Avino Silver & Gold Mines Ltd
TSX:ASM
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Avino Silver & Gold Mines Ltd
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Welcome to the Avino Silver & Gold Mines Third 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 of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Limited Q3 2022 financial results conference call and webcast. To join this webcast and conference call, there is a link in our news release dated November 9, which can be found on our website under News 2022. As well, you may find a link under the Investors tab, and click on Events and you will see the link at the top of the 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, 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 Q3 presentation associated with 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 2022 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 2022 financial and operating performance, and our plans for the fourth quarter, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.
In the third quarter, we delivered our strongest quarterly production in recent history, producing 778,000 ounces of silver equivalent, which is an increase of 20% over Q2. We also increased mill throughput by 37% compared to the second quarter to 160,000 tonnes milled, which is also the highest total tonnage in recent history.
In addition, the mine optimization work continued in Q3 for the underground mining processes. They are aimed at managing, tracking and planning underground movements, which helps to increase efficiencies across communication and planning.
During the quarter, we also compiled further drill results from Phase 2 of the 2021, 2022 exploration program. And at the end of Q3, a total of 11,253 meters have been drilled. Subsequent to the end of Q3, we announced drilling from the Avino Mine, Elena Tolosa area, also referred to as ET, below our deepest Level 17 mining area. I expand on that in a bit later in the presentation.
The installation and commissioning of the dry stack tailings project has been completed, and we are currently transitioning to full-time operation of the filter presses with site personnel fine-tuning the process.
I was at the mine site in late September, and I was very pleased to see that our dry stack tailing project that is using best available environmental technology is coming to fruition. The investment that we have made in this facility demonstrates our commitment to the safety of our people, local communities and the environment.
At La Preciosa, we have been focused on community engagement in the nearby towns adjacent to the property as well as studies on how to optimally integrate our mine plan to leverage the existing facilities and infrastructure. Avino is fully committed to moving this project forward as part of the company's organic growth strategy.
The acquisition was a major milestone for Avino and factored prominently into Avino's 5-year growth strategy, and sets us on the path of achieving our goals of intermediate producer status. The property hosts one of the largest undeveloped primary silver resources in Mexico, and is located adjacent to our existing operations at the Avino Mine.
Our financial performance in the third quarter was slightly lower than expected with marginally lower revenue compared to the second quarter. Our strong operational achievement helped to generate revenue of $9.1 million, $2.1 million in mine operating income. Nathan Harte, Avino's CFO, will expand on our financial results later in the call.
The third quarter production marks the fourth full quarter following the restart of operations in August 2021. And as I mentioned previously, record quarterly production of 778,000 ounces of silver equivalent. The production came from the Avino Mine only, and is compared to Q2 2022 as it's the most recent quarter of consolidated production.
The Q3 production highlights are as follows: silver equivalent increased 20% to 778,000 ounces; silver production increased by 27% to 285,400 ounces; copper production increased by 28% to 2.1 million pounds; gold production decreased by 11% to 1,201 ounces; mill throughput increased by 37% to 162,100 tonnes. The recoveries for silver increased by 1% and copper decreased by 3% and gold recovery decreased by 5%.
On a ground per ton basis, the feed grades for silver decreased by 9%. For gold, the decrease was 33%, and for copper, the feed grade decreased by 4%.
During the third quarter, 3,559 meters were drilled exclusively at the Avino ET area below Level 17. For 2022, the company budgeted 15,000 meters, which was focused on the Avino ET area of below Level 17 and the oxide tailings project and La Potosina. And at the end of Q3 2022, a total of 11,253 meters have been drilled.
Subsequent to the end of Q3. In October, we announced the results from Phase 2 of the 2021-'22 exploration program. These results represent 6 holes totaling 3,269 meters drilled below the current Level 17 mining area of the ET area of the Avino Mine. Selected intercepts include Hole ET 22-08, 0.95 silver equivalent grams per tonne over 43.8 meters, including 673 silver equivalent grams per tonne over 0.66 meters. Hole ET 22-09, 150 silver equivalent grams per tonne over 26.77 meters, including 1,037 silver equivalent grams over 0.46 meters and 1,800 silver equivalent grams per tonne over 0.28 meters.
The recent deeper drilling confirms that the mineralization persists down dip significantly past lowest developed mining level, and may prove to add significant mineral resources subject to the completion of an updated mineral resource estimate, currently scheduled for Q1 2023.
During the second quarter, we also released drilled results from the Avino ET area that intercepted high-grade silver and copper in multiple holes. As this area of focus, we encourage you to view the interactive 3D model on our website, which is linked to the June press release, and shows the location of the drill results and proximity to the current mining area.
Please also take a virtual tour of the mine site, which you can find on the home page of the website, for an informative and in-depth look at operations. The full drill results, including images for the 2021 and 2022 drill programs are available on the website.
During Q3, we continued moving forward on the capital projects that we outlined for the year. As previously mentioned, the dry stack tailings facility, installation and commissioning has been completed. The project is expected to be fully operational by the end of the year, and leads the company towards achieving the guidelines with the global industry standards on tailings management along with community stewardship.
Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. Following the restart of operations, it's been the company's directive to train and hire local workforce. By providing jobs to those in the surrounding communities, we aim to foster generations of enthusiastic and dedicated ambassadors of Avino.
After receiving the ESR award in August for the first time, which is granted by the Mexican Center of philanthropy and the alliance for corporate social responsibility, we continue to provide support to the local communities where it is needed. As well, something that I believe strongly about is to provide information to the school age children, teach them about the mine, what we do there and how minerals are important to our daily lives in hopes to sparking their interest in some day working at the mine.
The ESG initiatives completed during the third quarter were water irrigation work at Panuco de Coronado, conducting mining talks in the schools in Panuco, also San Jose de Avino and [indiscernible], hosted the first parent-child visit to work event for the employees and families.
During the visit, the workers were able to share their knowledge with their children by showing them the areas in which they carry out their work, giving them an overview of their daily activities and participating in safety awareness talks. Reforestation campaign of native species of the region were 10,000 plants, including Mesquite, Huizache and Maguey were planted.
Rock removal from local roads after heavy rainfall, Creek restoration work at Librado Rivera community, provided school supplies to students in the surrounding communities, construction rubble removal from Guillermo Prieto Elementary School, cleaning and maintaining the landfills at Zaragosa, roadside gutter maintenance and cleaning, Avino rescue team training.
During the quarter, we continued to see volatility in the markets with rising interest rates, inflation, and a strong U.S. dollar, which put pressure on precious metals. The silver price was in the range of $17.77 an ounce near the beginning of September and a high of $20.54 an ounce on August 11.
During the second quarter call, I mentioned that we were living in an interesting time, and this should probably brace for continued volatility and higher interest rates. I have to repeat that now, on the third quarter call, interest rates have just risen again for the fourth time in a row.
Even in times of economic pressure, the world still needs a steady supply of precious metals. There have been a lot of focus lately on copper being one of the most important metals that the world is running low on. And we all know that silver, copper, gold and a variety of other precious and base metals will be needed in the push for green energy. So we continue to believe that the outlook for silver is positive and that the silver 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 silver -- physical silver.
I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q3 2022. Nathan?
Thank you, David. It's my pleasure to be on the call, and I would like to welcome everyone who has joined us today and is viewing our presentation. Avino continued to deliver meaningful financial and operating results in the third quarter. The Avino Mine produced a mine operating margin of 29% on a cash basis and the company generated $1.6 million in operating cash flows before working capital changes as well as producing positive EBITDA and adjusted earnings.
Following the acquisition cash payment of $15.3 million to core mining for La Preciosa, the company remains well funded with $10.9 million in cash available at the end of the third quarter, representing a net increase of $1.4 million from the end of the year after factoring in the acquisition payment made in March.
Coming to Slide 14, I will walk you through some key financial results for the third quarter as well as some year-to-date figures. During Q3, we reported net revenues of $9.1 million from 603,000 silver equivalent payable ounces sold, which resulted in mine operating income of $2.1 million for the quarter, inclusive of noncash depreciation and depletion.
On a cash basis, mine operating income came in at $2.6 million for the third quarter. The company was impacted by provisional pricing adjustments of $0.3 million during Q3, with provisional net revenues coming in at $9.4 million before these adjustments.
Avino reported a net loss after taxes of $1.1 million or $0.01 per share for the third quarter of 2022. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $0.2 million for the quarter, and adjusted earnings were $0.4 million or $0.00 per share.
EBITDA adjusted and unadjusted earnings were impacted negatively by a noncash loss on the company's investment in Talisker Resources of $1.2 million in the third quarter, which saw the company's investment decrease in share price. Cash flow from operations before changes in working capital was $1.6 million or $0.01 per share. Capital expenditures for this quarter totaled $2.7 million, with the year-to-date totaling $6.1 million, both on a cash basis.
Total additions were approximately $7 million as the company continues to work with our partners to finance equipment at below or at market rates. Capital expenditures for this quarter related primarily to mine development and improvements to increase underground haulage rates, the dry stack tailings plant and additional surface equipment.
For the 9-month period, the company generated $1.8 million in net income or $0.02 per share, and $6.2 million or $0.05 per share on an adjusted earnings basis, which removes certain noncash and nonrecurring items. Cash flow from operations was $0.07 per share generated, and free cash flow on the year sits at around $2.4 million to date.
Here on Slide 15, you can see our cash cost for silver equivalent payable ounce for the third quarter remained close to that $10 mark, coming in at $10.29. For the 9-month period, costs were just under the $10 mark at $9.71 per silver equivalent payable ounce. All-in sustaining cash costs for the third quarter were $17.32 and $17.59 on a year-to-date basis.
The increase in costs from Q2 represents lower ounces sold on a per tonne milled basis largely due to lower gold grades and recoveries as well as an unusually high quarter for penalties. The increase in costs were offset by strong cost management by the operational team, which is evidenced in the coming slide.
Here on Slide 16, we can see that costs have decreased on a per tonne basis overall when it's compared to both Q2 and Q1 of 2022, both on the cash cost and all-in sustaining cash cost perspective, which demonstrates that we are achieving certain economies of scale, which should continue to lower costs as we continue to push forward towards full capacity at the mill.
With Q3 rounding out the first full year 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 $10.9 million, following the upfront consideration payments completed to core mining, our focus is solely on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022 and beyond.
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. The third quarter was strong operationally, and highlighted by record production and encouraging drill results from the Avino ET area. At the mine, we focused on the optimization plan for underground processes, and continued with the training programs. We successfully completed the important capital projects of building the dry stack facility, the importance of which I highlighted earlier.
Now into the fourth quarter, the following operational activities are ongoing. Production ramp-up at the Avino Mine with mine development work on ET to increase throughput. Now that dry stack facility has been completed, the transitional testing will continue with expectations that the facility will be fully operational by the end of the year.
We currently have drills turning exclusively on Avino ET below Level 17. We are moving forward with the comprehensive metallurgical test program on the oxide tailings project to move it to the development stage.
Internal mine plans focused on the Gloria & Abundancia veins at La Preciosa. We expect to exceed the upper end of the 2.2 million to 2.4 million ounces of silver equivalent after strong production levels in Q3. We expect to continue to generate operating cash flow in the fourth quarter, which we plan to reinvest into the Avino Mine.
Thanks to our resilient and strong cash management, we remain well positioned to manage through any near-term pressures arising from an overall economic slowdown, while staying focused on our clear path to transformational growth on our way to becoming Mexico's next intermediate producer. We are well into the fourth quarter and are excited to be on track to accomplishing our goals for the year and beyond.
We'd now like to move the call to the question-and-answer portion. Operator?
[Operator Instructions]
Our first question comes from Heiko Ihle of H.C. Wainwright.
This is Marcus Jr., calling in for Heiko. So just looking at your ET results, it seems like things are trending well to depth, although I assume this area won't see any mining activity in the near term. Given the way things are going, have you done or considered any deep holes just to sort of see what else might be found below, say, below the 400-meter level or so? Just might be interesting to see how extensive the system is at depth.
Yes. I think we've got about 5 or 6 more holes planned for this year, and we're just going to keep drilling until we know the extent of the ore body. So we're not stopping. We're going to keep drilling and see how deep it goes.
Okay. Fair enough. And then sort of on that topic, I know you're budgeted for 15,000 meters of drilling this year, so say another 3,500 left in Q4. Do you think we can trend line that figure going into 2023? And also on the topic of drilling, what are your current cost per meter, including assets?
Good questions. So on the first one, we're actually going down the site next week to do our capital budget for the next year, and that will determine a bit what are -- how many meters we're going to drill for exploration. So for now, it's hard to say. We'll give a bit more of an update probably at the beginning of the year.
And the second part, our cost per meter is obviously very low. We're spending about $300,000 a month right now and producing -- sorry, spending about $100,000 a month and doing about 1,000 meters or 1,200 meters every month, drilling. So you can do the math there, as we're under or just around $100 per meter drilled because we own our own drills, and we have the experience in the area.
Our next question comes from Jake Sekelsky of Alliance Global Partners.
So the resource update, David, that you mentioned throughout in Q1. Do you guys have a cutoff for that yet? I'm just curious what that is, just given the amount of drilling you have going on right now?
Yes, it's November 15. We're going to keep drilling, but we're going to do it -- all the information we have up to November 15 will go into it.
All right. Perfect. And then just on La Preciosa. Are you able to touch on any of the plans you guys have teed up there for 2023? Or are those sort of still in the works as you're finalizing year-end?
Well, we've got community engagements with the local Ejido groups. We're in the latter rounds of these negotiations, and we expect to have them finalized, hopefully, by the end of the year or early in Q1. There is a large endowment of broken ore on the surface, 50,000 tonnes that are there from when Leisman operated the project before ARCO had it.
And so we -- as soon as the agreements are in place, we're planning to start trucking that to the mill. We're rehabbing Circuit 1 and Circuit 2. Circuit 1 is already operational. Circuit 2 will come online in the next 4 to 6 weeks, and we'll be ready to receive that material as soon as we can start tracking it over.
So we're excited about that. We're also going to apply for permit. So we can put it in the portal and the decline into Gloria. We've already got a mine plan, a trackless spiral decline that will go into Gloria. We'll put in above 7 levels. Level 1 could start delivering or 7 or 8 months after we break ground. So we're excited about doing all that next year.
Got it. Okay. What's the grade on that broken ore that's sitting at surface?
So it's just under 200 grams, but we're going to have to do an extensive sampling program again, too. That's silver. And there's a bit of gold in there, too. But obviously, it's some old material that could be oxidized. I mean you have to remember that there's no mining cost for that. So it should be fairly profitable even if the recoveries aren't as high as we see at Avino.
Yes, and oxidized material tends to not recover as well this fresh ore in the underground. So we'll see what happens there.
Yes. But we believe at this point is profitable.
Our next question comes from Joseph Reagor of ROTH Capital Partners.
So question on payable ounces versus produced ounces and how that impacts your revenue. It looks like year-to-date, you guys are tracking around 90% payability, but for the third quarter, it was 77.6%. What is the kind of puts and takes there for why that fluctuates around so much? And what would be a good long-term assumption for us to use for modeling purposes?
Joe, Nathan here. Between 85% and 90% is pretty safe just because it's just the way payability works on our concentrate. So we also did have a bit of an inventory build at the end of Q3 as well, which we sold in October, just the timing of certain shipments. So there's obviously a little more of a disconnect in Q3 than you would have seen in the past.
Okay. Can you quantify what that looked like as far as...
Yes. It's probably about 50,000 to 100,000 ounces. That's all, on a silver equivalent basis.
Okay. So a decent number. Okay. And then you guys had a decent amount of capital this year spent at Avino Mine with the dry stacks. Have you guys started the budgeting process? Or can you give us any kind of like outlook as far as sustaining versus expansion CapEx for next year at Avino?
Yes. I mean we're -- like I mentioned earlier, we're going to start -- we started that process, but we're really digging into it next week as we go down on a site visit for the whole week, and spend some time with the team going over CapEx. We're not expecting -- obviously, we don't have any significant projects at Avino similar to the dry stack. Obviously, that was a pretty monumental one for us to set us up for the future. So there will be a little bit of sustaining capital, but obviously not that much on the expansionary capital side as well, too, until we get into the later stages of our 5-year plan.
Okay. Okay. And then kind of one final thing. On La Preciosa, it sounded like -- David, was suggesting that it should be a quick turnaround from here to actually being able to begin underground development. Are there any potential items between here and there that you guys consider like kind of the biggest gating factors that might cause some delays in that?
Well, it's just the community engagement. So we're targeting end of the year Q1. Hopefully, if things go well. I mean, we're in the later rounds of negotiations. So we know it's imminent, permitting. We don't feel that's going to be too onerous because it's a satellite deposit essentially to Avino. Those would be the two factors.
Mine planning has already been done, and we don't see any issues with the hardness of the rock or anything like that based on what we know. So we think we're going to be able to follow this plan and be able to deliver some more to the mill -- fresh ore to the mill before the end of next year.
[Operator Instructions]
Our next question comes from Matthew O'Keefe of Cantor Fitzgerald.
Good quarter. I just had a -- most of my questions have been asked and answered, but I was going to drill in a little bit on the concentrate charges, treatment charges and penalties. Can you just discuss that a little bit? And how that is going to -- how you might expect that to evolve in the following quarters?
Yes, Nathan here. So obviously, it was a bit higher in the quarter. Just we were in a zone that had a bit more penalty elements, and that does fluctuate from quarter-to-quarter. We do see that improving as we get into Q4, and especially next year, we should see some fairly significant improvement on that front.
Okay. And -- that was really it. Okay. So is it anything related to the -- does it go up with the copper grade or anything like that? Or is it completely separate, just the different...
There's a bit of that, but also there's also some changes in some contract terms that will kick in next 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.
Thank you, operator, and thank you to everyone for their time today. As I said earlier, we have many positives to talk about in Q3, and we look forward to finishing off the year strong, and taking that momentum into 2023.
Growth is paramount for success, and Avino has been laying the groundwork for future growth. We have given priority to the most important projects and initiatives on a clear path to transformational growth, unlocking the value of the Avino property. And the region has been a priority, and we are looking forward to the next steps in our growth objectives in turn, maximizing value for our shareholders and stakeholders. Have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.