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 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, Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Limited Q4 and Year-end 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 than those expressed by or implied by such forward-looking statements. The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. For more information, we refer you to our detailed cautionary note in the presentation accompanying this call 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 Q4 and Year-end 2021 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 fourth quarter and year-end 2021 financial and operating performance and our plans for 2022, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.
Overall, 2021 was a year highlighted by many positives. We ended the year with fourth quarter production numbers that exceeded our expectations. We resumed operations at the Avino mine in August. We planned and executed on a comprehensive drill program and the conversion to dry stack tailings is on track for completion in 2022, with the filter building nearing completion.
In October, we announced that we will be acquiring the neighboring La Preciosa development property. When this transaction closes, it has the potential to be transformational for Avino. The addition of La Preciosa substantially increases our 43-101 compliant mineral resource to 290 million ounces of silver equivalent.
I'm also pleased to announce that we have received Kofi approval for the acquisition in Mexico, which was the final regulatory approval required before completing the acquisition. The acquisition is still anticipated to occur before the end of Q1 2022.
In addition, the company made its final payment of the term facility in September, which is a significant milestone for Avino. Cash and working capital at the end of 2021 had doubled over the year. At the end of the year, the exploration campaign for 2021 had completed 15,500 meters of drilling and focused on several targets. Additional areas for exploration include the main Avino Vein below current mine activities and the La Potosina vein. The initial results from La Potosina were recently announced, and we are excited to continue exploring La Potosina as it factors in prominently as one of our high grade, near-surface targets. We believe La Potosina has the potential to supplement our current mill feed from Avino in the near to medium-term.
On the Oxide Tailings resource area, 124 holes have been drilled, 110 of the holes have reported assays and are currently under review by our technical team. In the fourth quarter, production came in from the Avino Mine only compared to Q3 2021, which was the most recent quarter of production. Silver equivalent production increased by 101% to 541,000 ounces. Silver production increased by 139% to 164,000 ounces. Copper production increased by 68% to 1.1 million pounds, and gold production increased by 92% to 2,100 ounces.
The full year production highlights are as follows: 842,000 silver equivalent ounces, consisting of just over 245,000 ounces of silver, 3,400 ounces of gold and 1.9 million pounds of copper.
Also in the quarter, as I mentioned earlier, we continued with our plans to convert to dry stack tailings, a safer form of tailings management than the conventional wet tailings management process. The team at Durango made significant progress during Q4 on the facility, which includes the infrastructure associated with transporting the dry stack tailings. The project is expected to be fully operational in the second half of this year and brings the company towards achieving the guidelines with the global industry standard on tailings management. We have posted a great time lapse video on our website that shows the construction of the tailings filter plant, so I encourage you to go to the Video section on the website under the Investor tab and watch it.
On October 27, 2021, we announced the acquisition of La Preciosa. As I touched on it during the Q3 call, I have always believed the Avino and La Preciosa belonged under a common ownership, given the clear synergies and common infrastructure. La Preciosa is an excellent strategic fit within Avino's existing operations and further strengthens our presence in Durango by adding not only a large high-quality silver development project with near-term production potential to our portfolio, but also increasing our mineral exploration concessions by more than sevenfold to over 7,000 hectares. We expect a large portion of the existing La Preciosa resource could be mined via underground to potentially improve Avino's production and organic growth profile. We expect the transaction to close in the current quarter. Looking at other junior comparable companies, this acquisition should elevate Avino within the silver sector.
Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. During the fourth quarter, the company continued its training of local workforce at the mine. Additional ESG initiatives completed during the fourth quarter were as follows: assisted the local schools, their Christmas parties and supplied food and entertainment. Continued to support the communities of Zaragoza, Pánuco de Coronado and San José de Avino in their waste dump cleanup efforts. Maintenance for local roads and town streets for Zaragoza and San José de Avino. Road maintenance within the communities, which include painting speed bumps, maintenance of cattle guards and general cleanup.
Current ESG initiatives include: supporting the community of Pánuco de Coronado with their project to extend the community cemetery; supporting the community of Zaragoza to extend the water line to areas that currently do not have this resource available; 600 meters of excavation taking approximately 25 hours.
Taking a look at the metals and mining outlook for the year, it's clear that the recent invasion of Ukraine by Russia has been the main focus during the last couple of weeks and has made for a jittery market. We have seen the price of gold and silver climb and fall with daily volatility being the norm. We continue to believe that the outlook for silver is positive. According to the World Silver Institute, the silver demand should see solid growth for 2022 onward, and they have also predicted the global supply demand could rise by 8% from 2021 to a record 1.1 billion ounces this year.
The rise is expected to be driven by a record silver industrial fabrication, which is forecast to rise by 5% as consumption increases in traditional and green technologies. Investment demand for physical silver bars and bullion coins is expected to jump 13% this year to a 7-year high. Demand for silver to be used in jewelry is expected to rise by 11%. Demand for silverwares forecast to climb by 21%. All this bodes well for the silver miners and their shareholders. The best leverage to silver is owning producers such as Avino.
I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q4 2021.
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.
We are extremely pleased with the progress made in Q4 following the restart of mining operations at the Avino Mine in August, and we feel that our Q4 financial results reflect the turning point for Avino. Not only that, we are looking forward as we move close to closing the strategic acquisition of the neighboring La Preciosa development stage project from Coeur mining.
The company remains well funded, with $24.8 million in cash and $31.6 million in working capital available at the end of 2021. This represents a significant increase to the $11.7 million and $14.7 million available at the beginning of the year.
With concentrate sales having resumed during the third quarter, free cash flow generation in Q4 was $2.5 million, and the term facility with our long-term partners of Samsung C&T has now been repaid, and Avino has the financial flexibility and capacity to move forward our new and existing projects.
During Q4, we reported net revenues of $9.3 million, with 418,000 silver equivalent payable ounces sold, and for the full year, $11.2 million on 525,000 ounces sold. Avino reported mine operating income of $4.4 million for the fourth quarter and $3.5 million for the full year of 2021, which includes non-cash depreciation and depletion.
On a cash basis, mine operating income was $5.1 million for Q4 and $5.5 million for the full year 2021.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $4.8 million in Q4 and $400,000 for the full year. Adjusted earnings was $4.7 million for the quarter or $0.05 per share. For the full year 2021, it was $2.3 million or $0.02 per share.
And rounding out our financial results, we reported net income after taxes from continuing operations of $2.6 million or $0.03 per share for the fourth quarter. For the full year period, we reported a loss of $2.1 million or $0.02 per share. As you can see, Q4 was a significant quarter for Avino as we demonstrated strong operating margins while keeping and maintaining our existing cost structures, both at site and at the corporate level. Further, we generated net earnings for the first quarter in 2019, and we generated $2.5 million in free cash flow, net of any capital expenditures.
CapEx for Q4 2021 was $1 million and for the full year was $3.2 million. CapEx for this quarter related to exploration at La Potosina and below the current mining operations at Avino at the ET area of the mine. Also included was the recommended drilling on our Oxide Tailings resource as we look to move that project forward to a pre-feasibility level in the near term.
Cash costs per silver equivalent payable ounce for the fourth quarter was $9.57, a decrease of 32% when compared to $14.01 in Q4 of 2020. All-in sustaining cash costs for the quarter was $17.24, a decrease of 76% compared to $73.8 during Q4 of 2020. As we continue to ramp up, we expect the all-in sustaining cash cost figures to continue to decline due to more ounces sold in the coming periods.
With Q4 marking the first quarter of uninterrupted mining operations in 2019, I am pleased to report that Avino's financial outlook is very positive. Throughout 2020 and 2021, we have successfully executed on our plans in reducing debt, and at the end, we have come out with our highest working capital in Avino's 53-year history. 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 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. Q4 was a busy quarter with ongoing projects, and we have continued into 2022 at the same active pace. Activities at the mine site during the first quarter of 2022 include: Continuing production ramp-up at the Avino mine; ongoing training with locals; dry-stack conversion is ongoing.
As previously mentioned, we received and released drill results from the following areas: Brecha de Bajo, the Bart Vein, below Level 17 and west of current ET mine workings; La Malinche, Nuestra Señora, Santiago, El Trompo, San Jorge, and most recently, La Potosina. As mentioned earlier, the Oxide Tailings drill results recently received are under review by our technical team. Ongoing exploration at the main Avino vein below current mine activities and at La Potosina; continue working on how best to integrate La Preciosa into Avino's production operations.
For 2022, we are targeting production between both 2.2 million and 2.6 million ounces of silver equivalent. We expect to generate significant operating cash flow this year, which we plan to reinvest in exploration and further mine development.
2022 is off to a great start for Avino. We look forward to keeping the momentum going. We would now like to move the call to question-and-answer portion. Operator?
[Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright.
Everyone. This is Nate calling in for Heiko.
Just regarding -- you kind of touched on it already, but regarding the La Preciosa project, obviously, good timing here with the commodity pricing. But as far as approvals go, you've touched on [indiscernible] being done. Is there anything else in the waiting here? Or is this just a waiting game in general? That's my first question.
We're just closing all the documents, so we're real close to making closing announcement.
Okay. Great. And then just building on the last question. Any ideas that you're willing to share publicly regarding anticipated spend at site and timing of such spending? Will the spending start right after closing? Or is there more or less a ramp-up period?
It's Nathan here. We're currently reviewing a kind of an ongoing process for La Preciosa. I'm assuming you're referring to La Preciosa and not the Avino property, correct?
That's correct, yes.
Yes. So it's an ongoing process. Management is going to be going down the site shortly to go review that with the team, and then we'll be able to update the market on that as it comes out.
Okay. Great. That's all for me.
The next question comes from Jake Sekelsky with Alliance Global Partners.
David, Nathan. Just starting with the ramp-up, I mean, it looks like things are progressing nicely. Can you just kind of remind us again what the target throughput rate is there this year, and where throughput is currently? I'm just trying to get a gauge on how close you are to a steady state.
Sure. Peter Latta here, I can take that. So we're looking at, before COVID, we were about 20 -- or 2020, 200, and that's kind of our target. The mill has a nameplate capacity of 2,500 tonnes per day. We're currently just debottlenecking the mine. We're currently mine limited as opposed to being plant limited, and that includes hiring a local workforce, which is something David's mentioned over the last couple of calls. Hiring and training, I should say. So that's kind of the ongoing process as we work towards getting back to that 2,200 tonnes per day.
Okay. And is that something that you think you guys should be able to achieve sometime in Q2? Or is that more of a second half of the year type for that?
Yes. I think it's an ongoing process. I think that's something that we're definitely going to get done in 2022.
Okay. Fair enough. And then just looking at operating costs, they seem strong in the fourth quarter started. Is that something we should be modeling moving forward in 2022? Or do you think we'll see some further reductions as throughput ramps as we were just talking about?
Jake, Nathan here. So on a per ounce basis, you can kind of expect that to stay fairly flat. One of the things that we were -- I wouldn't say surprised, though, but we were fortunate for was the good grades throughout most of Q4. We were just in a high-grade zone as part of our mine plan. In Q1, the grades will come down a little bit, so we'll see some increased cost on the per ounce basis, but nothing overly significant.
And then on the all-in side of things, as production gets up to kind of that 2,200 tonnes per day that Peter mentioned, obviously, we're producing more ounces with the same amount of overhead. So the -- we expect the all-in number to either come down or at the very -- at the worst case scenario, stay flat.
Okay, that's helpful. That's all for me.
The next question comes from Joseph Reagor with ROTH Capital Partners.
David, Nathan and team. So you mentioned commodity price volatility, and maybe wonder if we could kind of give a reminder on how your sales get treated? Is there like a 3-day rolling average on your price realizations? Or is it over a period of time where it resets backwards? Just -- any color there so that we could maybe more accurately make expectations as far as price realizations for this quarter?
Joe, Nathan here. So all of our concentrate sales are done on a spot basis and then it's M plus 1 for the finalization as we sell concentrate on a provisional basis. And then there is, yes, like I said next month settlement, but that's all spot pricing.
Okay. So given that, is it a bit difficult for you guys to take advantage of any of these spikes? Or, maybe in another way, is it positive because it smooths things out a bit?
Yes and no. I mean, obviously, when you're settling the next -- the following month, your final sales are kind of -- are based on the future a little bit. But from a cash flow perspective, sure, we could try and sell fairly quickly and take advantage of some prices on the provisional side just to make sure that we get the cash upfront, and then we can put that towards reinvestment in the mine. But for the most part, yes, it's really smooth.
Okay. All right. My other questions were answered already.
[Operator Instructions] The next question comes from Matthew O'Keefe with Cantor Fitzgerald.
Good -- looks like things are going well, so kudos there. Just a question. I know, David, you talked about it a little bit on the exploration. Could you just go over that again, reminding us sort of what the sort of budget is for this year, and what the main targets are? And what kind of goals we have set for the year with respect to exploration outside of La Preciosa?
Yes, the budget is $2 million for drilling. We're putting in, I think, it's 40 holes into Potosina to develop a resource. And Brecha de Bajo, ET. So yes, I mean, there's lots of great targets, but we're focusing in on the ones that we can develop kind of joint.
Yes. So is -- so ET is still a main -- is still a good target and...
Oh, yes, because we've never drilled below the current working. So we're -- sorry, yes, we haven't drilled below the current workings, so we're doing that now, and extending the mineralization at depth. And we're excited about that because the results are coming in, and it looks like it continues.
Yes, okay. And so -- and just again, back to the Potosina, which is -- with some pretty impressive results earlier this month. It's a little bit further away from the mill, but not that far. Is it -- but you say it's relatively close to surface and you could -- if things hold together, you could be developing that rather quickly?
Absolutely. And probably, though, once we decide to go ahead with mining it, it takes about a year. You got to put in a ramp and decline and prepare it for mining, so -- but it's near surface, so it's very similar to San Gonzalo. Low-sulphidation near surface or [ horizontal ].
Okay. And it's easy access in there.
Trucking distances ain't that far. It's about 4,000 or 5,000 away.
Okay. That was -- the other questions were answered, but that's -- that's great.
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, everyone, for your time today.
As I said earlier, we had many positives to talk about in 2021, and look forward to maintaining the momentum. Growth is paramount for success, and Avino has been laying the groundwork for future growth. We have given priority to most important projects and initiatives to achieve that growth. Unlocking the value of the Avino property in the region has been a priority, and we are looking forward to the next steps in our growth objectives. In turn, maximizing value for shareholders and stakeholders.
Have a great day, everyone, and goodbye.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.