Avino Silver & Gold Mines Ltd. (ASM) Q4 2014 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Fourth Quarter 2014 Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Charles Daley, Corporate Communications. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines year end 2014 financial results conference call. On the call today, we have the company’s President and CEO, David Wolfin; our Chief Financial Officer, Malcolm Davidson; and one of our Directors, Mr. Jasman Yee. Before we get started, I’m required to remind you that certain statements on this call will include forward-looking information within the meaning of applicable securities laws. These may include statements regarding Avino’s anticipated performance in 2015 and future years, including revenue and cost forecast, silver and gold production, grades and recoveries, and the timing of expenditures required to develop new mines in mineralized zones. 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. Thank you. With that, I’ll now turn the call over to Avino’s President and CEO, Mr. David Wolfin.

Thanks, Charles, and welcome everybody. I’d like to thank you all for joining us here today. During this call, I will cover the highlights of this morning's news release and our financial and operating performance in 2014 compared to 2013. I’ll then open up the call for Q&A session. I am pleased to report that 2014 was another profitable and memorable year for Avino despite the challenging year in precious metals market. In 2014, we increased production from our existing operation, completed our Avino mine and mill expansion, identified new areas for mining around San Gonzalo mine, acquired the Bralorne mine in South Western British Columbia, and successfully raised over $11 million to fund our ongoing strategic growth. Revenue for the year was $19.2 million, compared to $16 million the year prior. The increase was due to higher productivity, at both the San Gonzalo, and Avino mine stockpile operations. Mine operating income increased by 800,000, totaling 7.9 million in 2014. The annual figure has increased due to higher grades and more ounces of silver and gold produced. Our earnings for the year before income taxes were $4.9 million, compared to $3.4 million in 2013. Net income for the year after taxes was $2.5 million, compared to 848,000 in the previous year, resulting in earnings of $0.08 per share, up from $0.03 per share in 2013. Current income tax expenses during the year totaled 1.8 million, compared to 43,000 in the previous year. The increase was a result of us using up all of our available tax loss carry-forwards in Mexico, and the effect of the new Mexican mining tax regime, which was implemented at the beginning of 2014. The company continues to review tax planning strategies to mitigate the impact of income taxes. Our realized silver price decreased by 16%, from $22.59 U.S., to $19.04 per ounce sold, and our realized gold price decreased by 6%, from $1342 U.S. to $1266 per ounce sold, compared to the year prior. Our consolidated cost decreased by 9% year-on-year to $9.29 per sliver ounce equivalent payable. And our consolidated all-in sustaining costs were $12.24, compared to $14.67 the prior year, a decrease of 17%. The decrease was a result of higher grades and recoveries at the San Gonzalo mine. Cash costs at San Gonzalo were $9.03 per ounce equivalent payable, compared to $9.78 in 2013. While [ph] payable ounces produced from the Avino mine stockpiles operation costs of $10.65, a decrease of 15%, the decrease was a result of a one-time maintenance cost that was completed in the last quarter of 2013. Consolidated costs are expected to decrease, thanks to the availability of cheaper grid power, as well as due to the economies of scale that will be created by the 1000 ton per day mill circuit number three once cash generated from the sale of its concentrate is classified as revenue after production is declared. Circuit 3 began processing new material from the Avino mine on January 1 of this year. Our cash and cash equivalents increased by 11%, from December 31, 2013, to $4.2 million. The balance was influenced by two financings in the first quarter, for 11 million, less approximately 9.5 million spent on the Avino mine and mill expansions, as well as the acquisition of Bralorne gold mines. Now, onto operations, I'm pleased to report that we delivered another record year of production, thanks to the hard work of our teams in Mexico and Canada. Silver production increased by 39%, to 969,525 ounces. Gold production was up 60%, to 5,180 ounces. And we produced copper, 305,417 pounds of copper in the fourth quarter of last year. As a result, silver equivalent production was up 49%, to 1.3 million ounces. The increase in production was primarily due to improved grades, and recoveries at San Gonzalo mine, as well as additional operating months from the Avino mine stockpiles, and from processing stockpile material through mill circuit number 3 during the commissioning period. We look forward to a similar percentage increase in our production profile for 2015, with the Avino mine now online. We are eager to add output from Bralorne mine to our production profile, as well as to expand and optimize the operation. Now, let's move on to our outlook for 2015. Management remains focused on following key objectives, maintain profitable mining operation while managing operating costs, and improving efficiencies, integrate the Bralorne operation into Avino corporate structure, and implement strategies to make the operation more efficient and profitable, continue to explore regional targets on the Avino property, and conduct exploration drilling at Bralorne to expand our resource base on both properties, construct a new tailings storage facility on the Avino property, so we can decommission the existing facility and proceed with the recommendations made in the preliminary economic assessment covering the oxide tailings resource. We would like to now move the call to Q-and-A portion. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Heiko Ihle of H.C. Wainwright. Please go ahead.

Hey guys, this is Jake in for Heiko; congrats on the year. Would you be able to just give us a breakdown of the increase in CapEx, presumably most of that was for the mine expansion, but if you guys have a breakdown that will be good.

Hey, Jake, it's Malcolm here. Thanks very much for the question. So you're looking for a breakdown of exactly what it is we spent in the mill, or what we spent…

Yes, just a breakdown of the $5.5 million in CapEx.

Good question. Jasman, maybe you can help me out a bit with this one. Just thinking about our additions to the actual mill circuit 3, a large portion that would just maybe help me out a bit with what we spent on the…

This is what we have spent. The big items were really the filter press, the thickener, and also the additions to the mill, like the clutch…

For the ball mill?

Yes, that's for the ball mill. Those were the big ticket items in the plant.

The new [indiscernible] being the new jaw crusher.

And there was also the screens that we had to install in the crusher, but that would be…

Got it, okay. And then -- the decrease in cash flow from operations, that's just attributable to metals prices decline, correct?

Yes. It's correct.

Very good. Thanks guys, and congrats.

Thanks Jake.

[Operator Instructions] The next question is from Philip Dodge of Noble Financial. Please go ahead.

Good morning, everybody. Thanks for the comments. A couple of things, there's been a positive trend and recovery in grades at San Gonzalo now for several quarters. Can you put any timeline on how long that will continue?

Well, we feel that we've optimized the operation there, and we've achieved the targets that we've set out to get, but you never know. We're exploring along strike to the east, and to the west.

Hope [indiscernible].

Sorry?

And then, as far as exploration is concerned around San Gonzalo, how active is that? And then in exploration for full year, can you divide that between San Gonzalo and the non-contiguous properties that you discussed in the third quarter report?

Sure. There's many targets around San Gonzalo. Like I said, we're exploring to the east and the west along strike, but also there's adjoining veins, the Aguila Mexicana, Guadeloupe and a few other ones, -La Estela and Los Angeles. So we're going to be drilling those areas, and directly in the Avino mines. So San Gonzalo and Avino were the primary targets and then we’ll step up from there. It's hard to say exactly but the dollar amount per area depends on success.

Yes, well, understood. And one more what I’ll call depressed industry conditions as you expand that Bralorne, does -- the generally weak [channel] [ph] help you at all on infrastructure cost, adding the equipment to bring it on line later on?

Hey Philip, it's Malcolm here. It does. We’re in the process of -- or we continue to review potential mine plans and capital expenditure needs and we have been talking to various companies such as Sandvik and Finning, which is the Caterpillar arm in Canada. There are favorable rates for financing the equipment, and the pricing has been very competitive with current economic times.

Okay. Thanks very much, all the best.

Thanks, Philip.

Thank you, Phil.

The next question is from Mark Monin of Raymond James. Please go ahead.

Great job guys, very excited about the prospects of the future. I have two questions. First question is regarding the Bralorne and kind of the timeframe for 2015 when you will be able to start mining again, and I imagine drilling because I think you got a lot of prospects there. And second question is another resource that I think you have in the future when it make -- at the right time is the tailing at the Avino mine in Durango. If you could comment on that, that would be great.

Sure. First question, we’re currently drilling right now. We’re doing about 2000 meters a month. And results have been favorable, but slow in getting the assay. So we’ll put out some news probably within the next few weeks or month or so. Also we plan to reopen the mine in this summer. We’re planning to raise the dam level. And we’ve been doing modification in the mill and we’ve been upgrading the underground rail track and doing some mining. So things are moving ahead at Bralorne. In Mexico, we’ve applied for permits to build a new tailings facility. We’ve got an independent engineering study that we have submitted to the government. Once we get the approval, we’ll then build out the new tailings facility which will take about eight months. And once we decommission the current tailings then we can look to move that project forward which the PEA, that Tetra Tech did calls were 90 sonic drill holes, metallurgical test to upgrade from an inferred resource to proven reserve and then we can make construction decisions following that.

Thanks a lot, great job.

Thank you.

Thanks, Mark.

[Operator Instructions] The next question is from Henk Krasenberg of European Gold Centre. Please go ahead.

Good morning to you. It’s good afternoon here. Long time, David.

Yes, how are you? Good.

I’m doing - just weathering on in these markets but fortunately there are companies like you that stand out from the crowd. You deserve my complements because I think it’s absolutely great what you accomplished over the last few years, and especially that you’ve maintained your profitability. A lot of your silver colleagues cannot say that. I had some questions too, but most of them have already been asked and answered. The only question for me that remain is will Bralorne be producing gold in the coming year?

Yes, we plan to restart up to the mill this summer.

Any idea of the size that we could expect?

Our target is to get it to 150 tons per day, and we’ve hired SNC Lavalin and Entech, two independent engineering firms, to help us to create a phased program. So we’re looking at three phases. So that’s the first phase. Second phase will take it to between 250 to 300 tons per day. And then the third phase to 500 tons per day, which is what it’s permitted to do. So I can’t tell you the timing and all that, because a lot of it is based on success from the current drilling program. So as we drill and if we’re successful then it justifies expanding the mill and mine operation.

Okay. Well, of course I’m not surprised that you've made the acquisition having gone back with both Avino and Bralorne for many years. It was to be expected and I was glad to see it happen. I think it’s a very wise move, given the success that you’ve been showing at the Avino, I hope you’ll do the same at the Bralorne. I wish you all the best.

Thank you very much.

The next question is Robert Kecseg of Las Colinas Capital Management. Please go ahead.

Hi, guys, great, great quarter. I wanted to ask, could you give us some light on the upcoming CapEx for the upcoming year, and the other part of the question was along those lines of CapEx dedicated to the other potential in Avino mine area? If there was something that was determined there, if certainly something that comes in a couple of years from now, I believe could you just tell us how thaty work from that stage, at the early stage to actually producing something?

Sure, Malcolm Davidson here. Good question. Our CapEx for 2015 and early part 2016 for the Avino operations in Mexico is approximately $10 million. Most of those funds will be allocated towards the new power [ph] line, which we're working on the tailings project, and also it continue to advance the Avino underground mines.

Okay, and then the second part of that, the early exploration drilling that you're doing in the Avino, overall Avino prospect, about how far out does that come to provision as far as developing?

We’re currently drilling now, and we’re waiting for permits to drill other areas of the property. There’s no shortage of targets. We’ve got a huge database raw data that we’ve been compiling into a 3D model. We’ve been using the IPG [indiscernible] surveys, and all our data is now been fully automated. So we’re going to generate lot more targets in the future.

Okay, great. Thank you very much.

Thank you.

There are no more questions at this time. I’ll hand the call back over to David Wolfin for closing remarks.

Well, thank you everybody. I appreciate the big turn out. Please stay tuned. The expense is behind us, the current expansion. So the Q1 production numbers will be coming out in the next few weeks in April. I think you all will be pretty pleased with what you see. And we’re going to continue to look to expand the operation anywhere we can. So thank you all 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.