trickling in. And so yes, they're really busy.
Okay. Then I apologize in advance because I'm going to take a third question on this call. What you're saying is the assays really have come back at such a slow rate that it hasn't made sense to put up a press release with results? Did I understand that correctly?
Yes. Heiko, Peter here again. The assays have -- they are trickling in, but keep in mind, we need to add interpretation to that as well. So we'll drill a few holes, and we'll get an assay result for, let's say, half the amount of holes, but that doesn't tell the story. So we need essentially all of the assays in and we've been drilling kind of consistently as well. And then we have to apply interpretation with our geologists into that as well before we release just the raw numbers.
And they passed around the property with 3 or 4 different veins.
The next question comes from Joseph Reagor with Roth Capital Partners.
So I guess, first thing on the Preciosa. Obviously, you haven't even closed the deal yet. So I realize there might not be a specific answer to this. But once you do close the transaction, what would be the time line until you guys were able to provide a construction decision or a construction plan to the market? I realize you're going to have to do some work when you get it first, but what does that look like?
Yes. When we close, we want to consider some infill drilling on Gloria and Abundancia because the majority of drilling in the past has been on [ Martha. ] And our goal is to bring Gloria and Abundancia into production first because it's near surface. So Carlos is putting together a drill plan for that. He said, in order to permit, it's probably 8 to 10 months. There are underground workings on sites, so we'll save a lot of money on development. We'll have to slash it out to put bigger equipment in there and put -- prepare a proper mine plan. We've modeled 500 tonnes per day to start, but it's hard to say exactly when that will start. But yes, I mean, that's about it.
Okay. So a little infill drilling and then 8 to 10 months for permitting? Okay. Fair enough. And then...
Just to add on that, Joe, sorry to cut you off there, but just to add on that, there's a bunch of optimization work that we're doing in the meantime as well. So David mentioned the 500 tonne per day scenario that we're looking at, but in the interim, we're looking at a variety of different scenarios to do that optimization depending on surrogate configuration or how many tonnes we think we can haul out based on the mine plan that we're coming up with.
Okay. Fair enough. And then kind of a question on Q3. You guys produced just shy of 300,000 silver equivalent ounces and only sold a little over 100,000, so call it, 35%, 40% of production. Is -- I'm assuming that was just inventory buildup as you ramp up, but should we expect further inventory ramp up increases in Q4? Or do you guys think that now you've got enough like finished goods, concentrate supply on hand that production and sales should match up pretty closely?
Joe, Nathan here. Yes, I mean, you've kind of nailed it right in the head. We're kind of -- we've kind of built a decent amount of inventory. And so you can expect more sales, obviously, for October, November and December, and we're going through that process right now. And again, it should be fairly even probably for Q4 as far as production versus sales.
Okay. All right. That helps. And then 1 final thing. Post the acquisition, obviously, the balance sheet will be a little lighter. Do you think you'll be comfortable with the amount of cash you have on hand at that point? Or do you think there's going to be some form of additional capital need to develop La Preciosa at the end of that drilling and permitting cycle?
Yes. Joe, Nathan, again. It's a good question. I think we're generating cash flow, as you can see, just from the 1 sale we did have in September, and that's continuing into Q4, especially at these elevated prices from pre-COVID production. At this time, we're considering all options, but there's no -- there's not an internal requirement to go raise any capital, especially in the equity markets. We're going to consider all options as far as funding the development of La Preciosa plus we have, obviously, the development potentially of the Oxide Tailings Resource, too. So we're kind of looking at those 2 big projects as our next stage of growth for us, and we have not concluded on how best to fund those. But as far as right now, we're generating cash flow and that's something we're comfortable with for the next couple of quarters.
Okay. And 1 final thing, if I can. What's the comfortability with your long-term tailings options? With adding La Preciosa, you added a lot of potential production tonnes. So therefore, you're going to add a lot of tailings tonnes as well. What are your thoughts there? Do you guys feel comfortable with the current plan? Are you going to need to build another tailings facility eventually, if you were, would it be built over on the La Preciosa land or on the Avino land?
We've been considering this. So we're going to have 8 to 10 years of capacity in TSF #2 using dry stack. We still have the open pit and various other pits to backfill, which will add another few million tonnes of capacity. And now with the acquisition of La Preciosa, so we'll have more land, so we can consider moving TSF #1. If we're going to do agglomeration, heap leach and marrow crow, we might do it over on their land. And that area would become available again, TSF #1. And that would be a decade or so as well.So we'll have lots of tailings capacity. We've got lots of water. We'll be reclaiming the water. We've got a 1 million cubic meter dam and a well and excess electricity capacity. So looking further, several years down the road, we're going to do an optimization study on how we can boost production even further to what we have now.
The next question comes from Jake Sekelsky with Alliance Global Partners.
So just looking at CapEx of just over $2 million year-to-date, obviously that may have been affected by the shutdown in the first half of the year. Are you able to provide any color on what we should expect for next year, even just ballpark figures?
Jake, Nathan here. Hard to give you kind of an accurate number. As David mentioned, we're going through the budgeting process and then our entire management team is going down the site actually over the next coming weeks to finalize that. We do plan to continue the exploration program. Obviously, we're about halfway through kind of that 30,000 meters that we were -- we had announced and we're hoping to do.We're happy that most of the -- most, if not all, the Oxide Tailings drilling have done. So we know that the expense -- there'll be minimal expenses there moving forward. A lot of the payments on the dry stack are starting to trickle in for Q4, and we'll continue into Q1 and 2 as we look to finalize that in the first half of next year. And then additional upgrades in there. We're going to upgrade our fleet a little bit more for the guys at site.
The automation.
Yes, we're working on the automation project. Some of that has been paid. Some of that is going to be paid in the coming quarter. So rounding all that out, I can't give you an exact number, but I would expect with the $1 million we spent in Q3 and then we're expecting between $1 million and $2 million next quarter, that kind of -- if that trend kind of continues, I think that gives you a bit of a range for what to expect for 2022. Other than tailings project, we don't have any huge capital expenditures coming up or any giant sustaining capital expenditures. Obviously, I'll caveat that with our plans on La Preciosa. But I don't know if that gives you a little bit of a picture without saying a number. Is that helpful?
Yes. No, that's helpful. And then at La Preciosa, I know you've kind of talked about some of the low-hanging fruit and initial targets that you guys have there once the acquisition closes. I'm just kind of curious, I'm assuming there are active drill permits in place right now. And then how quickly do you think we could see drills turning once the acquisition closes? I mean, is it -- if the acquisition closes in Q1, can you get personnel on site and get drills turning by Q2? Or is it more of a midyear type event?
In the first half, sometime, I couldn't estimate at this particular moment, but it shouldn't take long.
Got it. Okay. And then just lastly, with base auto prices where they are, and obviously, you have some copper rich areas at the Avino Mine that you're mining. Have there been any thoughts into maybe hedging out some copper exposure just to lock in margin while remaining fully exposed to silver prices?
Yes. Jake, Nathan here. That's obviously a topical question and something we've been toying around with because copper didn't make up a meaningful amount of production at Avino. And we do like having a bit of that exposure. But having said that, obviously, we don't want to risk at all. So we're looking at options on that, and we know kind of -- we're looking out to 2022 and kind of looking at what the forecasts are for copper, and it's very mixed right now, but there is kind of some sentiment to a downward trend. So I think we're kind of exploring that avenue at least on a portion of our copper sales.
[Operator Instructions] The next question comes from Matthew O'Keefe with Cantor Fitzgerald.
Yes, most of my questions have been answered. Just a couple of quick housekeeping things here. Just, David, did you say -- did you provide guidance for 2022 production? Or did I miss that?
We're anticipating between 2.5 million to 3 million ounces of silver equivalent.
Okay. I got that. That's good. And then just another thing on the paying back to Samsung. So you're basically debt free now. Do you have a revolver or anything in place? Or do you need that? Or are you finding that way?
Matt, Nathan here. Again, something we're exploring. Obviously, it's nice to have something on standby, and that's something we're going to look at into 2022. We're in a great position as far as being debt free other than just our payables. So we're not looking to run it to the markets and take something on, but I think we're looking at the flexibility options, especially as we have these -- the Oxide Tailings and La Preciosa assume long-term development projects for Avino.
Okay. No, that makes sense. And then I think this might have been asked, but on the exploration side, did we anticipate some more information or results before the end of the year? Or are we still at the -- waiting for assays?
Matt, yes, Peter here. Yes, we are still waiting for the full assays so that we can provide some interpretation with that as well.
But you'll see something before the end of the year.
This concludes the question-and-answer session. I would now like to turn the conference back over to David Wolfin, President and CEO, for any closing remarks.
Thank you. I would just like to say that things are looking busy for Q4 and beyond. We are excited about the acquisition of La Preciosa, and we're going to be busy marketing and getting the word out about the growth of Avino. And that's it. We wish you all a great day. Thanks for calling in.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.