Avino Silver & Gold Mines Ltd. (ASM) Q3 2015 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines’ Third Quarter 2015 Earnings Call taking place November 10, 2015 at 8 o’clock AM Pacific Time. As a reminder, all participants are in a 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 will turn to Charles Daley, Corporate Communications. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Limited third quarter 2015 financial results conference call. On the call today, we have the company’s President and CEO, David Wolfin; as well as 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 our financial and operating performance during the third quarter of 2015 compared to 2014, and then open up the call for Q&A session to address any questions you may have. Revenue from mining operations for the quarter was $5 million compared to $4.7 million in the comparative quarter last year. This increase was primarily due to an increase of silver equivalent ounces produced and sold which increased to 300,420, a 19% increase over the same period last year. Cost of sales decreased by 5% to $2.8 million resulting in mine operating income of $2.2 million, a 28% increase over last year. Earnings for the quarter before income taxes were $44,000 compared to $1.2 million in the same quarter last year. Earnings before taxes decreased as a result of lower metal prices for revenues recognized and $899,000 foreign-exchange loss caused by the strengthening US dollar relative to the Canadian dollar and Mexican peso. Income tax expense during the quarter totaled $669,000 compared to $416,000 in the same quarter of the previous year. The increase in income tax expense is a result of another quarter of profitable mining operations. Net loss for the quarter after taxes was $625,000 compared to earnings of $788,000 in the corresponding quarter last year, resulting in a loss of $0.02 per share compared to earnings of $0.02 per share in Q3 last year. During the nine months ended September 30, 2015 our realized silver price decreased by 19% from $19.55 US to $15.75 US per ounce sold. Our realized gold price decreased by 9% from $12.79 US to $11.58 per ounce sold compared to the same period last year. Our consolidated cash cost per silver equivalent ounce payable was $8.26 compared to $10.36 last year, a decrease of 20% and our consolidated all-in cash cost was $11.99 compared to $13.01 in the same quarter of the year prior, a decrease of 9%. All-in sustaining cash cost at San Gonzalo was $12.04 per silver equivalent ounce payable compared to $12.30 in Q3 2014. Our team has done an excellent job in controlling and managing operating cost which is evident in our Q3 cash cost and all-in sustaining cash cost figures. Our cash and cash equivalents increased by 115% from December 31, 2014 to $9.1 million. This increase is primarily due to a $10 million US prepayment received from Samsung as announced on July 11 news release. We continue to maintain a strong balance sheet which will keep us well-positioned for expansion and new opportunities. Now on to operations. I am pleased to report we delivered another consistent quarter of production thanks to the hard work of our teams in Mexico and Canada. Silver production increased by 84% to 400,000 ounces. Gold production was up 49% to 1891 ounces. And we produced 1.3 million pounds of copper. As a result, silver equivalent production was up 148% to 770,000 ounces. The comparative increase in overall production was due to the Avino mine and the associated Mill Circuit number 3 coming online January 1 of this year. During the quarter, output from the Avino mine increased by 12% to 493,455 ounces of silver equivalent compared to Q2 2015. The increase was the result of using Mill Circuit 2 in addition to Mill Circuit 3 to process Avino mill feed during July and August. Since reopening the Avino mine in the second half of 2014, the company has been continuing its efforts to develop the mine, including the extension of the haulage ramp to access and extract the mineralized material included in the resource estimate prepared by Tetra Tech. As previously announced, the company has arranged for the sale of the Avino mine material to Samsung. The material is processed into concentrate using Mill Circuit 3 and during the nine months ended September 30, 2015 the company recorded total proceeds of $14.9 million. The proceeds generated from the sale of Avino mine concentrate is currently accounted for as a recovery of exploration and evaluation expenditures and not reported as revenue until management has made the production decision which is expected in the coming months. The original mine plan calls for 20 to 24 months of development. However during this period this development will take place primarily within mineralized areas. The majority of the underground mining equipment has been received. However we're still waiting on delivery of a new production jumbo and a grader which once received will help optimize the operation. During this period the company plans to extend the haulage decline and put in five new levels within the area included in the existing resource estimate. The drawing of this plan can be found on the company's website. At Bralorne, we completed the raise of the embankment dam for the tailings storage facility as well as a new mine closure plan. We've applied for permits to resume mining and processing and plan to get underway when the permits have been received. Now let’s move on to objectives for the remainder of 2015. Management plans to remain focused on the following key objectives: maintain and improve profitable mining operations while managing operating costs and achieving efficiencies; advance the Bralorne project towards profitable production; explore regional targets on the Avino property and conduct exploration drilling at Bralorne to expand our resource base on both properties; identify and evaluate potential projects for acquisition. We would now like to move the call to question-and-answer portion. Operator?

[Operator Instructions] The first question today is from Bhakti Pavani with Euro Pacific Capital.

Just couple of questions on the income statement. You have about a foreign exchange loss of about 898,000 and then on the other income you have about a foreign exchange gain I believe. I am just trying to understand the different entries on the income statement for both of them.

Bhakti, this is Malcolm here. The 898,000 foreign exchange loss is primarily driven by the net liabilities we have denominated in US dollars. During the quarter we closed the transaction with Samsung and received the $10 million US prepayment. So that’s primarily driving the foreign exchange loss. When that gets translated from US dollars to Canadian, it’s generating quite a foreign exchange loss for us. The other amount I believe you are referring to the other comprehensive income –

Yes.

That’s a result of translating the balance sheet at the quarter end date, so all of our current and long term balances are re-translated each quarter, so it’s not an operations item, it’s more of a balance sheet item.

Also with regards to the all-in sustaining cost, you guys have been very successful in reducing your all-in sustaining costs, they were kind of slightly higher this quarter than the previous quarter. And I am assuming it was because of the Avino stockpile material that you guys told, would that be correct?

Little bit. We did process too much of the historical stockpile during the quarter. In the overall our all-in sustaining cash cost is pretty close to where it was in the previous quarter but we haven’t changed anything significantly in our operations of our growth assets.

With regards to the fourth quarter, I know you guys are going to make a production decision hopefully in the coming months. Just kind of curious, while considering the revenues, should we be considering any kind of expectation on any of the stockpile material being sold for the fourth quarter or being processed?

I don’t – it’s Jasman here, Bhakti. I don’t think there is any plans to process the historic stockpile materials in the fourth quarter. I think what we are looking at is probably use Circuit number 2 to process the additional Avino material from underground. Our miners have been able to mine the excess of what Circuit 3 can do.

Yes, with the new production jumbo and the grader that will help us exceed the 1000 tons per day, so we will be able to feed both Circuit 2 and 3 with the fresh material from the underground.

Also, one more question on the Bralorne. I know you guys applied for the permits for mining and processing. Any kind of color on when do you expect the permits to be approved or received?

It’s Fred Sveinson here. I’ve just joined as consultant of mining and here I am looking after Bralorne. We’ve submitted – we believe all the reports and it requires to due to a loss, to go back to production, however all those reports require reviewed by different people in this environment, energy wise, and so it’s a matter of pressing rules forward. Right now we are trying to get in first weeks of January for production and we kind of provided those ministries with all our information and gave them a personal presentation, a PowerPoint presentation of all the key aspects about a week ago and all that was very positively received.

The next question is from Jake Sekelsky with Rodman & Renshaw.

So can you just walk me through the capital spending for the remainder of the year? I mean I know you guys have been focusing on upgrading the mining fleet, particularly during this quarter. Should we expect something similar in the fourth quarter?

We’ve completed most of our capital expenditures. I think on the web we have a grader in order which we hope to see fairly soon. We just provided approval for a new jumbo from Sandvik which will be used at the Avino mine. Both of those are acquired through capital lease, and we’re also looking at some smaller items, some scoops for the Bralorne project as well. But overall that has been completed, we will be looking at the tailings for Avino, so that will be in 2016. So it’s fairly insignificant at this point, Jake.

And then I guess going off of that, with all-in sustaining cost below $12 which is impressive. Do you guys see any specific objectives that we can see some further improvement on that?

There is always room for improvement. One thing I just want to comment while everyone is flowing through is, because we present our plan statements in Canadian dollars, I just want to remind everybody that our cash costs are in Canadian dollars, so we are obviously in dollar range for all-in sustaining cash cost. As we do, the team in Mexico has done a fantastic job of managing the costs. We have replaced, we’ve done some other improvements in the mill, replacing pumps to keep everything optimized. I am always confident that we will continue to see improvement but I think we are pretty comfortable with where cash costs are right now.

We have been looking at – as we replaced equipment in the mills to use modern equipment that can be used for optimization in the future with computers –

Yes, basically you are looking at optimization and – both process control automation, that kind of stuff and reducing the manpower that way.

That’s what we are looking at next year.

Fantastic. So that will be something for 2016?

Yes.

[Operator Instructions] The next question is from Bob Smith, a private investor.

Just had a question there regarding your growth. It looks like you guys are pretty stable at roughly 3 million copper ounces per year at least for several years. I know you guys don’t give exact guidance, but can you kind of what you guys are looking at in terms of production, where you guys think you will be next year to year after, what you guys are targeting in a realistic manner, that’s what I want to know?

Well we expect -- David here – we expect production to stay on part with what we are doing now, and next year we are going to formulate plans to build a new tailings facility into the site of the property, I am not mistaken, the pad’s been received, so it’s up to us to decide when we want to build it out, and then once that’s done we will then look to proceed with moving the oxide resource in the current tailings forward based on the PEA recommendations. And that will be another project that will add 1.4 million ounces of silver equivalent but that will be a couple years out from today.

And then of course whatever happens at Bralorne.

That’s correct. We are basically taking the same approach we used at Avino. I mean we started with a small resource and we upgraded and modernized and made it profitable and expanded the resource and we’re taking that approach at Bralorne. We have a lot of indications that there is a lot of resources still there potentially in the gap zone, and so we want to get to cash flow positive and then use that money to explore these gap zones in more detail.

And in terms of – you mentioned potential acquisitions, not saying that anything was for certain, what is kind of the criteria you look at when you are going for an acquisition?

Well we have been – people have been sending us some summary projects and so we look at all of them, and if something was valuable, and it looks like it makes sense and can help our operations, we’d be interested. So some thing and projects that are surrounding our operations are of immediate interest to us. End of Q&A

There are no more questions at this time. I will now hand the call back over to Avino for closing remarks.

Thank you everybody and we really appreciate you calling in today and wish you all the best for the remainder of the year and let’s hope for higher metal prices. Thank you.

This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.