Avino Silver & Gold Mines Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

There are 11 speakers on the call.

Operator

Morning, everyone, and welcome to the Avino Silver and Gold Mines Limited Third Quarter 2023 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated November 1 and in our news release of yesterday's date, which can be found on our website under News 2023. On the call today, we have the company's President and CEO, David Wolfen Our Chief Financial Officer, Nathan Hart 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 in 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.

Operator

The company does not intend to and does not assume any obligation to update such Forward looking statements are information other than as required by applicable law. For more information, we refer you to our detailed cautionary note and the presentation related to this call on our press release of yesterday's date. Please note that the full financial statements and MD and A are now available on the Web Site under the Investors tab, then click on Financial Statements, as well the full statements are available on Avino's profile on SEDAR and on EDGAR. 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 from this conference call and web will be available on the website.

Operator

Also note that all figures stated are in U. S. Dollars unless otherwise noted. Thank you. I will now hand over the call to Avino's President and CEO, David Wolfen.

Operator

David?

Speaker 1

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q3 2023 Financial Results Conference Call and Webcast. Please note that the full financial statements and MD and A are now available on our website. On today's call, we will cover the highlights of the I will begin with a discussion on operations for Q3, and then I will turn it over to Nathan Hart, Avino's CFO, to discuss the financial performance for the Q3 and Jennifer North, our Head of Investor Relations, for an overview of Q3 ESG initiatives. Please turn to Slide 5, where I have outlined the operational highlights.

Speaker 1

Our Q3 production results were released in mid October, and we achieved production results of over 591,000 silver equivalent ounces, which brings the 12 month trailing total to 2,630,000 silver equivalent ounces. We are currently pleased with the drill results released in July September from a total of 7 Drill holes that included the best intercept in the company's history. In September, we reported 4 drill holes below level 17 at the ET area that included substantial widths at grades above our current cutoff grades. In July, we reported the best drill intercept in the history that showed 57 meters of true width of mineralization. Drill hole ET-two thousand three hundred and nine had exceptionally wide and very high silver, gold and copper grades, which is very encouraging for continued exploration of the Avino vein.

Speaker 1

I will expand further on the We have now completed our planned and budgeted drilling program for the year and have drilled 7,545 meters in 13 holes. The pre feasibility study on the oxide tailings project is currently underway and is expected to be completed early in Q1 2024. The dry stack facility is fully operational with The conveyor system installed and we are now transporting the press tailings to the Avino open pit area. At the La Preciosa property, communication with The Ajido Group is ongoing and we are fully committed to moving the project forward as it factors prominently into our 5 year growth plan. Here on Slide 6, we show our Q3 production results.

Speaker 1

The production results from the Avino mine continue to be consistent. In Q3, we are mining in areas with lower copper grades and experienced lower recovery rates. The production results are as follows: silver equivalent production was 591,000 ounces Silver production was 237,000 ounces. Copper production was £1,140,000. Gold production increased by 73 percent to just under 2,100 ounces.

Speaker 1

Mill throughput was just under 155,000 tonnes. Based on year to date production, the current timeline associated with Processing material from La Preciosa, we have adjusted our internal production estimate for the full year to 2,400,000 to 2,700,000 ounces Our 5 year growth plan takes us from production levels of 2,400,000 to 2,700,000 ounces of silver equivalent to between 8,000,000 and 10,000,000 ounces of silver equivalent by 2028. Turning to Slide 7, I would like to touch on exploration results from the Q3. 8,000 meters of drilling was planned for the year and we have now achieved 7.45 meters and the 2023 program is now completed. We released results of September 14 that included 4 drill holes From below level 17 and on July 5, we also released 3 holes.

Speaker 1

Moving on to Slide 8, the information from September 14 drill results are shown. As mentioned in the previous slide, we released the assays from 4 drill holes. We hit substantial widths at grades well above our current cutoff grade on all four holes. For whole ET-two thousand three hundred and thirteen, there was 0.7 percent copper, 31 grams silver and 0.21 grams gold, over 44 meters of true width. In addition, we have continued to define the hanging wall Breccia, which is an offshoot of the Avino main vein that originates from surface.

Speaker 1

The access to the Breccia is relatively easy through existing development works and we are currently evaluating a mine plan to incorporate these resources into our medium term plans. We were also surprised with the intersection of stockwork vein close to surface, which indicated the complex and distributed nature of the stockworks system that accompanies this thick main Avino vein. The drilling completed in 2023 followed the continuity of the steeply dipping mineralization and helps in understanding the deep source of the mineralization. Avino has enlisted a number of world renowned consulting geologists to contribute to the geological understanding of the mineralization characteristics, the known depth To date of at least 7 50 meters of mineralization is significant. On this slide, you will see 2 images revealing the drill hole location and the cross section of hole ET-two thousand three hundred and thirteen, where you can view the substantial width of the Avino vein at the drill location.

Speaker 1

The full intercepts and drill data can be viewed in the news release, which is on our website. Moving to Slide 9. This was very exciting for us. We reported the best intercept in the company's history on July 5. We released 3 holes From the program below level 17 at the ET area of the Avino mine, and one of the intercepts drilled Joe Hall ET-two thousand three hundred and nine showed 57 meters of true width mineralization and is a step out of 50 meters to the west of Avino's most westerly drill hole and 200 meters down dip below level 17.

Speaker 1

The whole assayed 296 grams of silver equivalent over 57 meters true width, including 407 grams of silver equivalent over 37 meters true width and 2,866 grams of silver equivalent over 3.43 meters of true width. There are two images on this slide That the one at the top is the longitudinal view of the Avino vein showing the drill hole locations and the projection of the mineralization in red And the lower image is a cross section of the above mentioned whole ET23 and the downdip extension from the current mine workings. The exceptionally wide and very high Silver, gold and copper grades are extremely encouraging for our continued exploration of the Avino vein and associated stock work, Breccia at depth and suggests a much more complex mineralization system. We are still open along strike and at depth. At this time, I will now hand it over to Nathan Hart, Avino's CFO, to present Avino's Q3 financial results.

Speaker 1

Nathan?

Speaker 2

Thank you, David. It's my pleasure to be on the call, and I would like to welcome everyone who has joined us in reviewing our presentation today. Turning to Slide 10 for a review of the Q3 2023 financial highlights. Our results from this quarter showed positive increases across the board in almost all key metrics. Q3 was the best performing of 2023 when it comes to revenues, mine operating income, EBITDA, adjusted earnings and operating cash flow generated before working Revenues for the quarter came in at $12,300,000 an increase of over $3,000,000 from the previous quarter as well as the comparable quarter in 2022.

Speaker 2

Mine operating income for this quarter was $2,400,000 with $5,300,000 generated year to date. Cash flows generated from operations before working capital adjustments was $1,800,000 totaling $4,100,000 for the full year 2023 so far. Adjusted earnings came in at $1,600,000 or $0.01 per share for this quarter, with the year to date total sitting at $2,600,000 or $0.02 per share. At September 30, we did see an increase in working capital of $2,800,000 or 62%, bringing our total up to $7,400,000 from the $4,600,000 we had at the end of the Q2. Coming to Slide 11, I will walk you through some key additional financial results as well as the ones discussed in the previous slide.

Speaker 2

As noted already, revenues came in at $12,300,000 well up from the $9,100,000 we showed in Q3 2022. As we move on from some plant operational challenges that affect the Q2 and part of the Q3, we are looking for that trend to continue into the end of the year and on to 2024. We generated mine operating income of $2,400,000 for this quarter, which includes non cash depreciation and depletion and is compared to $2,100,000 in the Q3 of 2022. The increase is a result of higher revenues, which were offset by a very strong peso to U. S.

Speaker 2

Dollar rate when compared to the Q3 in 2022. On a cash basis, mine operating income was $3,100,000 representing a cash operating margin of 26%. Lavina reported a net loss after tax of $800,000 or $0.01 per share for the Q3 compared to a loss of $1,100,000 or $0.01 per share in 2022. EBITDA was $700,000 for the quarter and adjusted earnings were $1,600,000 both showing significant increases for the same quarter year over year. Cash flow from operations for Q3 was $1,800,000 before working capital adjustments, up from $1,600,000 in Q3 of 2022.

Speaker 2

Here on Slide 12, you can see our cash costs for silver equivalent payable amounts for the Q3 were similar to last quarter at $16.90 with both quarters elevated over results from 2022. All in sustaining cash costs for silver equivalent payable ounce followed a similar trend, although we did see a decrease from the Q2 as it came in at $22.69 The increases for both metrics are in line with our messaging on our Q2 call As a result of lower production from mill recovery challenges and lower grades arising from the planned mine sequence in the underground. On top of this, the Mexican peso appreciated, up over 15% in the Q3 compared to the 2022 average. While we've seen an improvement on this front in the Q3 when compared to the Q2, there has been an impact on our costs as the majority of all our Signatures are incurred in Mexico with local suppliers, employees and contractors on-site. We have put a number of measures in place for cost reduction, including lowering haulage rates to match the mill throughput as we have generated a large ore stockpile over the last few months, as well as certain administrative and auxiliary personnel reductions.

Speaker 2

Now coming to Slide 13, you can see our cash cost per tonne processed for the quarter came in above the recent average as well at 59.46. On an all in basis, we were also up from our 1st 2 quarters, but we did come in below the 2022 Increases on a 4 ton milled basis are primarily a result of higher mining and haulage rates as we mined over 200,000 tons this quarter, which is about 30% higher than our mill tons of 154,000. As well, lower ounces produced per ton contributed to the increased cost as a result of the operational items mentioned before. So far in the Q4, we have seen improvements to both grade and recovery and controlling costs remains a key priority for Avino alongside our growth plans. At this point, I will now turn it over to Jennifer North, Head of Investor Relations,

Operator

We have listed our recent ESG initiatives for the Q3 of the year. These continue to build on Avino's efforts to for the principles of sustainability and social responsibility. We have added members to the CSR team in Durango, and Hartman is working to ensure that we continue meaningful conversations with the community that are close to the mine. The activities carried out during the Q3 under the new CSR management team were focused on improving relationships between each of the communities in strengthening the social bond while establishing a new social link between company and community. The activities carried out were as follows.

Operator

In all of the communities, parents were offered summer courses for children aged 6 to 12. This summer program was developed to encourage and promote healthy ways to manage children's summer free time. Courses and workshops were offered in a A number of different activities, including soccer, arts and crafts, drawing, Taekwondo and others. In total, 220 Children from the communities of Panuco de Coronado, Zaragoza and San Jose de Avino participated. In August, Avino's Medical Department conducted its annual first aid training for a period of 6 days with 2 sessions a day.

Operator

There were 119 employees from the mine coming from different departments to learn and improve their first aid skills. As a high percentage of our employees come from the nearby communities, this training also benefits everyone in the adjacent areas. The goal is to ensure that all of our employees have the knowledge and skills necessary to be first responders in the event of an emergency. Also, the team put together several educational pieces to show our management of tailings, how we safely manage the tailings, what dry tailings means as well as the testing process. Educational flyers and videos in Spanish and English have been posted to the website and shared in the communities.

Operator

For environmental compliance and for educational purposes, water samples were taken at the junior high school in September, together with the residents of the Panuco Decorin Auto Community alongside company representatives to show Avino's sampling process. In addition, the company continues with its ongoing community roadworks and delivery of garbage drums in generally supporting and beneficial ways. In September, the company showed its commitment to the mental health of employees by commemorating World Suicide Prevention Day, where talks and support were offered. In addition, we are so pleased with the efforts of the CSR team in Durango as they were recognized for the 2nd year in a row for the ESR distinction as being a socially responsible company. This designation is a reflection of the passion and dedication of the company and shows that not only do we extract minerals, but we sow knowledge to build a brighter future for generations to come.

Operator

Every day, every action brings us closer to a brighter and sustainable future. The mine is more than a work place. It is an example of responsibility and commitment to be in harmony with the environment. One of the top priorities for Avino is to provide jobs to those in the surrounding communities with the goal of fostering generations of enthusiastic and dedicated ambassadors of Avino. We currently have 448 direct jobs, which includes the workers at the mine site and in our Durango offices.

Operator

This number of jobs will typically translate to 3x the number of indirect jobs for services, consultants and Suppliers in the surrounding communities in the Durango area. In September, I was fortunate to go to Durango and spend time at site in the offices talking about our strategic alignment goals that span across the company and communicating how we can work towards shared goals and vision. We have an action plan to inform, educate and support all employees and community members to become ambassadors of Avino and that we will all benefit when community and company are aligned. The success of Avino is dependent on its people, profitable operations, community support and a strong and sustainable future. I will now turn it back over to David continue on with the presentation, providing our plans for the coming quarter.

Operator

David?

Speaker 1

Thanks, Jin. Moving to Slide 15, you can see our plans for the remainder of 2023. We are now well into the final quarter And the pre feasibility study on the oxide tailings project is well underway. We expect to present the results to the market in Q1 2024. We are also focused on our plans for the Gloria and Abadancia veins at La Preciosa with community engagement ongoing as we ready ourselves to begin development work.

Speaker 1

Equipment is being sourced and the environmental permit application has been prepared and we are finalizing it for submission. As we have mentioned previously, we are in talks for the social blessing with the Hedo Group and this is something that takes time and patience. We will let the market know when this is finalized. And in the meantime, we continue to negotiate in good faith, so we may move forward with this with our plans. As mentioned earlier, our drilling program for 2023 is complete and we will I'll be reviewing the results to determine next steps for 2024.

Speaker 1

Lastly, the main goal is to replenish The treasury from cash flow generation from the Avino mine as we look forward to the future development at La Preciosa and the on oxide tailings projects. On Slide 16, we want to reemphasize the company's plans for growth. We have 3 assets within 20 kilometer footprint totaling 100 of millions of silver equivalent ounces. On the same area, We are operating a mill complex, which is currently producing from the Avino mine. Additional access to water, power and tailing storage, All ingredients to grow organically without the major capital investment required that would be that would expect if you were starting from scratch.

Speaker 1

As you can see on this slide, our goal is to scale up by 2028 through the production from these three assets. Lastly, please move to Slide 17, where we present our continued initiatives for growth, which are Development, production and optimization of La Preciosa the tailings project pre feasibility study and eventual Construction decisions, developing next steps for exploration and drilling, evaluating We would now like to move the call to the question and answer portion.

Speaker 3

Operator? Thank you. We'll now begin the question and answer session. Our first question is from Heiko Ihle with H. C.

Speaker 3

Wainwright. Please go ahead.

Speaker 4

Hello David. Hello to you. How are you?

Speaker 1

Good morning. Good. Thanks. Good morning, Heiko.

Speaker 5

Let's talk about La Preciosa for a bit. I mean, in our view that assets should really help Growth of the firm in the immediate and also the longer term early. Given commodity prices, Mexican political farming and just the General market sentiment that we're seeing, is your internal timeline for the asset shifting in any way over the past few months? And then just capitalized, how much cash flow do you anticipate using for the site in calendar 2024, please?

Speaker 6

Sorry, Heiko, you're not coming in very clear,

Speaker 2

I don't think. Can you repeat the question?

Speaker 4

Is this better?

Speaker 6

Way better.

Speaker 4

Okay, perfect. And what I was saying is, let's talk about I mean, in our view, the asset should really help growth of the firm in the intermediate and also in the longer term. Given current commodity pricing, the Mexican political climate and just general market sentiment, Has your internal timeline for the assets shifted in any way over the past few months? And building on that question, just capital wise, How much cash flow do you anticipate using for the site in calendar 2024?

Speaker 1

Well, First of all, the grade that we're going to be mining there is much higher than what we're mining now. So we're excited about that. The timeline Basically hasn't started until we get the blessing of the Ahipos which were we think we're in the 11th inning. We've gone back and forth. They've been discussing their assemblies.

Speaker 1

So we think possibly before the end of the year, we could have an agreement in place And there's above ground stockpiles that we can start processing right away. Yes,

Speaker 2

on the cash flow side of

Speaker 6

things, obviously, David mentioned, we expect But as far as the development and paying for that, one of the nice things is we will be developing in ore

Speaker 1

As we start at La Preciosa, as

Speaker 6

we follow our mine plan, but as well with Avino, we do project to Great cash flow in Q4 and continue into 2024. So we will have some cash flow to invest in.

Speaker 1

And the initial mine plan is on the Gloria vein, which is really close to the It's not going to be very expensive, and the above ground stockpiles will pay for a lot of that.

Speaker 4

On the oxide tailings project seems to be moving along quite well. I'm not sure if you can Close any of this really, but have there been any impacts, positives, negatives, anything compared to what you had previously anticipated for the asset? I mean anything that you've seen as the study is getting together?

Speaker 7

Yes. Heiko, thank you for

Speaker 8

the question. A couple of things to note actually. We have A lot of construction experience, that's something that we've done well with the expansion in Circuit 4 with the dry stack tailings and that experience directly translates Accurate predictions in pricing for this plant and that's going to be lower cost than typically what an engineering company would spec So we feel that we'll be accurate with our construction costs based on our experience.

Speaker 1

And the big change is we went from looking at a heap leach To dynamic leaching, which is contained. Yes. So I mean, if

Speaker 8

I just want to maybe summarize the changes that we've seen. When we did that drilling, we also found a lot more material. We increased our resource significantly and that was updated in the resource. And certainly, we'll have reserves that come out of this pre feasibility study and that will be forthcoming. I can't say too much on that.

Speaker 8

But that would be a big change. As David mentioned, the change in process from heap leach to dynamic leaching and then Finally, our construction experience to really dial in accurate costs that are lower than industry average.

Speaker 4

Fair enough. You may have noticed both of my questions related to things in the future. That's by design and not a coincidence because I think the future potential is quite large. And with that, I'll go back in queue. Thank you very much.

Speaker 8

Thank you, Heiko.

Speaker 3

The next question is from Jake Pokalski with Alliance Global Partners. Please go ahead.

Speaker 9

Hey, David, Nathan, and team. Thanks for taking my questions.

Speaker 1

Good morning, Jake.

Speaker 7

Hi, Jake.

Speaker 9

So just starting from a high level, I mean, the strength of the peso is something that negatively impacted Producers across the board in Mexico this quarter. I was just wondering if you can touch on that impact To cost and maybe on any hedging programs you have or you plan to engage in going forward?

Speaker 6

Yes. Hi, The impact this is having, even the developers or anyone really. So this is not something we did see this in the Q2 as well, probably worse than the Q2 actually. But then There's seen a little bit of an improvement in the Q3. So we're actively managing kind of our foreign exchange rates, especially because We pride ourselves in spending a lot of money in pesos because we're with local contractors and suppliers and we have a 100% Mexican labor force down in sight.

Speaker 6

So that obviously is something that does have a direct impact on us. As far as hedging programs, we do monitor And we are continuing to track projections for the peso. A lot of sentiment is that it will back off. But having said that, when we're going through our budget process for next year, we'll be looking at some alternatives for managing the peso, kind of hedging being one of them.

Speaker 9

Okay. That's helpful. And then just more of a housekeeping. CapEx was just under $2,000,000 in Q3, is that sort of a baseline level we should expect going forward heading into next year? Or do you have any Larger sustaining capital items that you see popping up over the next year?

Speaker 6

First, Again, Nathan here. So for Q4, probably fairly light, ideally a bit lower. We do have some larger Capital maintenance items, we have to do some overhauls of some equipment that will be likely in 2024, but also looking towards La Preciosa, which As you noted, isn't exactly sustaining capital, that's growth capital for us. We have acquired some equipment for that, but we will need more and as well, obviously, some of the cash flow generated PermaVino is earmarked for development.

Speaker 1

We got the most important piece of equipment, a new jumbo. Yes. Driving the ramp.

Speaker 6

We have gotten equipment ahead of time, stuff that can be used at Avino in the meantime, but can be transferred over to La Preciosa as soon

Speaker 8

as we get the green light.

Speaker 3

The next question is from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.

Speaker 7

Thanks, operator. Good morning. Thanks for taking my call. Just a couple of operational questions for you. First up on the you mentioned you hauled out 207,000 tons to service about 30% more than you milled.

Speaker 7

What's the nature of those tons? Are they like Great going to a low grade stockpile? Are you building out a stockpile? Is it reflecting increased efficiency from the mining side? Could You talk about that a little bit?

Speaker 8

Yes. Thanks so much, Matt. That's a great question. We have so if you remember last quarter, we improved our ramp conditions And that's dramatically improved the ability to haul from underground. So we have been hauling the mine's been outperforming the mill, so to speak, And that's building a stockpile and that would be actually high grade stockpiles.

Speaker 8

The issue with some of this material, I shouldn't say the issue or the challenge with it, Some of those boulders are quite large, so we needed a rock breaker that is now on-site to break some of that material. So in Q4, we look to be Slowing haulage a little bit to draw down on those stockpiles, which will help improve our costs certainly, as well as see some very good

Speaker 1

grade that go through the mill is what We're seeing right now.

Speaker 7

Okay. Okay, that's good. And then just another question on the mill itself. I know you've made some modifications, but we've in the last couple of quarters, we've seen recoveries trend down both for silver and copper. Can you discuss That a little bit and can we expect to see that those recoveries move back up?

Speaker 8

Yes. I think The simple answer is yes, I think we can expect those recoveries and grades to move back up. And the reasoning for the decrease in grade is, We didn't have a piece of equipment that rock breaker on-site to break some of the larger unoxidized material. And as a result, we had a higher The fine material was oxidized. So that has a 2 fold effect.

Speaker 8

1, the grades a little bit lower And then the recovery rates are a little bit lower. And when you're starting with the lower grade, even if you have the same tailings grade, your recovery ends up Getting hit a little bit. So it's kind of the double whammy. The nice side the nice or the fact is that we are now through that material. We have the rock breaker.

Speaker 8

We're now breaking those larger boulders that have the higher grade material and we're already seeing the higher recovery and And grades of the mill.

Speaker 1

Yes, and the automation has It's worked well. It's just a few key pieces of equipment were delayed in arriving that affected certain circuits.

Speaker 7

Okay. And is that oversized material common that you've had or is that a function of different Or you need to work a bit more on some of your blasting? I'm out of my Yes.

Speaker 8

That's a fair question. No, as far as blasting, we have a lot of rock mechanics consultants come in, And we've kind of optimized the blasting. It's kind of the nature of the ETR body is that sometimes you get some relatively large boulders in different sections. And so you just you need a rock breaker on surface to send some

Speaker 1

of that through. The stock work systems, when they blast The shock goes down where the fractures are and it just happens. We've had experts on-site as you said And we've optimized it as best we can.

Speaker 7

So we just get some slats as to David's point.

Speaker 3

The next question is from Richard Mango, a Private Investor. Please go ahead.

Speaker 10

Good morning, fellows. Thank you for taking my call. I have a quick question in reference So wanting more color on the 3rd Ohino Group. And what happens if they choose not to sign? Does it go to arbitration?

Speaker 10

Or what actually happens?

Speaker 1

Well, we're in the final stages of negotiations with them.

Speaker 7

Is that better?

Speaker 9

Yes. All right.

Speaker 1

Yes. So we're in the latter stages of negotiation. They want the agreement In place, so it's just fine tuning it. So it's imminent.

Speaker 10

But I guess my point is if they choose not to sign, what happens?

Speaker 1

They want to sign. They want the economic benefit. So it's happening. It's moving forward. Okay.

Speaker 1

All right. Thank you. Thank you everyone for joining us on this call today. We're looking forward to a better healthy Q4. So stay tuned for some news from us.

Speaker 1

We'll have the Pre feasibility study completed in Q4. So hopefully, we can get that news out to you before year end. If not, it will be early in January.

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Earnings Conference Call
Avino Silver & Gold Mines Q3 2023
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