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 Fourth Quarter and Year-end 2017 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Jennifer North, Manager of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Ltd. Fourth Quarter and Year-end 2017 Financial Results Conference Call. On the call today, we have the company's President and CEO, David Wolfin, and our Chief Financial Officer, Malcolm Davidson. We also have on the line our COO, Carlos Rodriguez, and one of our directors, Mr. Jasman Yee.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 or the applicable press release. Thank you. I will now turn the call over to Avino's President and CEO, Mr. David Wolfin. David?
Thanks, Jen. Good morning, everyone, and welcome to Avino's Year-end 2017 Financial Results Conference Call. Thank you all for joining us here today. Please note that we are also doing a webcast presentation for this conference call and it will be accessed on our website. Before we begin, please note that the full financial statements and MD&A are now available on our website. Today, we will cover the highlights of our year-end 2017 financial and operating performance and then we will open it up for questions.Before I begin, I would like to note that all the figures are stated in the U.S. dollars unless otherwise noted.2017 was another productive year for the company where we continue to deliver solid financial and operating results. We maintained consistent silver equivalent production and strong performance from our Avino and San Gonzalo mines, our key assets from which to grow the company. In Mexico, construction continued on Mill Circuit 4, which will be used to process mill feed from the Avino Mine and will increase the throughput capacity of our processing plant by approximately 70%. Construction is on schedule and is expected to be commissioned shortly. In addition, we released an updated preliminary economic assessment on the Oxide Tailings Resource project, which demonstrated a pretax NPV of $40.5 million and an IRR of 48% over an anticipated mine life of 7 years. For tailings management, we're looking at a flexible backfill system that will allow us to make cemented backfill for our underground or thickened tailings for disposal in the open pit, depending on our needs. We also completed a 22-hole drill program, which was successful in evaluating a new area of the Avino vein system between the historic San Luis workings and the Elena Tolosa, which is the current area of production. The results support a continuation of the extensive Avino vein system and provide further confidence that should allow us to go underground to develop this area for mining. The results of the drill program were included in the new NI 43-101 mineral resource estimate that was announced in mid-February of this year. And the updated technical report will be filed on our profile on SEDAR and filed on Form 6-K with the SEC within 45 days required from the date of release. 19 holes were also drilled at the Chirumbo, Guadalupe and San Juventino areas, all of which are outside the existing mining area and have the potential to extend resources. Additionally, the company continued its testing program for recovery of zinc from the San Gonzalo tailings throughout the fourth quarter. The results are currently being evaluated. The product is marketable, with zinc grades between 20% and 25%, silver grades of approximately 1,200 grams per tonne silver and gold grades between 4 and 6 grams per tonne gold. On a monthly basis, about 50 to 70 tonnes of zinc concentrate are produced. In 2017, the company produced and sold 73,460 silver equivalent ounces of low-grade zinc concentrate.As well, early in January of this year, Avino graduated to the TSX from the TSX venture, which is a key milestone for the company. And before I hand it over to Malcolm, I would like to say thank you to the teams in both Canada and Mexico. Avino's steady was results are due to their dedicated efforts. I will now ask Malcolm Davidson, Avino's CFO, to present the financial results.
Thank you, David, and welcome to all who are on the call and viewing our presentation today. Overall, our financial health in 2017 remains fairly consistent to 2016, with expected marginal increases. Revenue from mining operations during the year was $33.4 million compared to $30 million in 2016. The 11% increase is mainly a result of the Avino Mine entering productions as of April 1, 2016.Mine operating income was $11.4 million compared to $10.9 million last year. The slight increase is due to the commencement of production at the Avino Mine on April 1, 2016. And although we experienced an increase in operating costs, this was offset by the increased sales as a result of the commencement of production.Our average realized silver price decreased by 4% from $17.71 to $17.01 per ounce sold, and our averaged realized gold price increased by 1% from $1,258 to $1,268 per ounce sold compared to last year. Our average realized copper price increased by 29% to $6,251 per tonne from $4,851 per tonne. After taxes, net income for 2017 increased by 17 -- sorry, 76% over 2016 to $2.7 million or $0.05 basic EPS and $0.05 diluted per share, compared to net income of $1.5 million and $0.04 basic and $0.03 diluted earnings per share for 2016.Working capital as of December 31, 2017, was $16.5 million compared to $23 million in the same period of 2016. The decrease is due to our continued investment in capital projects at both Avino and San Gonzalo in Mexico as well as at the Bralorne mine in British Columbia. Cash of $3.4 million and short-term investments consisting of cash of $1 million was on hand at the end of the quarter. Capital expenditures during 2017 were $12.4 million compared to $10.7 million in 2016. Capital expenditures for 2017 are attributed to the Avino Mine advancement, including the construction of Mill Circuit 4 and mining and production equipment to maintain operations at the San Gonzalo, Avino and Bralorne mines.At this point, I will hand it back over to David for discussion on operations.
Thank you, Malcolm. Operationally, we had a consistent and steady year, in line with our internal projections. In 2017, our silver equivalent production remained consistent at $2.7 million. Our silver production was down 14% to 1.4 million ounces. Our gold production was up 11% to 7,935 ounces, as well as our copper production which increased by 4% to 4.4 million pounds.52% of revenue comes from silver, 21% comes from gold and 27% comes from copper. Our consolidated all-in sustaining cash cost per silver equivalent ounce for 2017 was $10.11 compared to $10.34 last year, a decrease of 2%. All-in sustaining cash costs at San Gonzalo mine during 2017 were $9.50 per silver equivalent ounce compared to $9.40 during 2016. All-in sustaining cash costs at the Avino Mine during 2017 were $10.34 compared to $10.99 in 2016, a decrease of 6%. At Bralorne, we completed our review of potential scenarios for developing an operating plan. Our new plan involves opening the mine at a higher throughput rather than scaling up operations to reach our desired level. Given Bralorne's potential and the costs to increase mining and processing operations, we have concluded that the expanded operations should be supported by an increase in geological resources. As a result, in January 2018, the company commenced an 8,000-meter surface drill program to better define and expand current resources and explore for new zones near the proposed new mine development. In November 2017, we received an approved permit amendment from the Ministry of Energy and Mines and Petroleum Resources. The permit amendment is an important step in the company's strategic plan to reopen the Bralorne Gold Mine. With the receipt of this modern mining permit, the company anticipates an easier and quicker transition to an amended permit that will allow for future expansion.In addition, we wrapped up our third underground mining training program with North Island College February of this year. This program was held in Pemberton to benefit members of the N'Quatqua and the lower St'at'imc communities.Overall, we're pleased with the financial results and progress in 2017. We achieved our internal production targets and are now very close to completion of Mill Circuit 4 at the Avino Mine. The year yielded a consistent and solid balance sheet and good production results. We are confident that we will increase our production profile in 2018 with the completion of Mill Circuit 4.Moving on to our outlook for 2018. Management remains focused on the following key objectives: Maintain an improved profitable mining operations while managing operating costs and achieving efficiencies, complete Mill Circuit 4 expansion to increase Avino Mine production, complete a successful drill program to increase and improve confidence in our resource base at Bralorne, continue mine expansion drilling and explore regional targets on the Avino property, follow the recommendations in the 2017 PEA on the oxide tailings resource at the Avino Mine, and assess the potential for processing the oxide tailings resource.Finally, before we move to the question-and-answer portion, I would like to mention that Avino is celebrating its 50th year in the industry. And many of you have already noticed that the new presence, new brand and logo. Our 50-year history has inspired resilience, initiative and enterprise across the team, and we hope to continue working hard and rely in our core values of growth, quality and relationships. We would now like to move the call to question-and-answer portion. Operator?
[Operator Instructions] Our first question comes from Mark Reichman of NOBLE Capital Markets.
Just a quick question on your costs. I'll have to get back in queue.
Our next question comes from Heiko Ihle of H.C. Wainwright & Co.
This is Matt Barry on behalf of Heiko. So just a few questions from Heiko. First, you guys ended 2017 with $3.4 million in cash, down from $11.8 million at the end of 2016. And while there is an additional $16.5 million in working capital, that's also declined by about 30%. Some of that is from accounts receivable and maybe $3 million from taxes recoverable. Also you guys had made meaningful investments and sold your assets over the year, and it seems like the heaviest lifting there is over. Can you walk us through your cash and working capital plans for 2018? And on that note, Q1 is almost over, what did you guys see there?
Hey, Matt, it's Malcolm here. Thanks for the question. As you mentioned, a lot of the heavy lifting has been done. 2017 was certainly a busy year, primarily focusing on the construction of Mill Circuit 4, which is more or less complete or -- in a sense that we have a spent the majority of the required capital. Looking ahead to 2018, we do have a couple of projects in the pipeline relating to our tailing. We've got a few different sources to finance that but overall, it will be a relatively lighter year on CapEx.
Perfect. And so you guys also had some low-grade zinc concentrates that provide you with about 73,000 ounces of silver equivalent. Can you walk us through this figure in 2018? Is there a way for incremental revenues that we may be overlooking? And also, do you expect to eventually break out production for zinc the same way you break out copper? And if so, what's the production amount for doing so?
Jas, do you want to comment on the zinc?
Yes. This is Jasman. Yes, as far as our projection for the zinc productions for 2018, a lot of this would be based on the amount of zinc we have in the feed grade. That needs to be determined how much -- how many tonnes of this particular product we're going to produce. From our perspective, currently, we're producing around -- about 70 tonnes every month based on the current zinc grade, which is running across from the under 1%. Hopefully, in one of the zones that we'll be looking at in 2018, potentially, the zinc grade could come up. This would be the feed material from the Angelica vein. We're hoping to put that type of material into the circuit sometime in 2018 or thereafter. And hopefully, the zinc grade in this product will be a lot better than what we're currently producing. We're also looking at adding a cleaning circuit for the zinc to upgrade it from what it currently is to maybe a more acceptable figure that will provide us with better payables. Those are the things that we're looking at for the all grade zinc for 2018.
Our next question comes from Joseph Reagor of Roth Capital Partners.
I guess my first question -- maybe you guys could elaborate a little further on how you kept costs down in the quarter despite the lower grades -- what you guys did at the mine site in order to effectively lower the cost per tonne mined.
Okay. Jas, you're on site, do you want to comment on that one with Carlos and the team?
Yes. Basically, I could comment on the lower cost at site. I think these are some of the things that we started to put in motion in the past with regards to trying to lower our operating costs. And one of the first things that we did when we looked at this, we were looking at buying our consumables in bulk. And this is something that we're continuing to do and hopefully, it's been sort of resulting in -- also reducing our operating costs.
Also automation where...
And we're also...
which is helping efficiencies.
Is there something you would like to add, Carlos?
No, I'm fine with the response, yes.
Okay, fair enough.
Yes, basically, we're targeting the consumables.
Yes. And then given that the first quarter is basically over, I know you guys haven't released your production numbers yet. But are we expecting to see a recovery in silver grade at Avino? I know Q4 was abnormally low at about 50 grams. You're usually more in the 65 to 75-gram range. I know it fluctuates quarter-to-quarter, but should we see a rebound there in Q1?
You asked more of a technical question. So Jas?
I think, based on our budget for 2018, I think we're expecting silver grades to be more or less remain about the same around -- between 60 and 70 grams per tonne. It all depends on the location that we're mining material. There are -- as we get deeper, the silver grade tends to drop but the copper grade increases. And there in areas that are in the upper sections, where the gold grade is high, typically the silver is high, but the copper is low. So it's sort of like a balancing act. And in our projection, basically, it calls for a steady silver grade for the balance of 2018 between 60 and 70 grams.
You might want to add more color to this, Carlos?
Yes. This is Carlos. Yes, basically, the grade that we are mining right now have to be considered as a developing stage, right? We haven't started any mining activities yet, but once we start mining the old blocks between levels, yes, we are planning to increase our grade just to 70, 75 grams silver. But now we are in the developing stage, we don't have too much control on that. But yes, hopefully, in the next few months or year, yes, the grade, silver grade will increase definitely.
Okay. And one final one if I could. That's the mine grade. There'll be a bit of a blend down as you guys process some lower-grade stockpiles as you start up Mill Circuit 4, correct?
You're correct, Joe.
Yes.
Well, we're down here now. We're within weeks of completing Circuit 4's -- I recommend you come down, so in May or June, if you want to take a trip to come and see it. It looks like it's first class, this circuit.
Yes. I concur with David. We're down here. And Joe, the Mill for Circuit #4 is currently in operation. It's been running for about a month. The only outstanding items of Circuit #4 is the completion of the float cells and the pressure filter. So currently, we're running the new mill on Circuit #4, and using the floatation cells and the filter press from Circuit #3.
And when we are in there, it was running flawless that we couldn't believe how quiet it was.
Yes.
They've really optimized it.
Our next question comes from Bhakti Pavani of Euro Pacific Capital.
Just a quick question on the Mill Circuit 4. I know Jasman just mentioned that it's been in operation for a month. How should we see the production progressing for the Mill Circuit 4? I mean, when should we see it to be completely and 100% operational?
Based on the schedule that we saw yesterday by the contractor, we should be -- that whole project should be completed before the end of this month.
Yes, and then we're going to run stockpiles for several months.
6 months.
While we continue developing San Luis. And in San Luis, we're already in there and we're cleaning it out. It's an old declined product that -- fortunately, we don't have to put it in place. We're just cleaning it out.
Perfect. That's great color. With regards to capital expenditure, I know you guys provided a guidance on the expected capital spend of $14.5 million. Just curious, does that also take into consideration or include the underground equipment that you plan to buy for in the future for Avino Mine?
Hey, Bhakti, it's Malcolm here. So the capital number that we did put out is accurate, but I just want to clarify the timing on that isn't necessarily going -- all be in 2018. We will be ordering some underground equipment for new and ongoing operations. I don't expect that's going to be significant. The majority of the costs for 2018 is for a new tailing processing facility, which the team is still evaluating and working on. It will most likely be a tailings facility that will be built out over a 12- to 14-month period, and that's double sort of approximate when the capital expenditures will be made as well.
So just a follow-up on that. Would it be more weighted towards the second half of this year? Is that the case? Or how should be model out the capital expenditure of the quarters?
Well, it will be -- there'll likely be some deposits to get the tailings facility moving forward. The equipment will arrive, underground equipment will arrive over the next few months. I would say it's probably fairly evenly distributed, probably a little bit in the next few months, maybe perhaps a bit of a lull during the middle of the year, June, July, August. And then during the end of the year, we'll look to wrap up any ongoing project. But the tailings facility will likely go into 2019 as well.
Okay, perfect. Just this last one. Could you maybe provide additional color on your plans and capital expenditure with regards to Bralorne?
Sure. During 2017, we continued to look at a number of mine plans, and what we've ultimately concluded was we've got a very interesting and a very good project, but we want to really focus on continuing to drill and explore the property and firm up resources. So the majority of the CapEx will be on exploration type activities and drilling.
Okay. Is there kind of a budget or expectation on how much do you plan on exploration at Bralorne this year?
I won't say it's going to be -- it will be significant but not overly significant. I would say in the neighborhood of $2 million to $4 million.
Our next question comes from [ Barry Moreland ], a private investor.
I have a couple of quick questions on Mill Circuit 4 is pretty much done. Do you ever foresee enough product from Avino property to have another mill circuit added to that? Or is that pretty much the end of it?
No, we've -- we're already looking at another circuit. We sent some equipment down from Bralorne last year, the ball mill and the flotation cells, so we're already designing a new circuit. Not that we're going to put a time line on it just yet, but we're thinking about it.
Okay. And on your tailings, there -- you're planning to put those in back in the backfill, correct?
Yes.
Yes, that's what we're studying, yes.
Okay. And we're already have a water problem in Avino. I guess it's going into Avino, correct?
What water problem?
Yes, I don't know...
Well, you have condensation or groundwater that builds up down there you keep pumped out. Are you going to put this in as a slurry? Will that add to the water problem or not?
No, because at this will probably filter out water and cement will be added to it.
Okay. I see. And...
Yes, basically, the mine is dry. It's dewatered on a regular basis.
I understand that, but I just wonder if this would add to the problem or add to the dewater?
No, no, it won't. The water issue was a problem in the past where we didn't have enough pumping capacity, but we rectified that problem.
Okay. And you were, last year, you were talking about cave-in mining and being a lower cost -- and I'm not a mining guy, but in my mind, that sounded like the end of mine life. So I guess...
No, from [indiscernible] it's using gravity so you drill it and blast it and it falls down to the next development level rather than stirring up the mine. So it's a cheaper form of mining, which we haven't even started yet. We're just developing the different levels.
Okay. And once you start to cave in mining, is that pretty much the end of that area?
No, just -- well, in that area. And then there will be -- that back filled. But there's still potential below the current workings. This is a huge system. It could go down quite a distance. And so we haven't even drilled below such level in '17 yet. So we're just -- we've got targets to continually expand it, so we are not caving it in the sense where we're not going to be able to go back. It's just a terminology for the style of mining.
All right. And the long-haul mining you're talking about for Bralorne?
That's the plan down in the future.
I'm trying to do a decision of what that is.
It's using mechanized equipment rather than stope mining, so it's...
It's less.
It can drill up instead of using jacklegs. We're using mechanized equipment. So it can produce more material faster because we're looking at a larger operation. And it's safer.
All right. And 1 more question. In 2016, you've thought 2017 without -- to be a breakout year. Do you have any more predictions?
Well, this year, when we start feeding Mill Circuit 4 with freshwater from the underground, the grades are going to improve, so our output's going to improve. Once the paste backfill plant is in commission by next year, then we'll decommission the current tailings and then we'll then proceed with the recommendations in the PEA on the oxide tailings, which is a completely new project, sort of a 7-year mine life, and it will add 1.5 million ounces of silver equivalent annually. We're also drilling other areas of the property. There's tremendous potential on our property at Guadalupe, Chirumbo, [ Florecina ], Aguila Mexicana -- there's a lot of potential on the properties to continue to find more resources.
[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to David Wolfin for any closing remarks.
Thank you, operator, and thank you again to everyone who joined the call today. Once again, we were pleased with our overall performance in 2017 and we look forward to another solid year in 2018. Thank you to all the team in Canada, Mexico and around the world. Thanks again 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.