Avino Silver & Gold Mines Ltd. (ASM) Q2 2016 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Q2 2016 earnings conference call. 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] I would now 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 second quarter 2016 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 2016 and future years including revenue and cost forecasts, 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 will 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’ll cover the highlights of this morning's news release and our financial and operating performance during the second quarter of 2016 compared to 2015. I'll then open up the call for Q&A to address any questions you may have. The second quarter of 2016 was a very significant period for the company, primarily because commercial production was declared at the Avino Mine. In past quarters, the sale of Avino Mine concentrate was classified as a recovery of exploration and evaluation expenses rather than revenue. Accordingly, revenue from mining operations for the quarter was CAD 11.9 million compared to CAD 5.9 million during the comparative quarter last year. Although significantly higher than last year, the figure was somewhat lower due to required maintenance of the ball mill on Mill Circuit 3 as well as lower grade material from San Gonzalo stockpile being processed using Mill Circuit 2, which together contributed to a 23% decrease in silver equivalent production. We're expecting a stronger quarter of production in Q3, which should add further to our topline revenue figure. Moving on, mine operating income was CAD 3.2 million compared to CAD 2.4 million last year. The increase was also due to revenue received from the sale of Avino Mine concentrate. Our realized silver price increased by 6% from US$16.10 to US$16.58 per ounce sold. Our realized gold price increased by 7% from US$1,179 to US$1,259 per ounce sold compared to the second quarter last year. Earnings for the quarter before income taxes was CAD 1.5 million compared to CAD 1.2 million in Q2 last year. Net loss for the quarter after taxes was CAD 450,000 compared to net income of CAD 361,000 in Q2 last year, resulting in a loss of CAD 0.01 per share, down from a positive earnings of CAD 0.01 per share last year. The loss was due to ongoing development expenses at the Avino Mine, which drove down margins, the decreased production from San Gonzalo, as discussed earlier, as well as our income tax expense which we are working to reduce. Our consolidated all-in sustaining cash cost for the quarter was CAD 14.51 or US$11.27 compared to CAD 11.72 or US$9.53 in Q2 2015. Costs were higher for the same operational reasons that brought down our net income. Our cash and cash equivalents increased by 42% from December 31, 2015 to CAD 10.7 million. During and subsequent to the quarter, Avino has been strategically using its ATM through Cantor Fitzgerald to raise capital to advance its projects. We continue to maintain a strong balance sheet, which keeps us well positioned for expansion and new opportunities. Now on to operations. As I mentioned earlier, this quarter, our silver equivalent production decreased by 23%. The decrease was a result of required maintenance on Mill Circuit 3 as well as lower grade development material from San Gonzalo stockpile being processed using Mill Circuit 2. Broken down, our silver production was down by 16% to 381,000 ounces. Gold production was down by 20% to 1,509 ounces and our copper production was down 16% to 1.1 million pounds. On a more positive note, our expansion plans are well underway. Last week, our contractor broke ground on a new tailings storage facility. Once completed, the current tailings storage facility will be decommissioned, allowing us to move forward with the recommendations made in the 2013 Tetra Tech PEA on the oxide tailings. To get a head start on the recommendations, we recently completed drilling on the exposed oxide bench. Results from the drill program will be included in a new resource estimate to be released later this summer. At Bralorne, we continued to develop a strategic operating plan for profitable production. Our new mine plan includes changing the mining method to long-haul mining, which is considered safer and less labor-intensive than previous trial mining methods and would support production levels up to 300 tonnes per day. New mining equipment is being acquired to replace older mining equipment and to further mechanize for long-haul mining. Engineering is in progress to expand the mill and to upgrade the surface infrastructure from 100 to 300 tonnes per day. Expansion work for the mill and infrastructure is expected to start in the latter part of 2016. Now, let's move on to the outlook for the rest of 2016. Management remains 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, followed by other properties in our portfolio; assess the potential for processing the oxide tailings resource from previous milling operations; and identify and evaluate potential projects for acquisition. We’d now like to move the call to question and answer portion.

[Operator Instructions] Thank you. The first question comes from Rob Chang, Cantor Fitzgerald. Please go ahead.

Good morning, gentlemen. A couple of questions. First off, with respect to the taxes, it seems quite high. Can you expand on how it got to that level and just more details on that please?

Hi, Rob. It’s Malcom here.

Hi, guys.

So our total income taxes is, obviously, divided into current and deferred. So the current income taxes are just simply the tax that we’re paying on taxable income earned in Mexico. The deferred income tax is a little bit more complicated. A lot it’s driven by using the US dollar as our functional currency in Mexico, so we’re translating from pesos to US dollars and then to Canadian dollars. And, ultimately, what’s happening is we’re having a large – of the CAD 1 million deferred income tax expense in the current quarter, a large portion of it is driven by foreign exchange. So it is unusually high. It’s a non-cash number. With that being said, we’ve considered a few things to help mitigate this expense and one of them is reporting in US dollars as the reporting currency versus Canadian, although that can introduce other complications. But it’s really from translating from the peso through to the Canadian dollar of our Mexican subsidiary.

Would that qualify as an adjusted – or something that you could list as an adjusted net earnings and have that netted out?

That’s a good question. I have to get back to you on that.

Okay. Because it might be a cleaner if that was taken out – if that qualifies.

I can send an email on that.

Sure. Yeah, sounds good. Second question is – I’ve been looking for this. I’m not sure if I missed it. But do you have any hedging or some type of contracts in place? And the reason why I ask you is I tried to reconcile your sales based off of realized pricing and I couldn't quite get to the number you have in Canadian dollar terms. Because it ends up translating at probably a $0.89 US to Canadian exchange rate if I were to do it roughly. I’m just wondering if there are any hedges in place or anything that explains why it couldn't quite match up the numbers.

We don't have a hedging program in place at the moment. It’s something we’re looking at. The operation has grown significantly, having the Avino mine online. But as far as the reconciliation, Jasman, maybe you can comment on – just not too much on the dollar wise, but on our ounces sold because that’s what’s driving the difference in revenues as well?

Yeah. As far as revenues go, Rob, basically we get paid on the basis of our deliveries. So in our contract with Samsung, basically, our sales are based delivery and it's really the month of delivery plus three months down the road to finalize the pricing. And as far as I'm aware, all the revenues that we get based on the final invoicing is factored into the revenue side of things.

Okay. But that price –

I hope that answers your question.

It sort of does. What I'm driving at, though, is the realized pricing that you guys report, for example, $16.99 in silver in US dollar terms, if I were to just multiply that into your silver equivalent numbers, I'd get somewhere in the neighborhood of $10.6, let’s call it, US dollars. So if I throw in the exchange rate at the time, which I believe was better than $0.89, it gets to be a much higher number than CAD 11.9 million. So I was just trying to figure out how that reconciles. I’m not sure if that’s something you can answer over the phone or if we should do this offline, but I was just trying to get a sense of if there was an easy answer.

It’s Malcolm here again. You know what, let’s have a chat after the call. I actually have a – I do have a few other comments that I can go over with you.

Great, thank you.

Thank you.

The next question comes from Bhakti Pavani from Euro Pacific Capital. Please go ahead.

Good morning, guys.

Good morning.

Hi, Bhakti.

Just a quick question, what was the capital expenditure for the quarter and how should we be looking for the expense for the remaining year?

So during the period, I think our capital additions was about CAD 1.5 million. So, now, when you’re looking at the statements just to clarify, you’re going to see a transfer of about CAD 8.6 million out of exploration and evaluation assets and about CAD 6 million going into property, plant and equipment. And that’s reflected in the adjustment to transfer the value of the Avino Mine from exploration and evaluation assets to property, plant and equipment. So that sort of is the movement within the balance sheet. Going forward, we’ve acquired most of our equipment needed for our current operations. We’ll have a little bit for maintenance, but it won’t be significant. And we have budgeted about CAD 2.5 million for the completion of the new tailings facility, which is planned to be completed before the end of the year.

And how would that breakup or distribute between Q3 and Q4?

I would say, 50/50. It might be a little bit more in Q4, but there are some upfront costs. But I would say 50/50 is reasonable between the two quarters.

Okay. Also the cash cost was slightly higher compared to your past. And I'm assuming that because of the Avino – declining commercial production at Avino Mine. Could you maybe provide some color on how you can reduce that cost further for the remainder of the year, if possible?

Sure. Just a few comments on cash cost. First of all, the margin on San Gonzalo was relatively the same, although we did sell – we did sell fewer ounces from San Gonzalo. So that brought the cash cost up at San Gonzalo a little bit. But with the Avino Mine, at the moment, we’ve got a combination of a production mining cost and development mining costs. And development mining costs are significantly more expensive. That being said, when we transitioned to production in April, a large portion of the inventory that was traded over and subsequently treated as cost of sale was much higher because it was development type mining that was used when that inventory was actually produced. Now, going forward, probably for the next nine months, we’ll be using a combination of development mining and production mining. We will see the cost go down. And I would say, 2017, we’ll see a significant reduction when we’re only production mining.

We’re still ramping down to the bottom of the mine and putting in new levels, so that’s the development mining.

Fair enough. Fair enough. All right. Thank you very much, guys. That’s it from my side.

Thank you.

Thanks, Bhakti.

The next question comes from Heiko Ihle from Rodman & Renshaw. Please go ahead.

Hey, good morning, guys. Congrats on the quarter.

Hi, Heiko.

I’ll start with this one. Consolidate all-in sustaining cost was CAD 14.51 an ounce per silver equivalent ounce, a 247% increase compared to CAD 11.72. I take it that it is just a typo, given that if you do the math it gives you 23.8%. But I just want to make sure and I'm pretty sure I'm not missing something insanely obvious here.

No. Thanks for pointing that out, Heiko. Absolutely right. It did increase, but not by 247%.

Because that will be very scary.

It would be.

Okay, fair enough. So 23.8% is the number to use then [indiscernible]. So long-haul mining on Bralorne, you’ve said you’re getting the equipment. It sounds like a lot. The technical analysis stuff is done. Couple of things. Can you just sort of walk us through timeline cost savings, anticipated cost of getting that stuff? Just elaborate a little bit of what you’ve got listed in the release please.

For Bralorne or…?

Yeah, this is for Bralorne. Heiko, we’re still studying this. And basically, the old method of mining, which is the standard scope mining, basically, you could get only about a third of the tonnage as you’re developing the scope. And, normally, this is the swell that’s being taken off while you’re mining. With the long-haul, basically, whatever you mine, you'll be getting it out, which is why the larger throughput makes a lot of sense. At the same time, you’ve really got to factor in – there’s also a dilution problem that you may be faced with. So, basically, we want to do the actual test with numbers currently being generated by Entech, which is the engineering firm that has a lot of long-haul mining experience and they’re sort of helping us walk us through on this. But the first phase would be to do an actual test and see how this works out when we start out the Bralorne operation.

Yeah. Fair enough, fair enough.

We’ve already started ordering parts to expand the mill. We’re looking at upgrading the surface buildings, and so we’re already moving ahead on all that.

I'll try again. Are you willing to sort of hinting at how you’ve spent or how much you anticipate spending?

Well, I can tell you what we’ve spent. It’s outlined in the financial statements. I'm just going to get a quick reference here. We spent about CAD 3 million this year. A big portion of that was – the most significant portion was the improvement of the tailings facility and also for water treatment. As we’re more or less at care maintenance at the moment, we’ve kept all of our other costs to an absolute minimum, other than any capital improvements we’re making to the mill. So, going forward, to answer your question, Jasman mentioned, we’re still analyzing a few different options. Obviously, each of them have a different capital expenditure amount. And we haven’t made any decisions on what is going to make the more sense. There’s still more information needed and we’re working with a number of consultants to come up with the most optimal plan.

Got you. Okay.

We’d like to consider this week. And I think when I see you next week, I can give you a bit more of an update.

Got you, okay. So silver was down 16%, copper down 16%, but gold was down 20%. I know we’re only talking about 1500 ounces, but should we model out a little bit – I'm sorry, silver down 16%, copper down 16%, gold down 20%. Should we be modeling out maybe slightly lower gold grades for the rest of the year? Or was this sort of a one-off?

Well, when we declared commercial production, it's on the upper level on the perimeter of the deposit, which is lower grade, and the development mining down below is in the heart, and so we expect the perimeter mining – the mining method uses long-haul sublevel caving, which is going to retreat back towards the core area of the mine. So we anticipate better grades going forward.

Perfect. Thanks. Thank you, guys. Talk to you next call.

Thanks, Heiko.

Thanks, Heiko.

The next question comes from Mike Heim from Noble Financial. Please go ahead.

Thanks. I'm still trying to understand the difference between the operating income and the net income and you touched a little bit on taxes and foreign currency. But I haven’t seen full financial statements at this point. I'm wondering if you can kind of those exact numbers and comment on when stuff will be posted to the Web site.

Sorry. The income before other items or net income before tax?

I'm looking at just some of the line items between operating income and net income, specifically the CapEx.

Looking at the quarter, we’ve got CAD 230,000 in foreign exchange gains. That’s a combination of realized and unrealized on translation to pesos – sorry, from pesos to US dollars and Canadian dollars. A bigger number is the CAD 670,000, the fair value adjustment on the warrant liability. A few years ago, when we did a financing, we did issue warrants denominated in US dollars. And each reporting period, those need to be revalued and the biggest variable in that evaluation is foreign exchange. So depending on movements between the Canadian and US dollar, we’ll see a gain or loss each quarter. We’re hoping to perhaps have those warrants exercised or not have them at the end of the year. So we won’t have that fluctuation anymore. The accretion on the reclamation provision is simply the amortization of reclamation provisions in Mexico and Canada. We have an interest expense on our equipment loans and finance leases with Sandvik and Caterpillar respectively. And that’s sort of the main components of other items.

And what was the tax expense?

The tax expense was CAD 1.9 million and that was made up of CAD 900,000 of current income tax expense, which is basically tax on our net income. And it was about CAD 1 million of deferred income tax expense, which I commented on a little bit earlier with Rob. And the biggest component of that CAD 1 million, again, was foreign exchange.

Also on an unrelated note, are we getting closer to new reserve numbers?

Yeah, there’s a new 43-101 expected out this summer.

Okay. All right, thank you.

Thank you.

Thanks, Mike.

[Operator Instructions] The next question comes from Todd Davis, a private investor. Please go ahead.

Thank you, gentlemen. My question has been answered. I was just curious on your average silver selling price. It just seemed low for the quarter considering silver was above $17 an ounce rather than the first week of June. So I was just a little curious on that.

Malcolm?

It’s a little low. My comment would be there is – simply different from about a month.

Yeah, it’s N plus 3. The fact that our silver pricing is based on the month of delivery –

Correct.

And three months after that. So, basically, we’re sort of lagging a little behind other the current price. It’s basically what –

Yeah. Some of the higher metal prices we’ve seen in the last few months, we will start to realize those in Q3.

Yeah, in Q3. Correct.

Okay, gentlemen. Congratulations again on bringing Avino online. Thank you very much.

Thank you.

The next question comes from Bernie Milask [ph], a private investor.

Yes. I have a fairly simple question. Your contract with Samsung, I guess, they take out treatment and refining charges. Now, do the treatment and refining charges and the shipping charges come out before income or are they counted as part of your income? In other words, is it pre-income or is it after income? And can I count that as a cost?

It’s pre-income.

Okay. So in other words, the revenue already includes those treatment and refining charges?

That’s correct. The revenue is on a net basis. And then we deduct our in-house production costs.

Okay. Now, the question on Avino is, you have production of 2,222 tonnes, but yet you shipped 2,665 tonnes or 2,663 tonnes. Where did the extra tonnage come from? If I'm reading your MD&A correctly.

I think we always keep a surplus, so we may have delivered a little more that quarter.

Okay. It’s just timing of deliveries.

Correct.

Okay, thank you. That's all I have.

Thanks for the questions.

The next question comes from David Sheridan from World Over Capital. Please go ahead.

Yeah. Hi, guys.

Hello.

Just coming back to this particular point everyone keeps talking about with respect to the price received versus the silver price that you state. It would appear to me, having gone back in history over the life of Avino, did you basically lose about 13% or 14% every quarter, which is basically the charge that you must be – now being charged by Samsung and previously being charged by someone else? Is that a fair comment?

Correct.

Yeah. That’s what I thought. Okay, fine. Next thing, is the target for 2016 on production still to produce around 3 million equivalent ounces of silver?

It's between 2.8 million and 3 million.

2.8 million to 3 million, okay. And after the second quarter's results, how are you feeling about that as far as where you are likely to be in that range? Are you feeling that you’re more likely to be at the conservative end or are you more optimistic you can get towards the upper end?

Jasman, you want to take that one?

Yeah, I think on the conservative side. I think we’re probably looking more like about 2.8 million ounces for the year.

Yeah, fair enough.

I would say, and if we do hit 3 million, that’s really a bonus.

Okay. Two more questions for you. There has been discussion – I know the CEO has mentioned at various time – that there is – once Avino Mine comes into production and that you establish your mining capability and you're more confident of your reserve position that you would contemplate an increase in mill capacity at the combined San Gonzalo and Avino Mines from 1,500 tonnes per day, which is where you are now, towards 2,500 tonnes per day at a cost of around $3 million. Is that still something that you're contemplating? And if you are contemplating, is the decision determined by the upcoming 43-101 statement, which will give you more conference as to how much ore you’ve got there or is it dependent on other factors?

The additional circuit we’re looking at is estimated to cost between 2 million and 3 million. That’s not including the cost for more underground mining equipment. So we're studying this right now. And as we develop the rest of the mine and open up enough levels to see the larger mill, we will then plan towards that in the future. So it's currently in planning phase.

Yeah. But is it determined more by the 43-101 that’s coming up?

No.

No, not determined?

No, it’s determined by a number of factors. It’s determined by having the mine fully developed, having enough haulage trucks to bring it out, to feed the larger circuit and timing it all, so when the mill is ready, we can feed it. So we’re looking at larger trucks for the underground and availability of getting the larger trucks. So it’s a lot that we’re – we don’t have a timeline on it just yet.

Right, okay. Which brings me to the next point which is that the new tailings dam that you are putting in place now at a cost of around 2.5 million, I'm assuming all of these costs that you talk about are in Canadian dollars because I'm not really sure. You didn’t measure at one point, but now it’s slightly different exchange rate, I guess, it matters a bit more. So are they Canadian dollars you talk about or US dollars?

No, it’s usually US dollars.

US dollars, okay.

Most of our capital items and significant expenditures are in US.

Okay, fair enough. So it brings me to the point, you’re going to put in a new tailings dam, which should take out six months, take you to the end of the year, and then you’re contemplating at some point, basically, processing what is left in the old tailings dam.

How it works is that we have a PEA and then the recommendation we must drill off the entire tailings dam. And we want to test – metallurgically test the upper sulfides. There’s about 3.5 million tonnes of sulfide sitting on top of about 2 to 3 million tonnes of oxides. So in order for us to proceed and make a construction or production decision, we need to do more testing. So the PEA – it’s just a PEA. It’s not a pre-feas or a feas. So it recommends extensive drilling of the tailings and metallurgical test work to see if the upper sulfide leach. If so, that’s going to improve the economics and then we can – we’ll have a reserve and we can make a construction decision at that time. So to get a head start on all this, we pre-drilled over Sweden predrilled the exposed oxide bench because it wasn't damp, it wasn't dangerous to put a drill rig on it. So we've completed that. And that portion of the oxides is going to be included in the new resource estimate. So once we decommission the tailings dam, we’re going to drill some wells, so we can pump out the water that’s saturated through it and then it will be safer to put a drill rig up on the top.

Okay. So is there any timeline with respect to what you – when you think you’ve got to finish the drilling and get an idea of what you're –

Well, as soon as we finish building the new tailings facility, then we’ll decommission. We’ll stop dropping new tailings on it and carry on immediately. So we’ll put in those water wells, dry it out. And as soon as it’s safe to put a rig on top, we’ll do that. So that will be next year. Then we’ll do metallurgical test work and Jasman can tell you what’s involved in that and how long that takes. Jasman, do you want to comment on that?

Yeah, basically, the drilling and the test work will take place next year once the tailings dam has been decommissioned – the old tailings dam has been decommissioned. According to the Tetra Tech schedule, when they did the PEA, they were looking at it from the time they start to the time the study is completed is around about eight months, the construction and everything. So that’s more or less the timeline that we’re sort of working with.

Right. So just to give me a rough idea, would that indicate that you’re drilling metallurgical work, it’s finished in 2017, eight months for construction, potentially you are going to be producing from there somewhere at the back end of 2018. Is that fair enough?

If all goes well.

Yeah.

Yeah.

Okay. And is there any sort of relationship between that and the expansion – or potential expansion of production from Avino? In other words, does the two sort of some stage come together, you have to make a decision as to which one you opt for first or can they be run concurrently?

They can be run concurrently.

But, of course, the mill is going to be the factor – is the mill going to be a factor as far as --?

We have three independent circuits, so we wouldn't be shutting down anything. So we could just build –

I know you’re not shutting down anything. But you can’t just keep – you can’t expand Avino and stop production at the tailings without –

The tailings is a separate operation. It’s right beside. It’s a heap leach operation. The mill is the flotation plant.

Okay, yeah. Okay. Yeah, yeah, of course, you’re on it. So there’s no overlap between increasing production at Avino and in heap leach operation at the tailings. You can do them the same and they’re not using the same equipment.

Correct.

Absolutely.

Okay, all right. And when you’re doing your drilling in metallurgical work next year, you’d be also assessing the cost – the final cost of doing – of trading the tailings because –

Absolutely.

Yeah. Your PEA said about 22 million, if I remember.

29 million on a standalone basis. We have 490 people there. So it won’t be a standalone operation.

All right, okay.

All the infrastructure is there.

Yeah. No, I understand that.

So 43-101 requires economic studies to be priced out on a standalone basis.

Yeah, okay. Well, that’s the end of my questions.

Thank you very much.

The next question comes from Mare Kas [ph], a private investor. Please go ahead.

I’m sorry, operator. Can’t respond.

We can hear you.

Okay, good. Okay, sorry. I’m talking to you via Skype from Europe. That’s why I thought that – my telecommunications here wasn’t adequate.

We hear you loud and clear. Please proceed.

Yes. My questions, the ATM of Cantor Fitzgerald, any indication as to when you might be using it or what point in the drop in your working capital because you have – based on the answers to some of other questions, that’s a question we think you have a fairly ambitious cash requirement over the next two years.

As David – this is Malcom here. As David mentioned earlier, we’ve strategically used the ATM when it’s – it always works best for raising capital for some of the expansion, but we’ll continue to use it strategically. We may use it for some of our expansion plans or we may look at other financing opportunities with some of our current partners. But, no, we’ve managed it well and we’ve been very careful that we haven’t overused it.

Okay. And also, just based on – pulling all the questions together from the analysts and from investors, I just see that there’s a lot of difficulty in understanding your financial statements because of the currency translations that you’d have to go through, which inadvertently seems to kick up some income tax liabilities. Maybe you can devote some time to peering it up, so we can easier time of understanding what you’re doing. You’re doing well, pardon me. You’re doing it well, except – so that we can understand it easier.

It’s a really good comment and the finance team has looked a few alternatives and one of them is reporting in US dollars, which makes a lot of sense in many ways. But it also will depend on how we proceed with Bralorne. Not that that makes all the difference in the world, but most of the expenditures at Bralorne are in Canadian dollars. But it’s a good question and obviously we want to mitigate the impact of foreign exchange, certainly negative ones, on our financial statements. So it is certainly a priority for us. And this ATM will have some updates in the next quarter or two.

All right. And just a very quick question. I know that you have in the past negotiated some good deals with Sandvik and Caterpillar. Are you noticing any tendency for price increases, which is basically what happened in the period from 2008 to 2013 where all the precious metal price increases were eaten up in the prior – I'm not referring to your particular case, but in general, in the mining industry, were pretty well eaten up by increased expenses on equipment raises and so on.

It’s a good point. As I mentioned earlier, we’ve already acquired most of the capital equipment we need for our current operations. So we haven’t been buying a lot of new equipment. Obviously, we do keep a close eye on costs. But we do have a lot of sources that we can continue to utilize our current credit facilities at Caterpillar and Sandvik. We also may look at – there’s a lot of good used equipment on the market right now.

Okay.

So it really depends. But we certainly have low-cost access to it.

And a quick question on the Samsung. Do they really – when they were doing due diligence on you and, obviously, they must have spent a lot of time with you, did you get the impression that they felt somewhat exposed or fragile that they couldn’t have a secure silver source?

We didn’t sense that at all when we were negotiating with them.

They had told us that Apple and Intel were promoting that they know where the source of their raw materials are coming from and that they weren’t coming from slave labor type operations. And they just wanted a secure source. They have ethical funds that own shares in their company and they don’t want them to be boycotting Samsung for any bad press or anything like that. So they just – they are trying something different and new and it seems to be working out well.

Okay. So it’s sort of an ethical – from an ethics perspective rather than a supply shortage or securing a supply.

It’s probably both.

Okay. Eric Sprott is saying that – eventually, there’s going to be a silver shortage. [indiscernible] also. So I'm just questioning whether you’re actually – whether it’s actually – whether it’s actual or whether this is something that’s being only predicted at this point?

Well, I think there's an imbalance of supply and demand. It’s being consumed. So at some point, yeah, there could be a squeeze that takes the value up higher. Nobody knows when that's going to happen because you’ve got the ETFs and the paper – the securities out there that kind of skew the figures and people's perception. So there's $1 billion worth of ETFs that change a day and there's only probably a billion ounces of silver produced annually.

Thank you. That’s all for now.

Thank you.

The next question comes from Grant Marcat [ph], a private investor. Please go ahead.

Hello. How are you guys?

Hi, Grant.

Hi. Perfect timing. This tails right on what you were seeing and about the current silver shortage, the imbalance of supply and demand. And as a shareholder, that's kind of the elephant in the room for me on investing in companies like yours. Really, the current mechanism that sets the price, anywhere from 4 to 12 players that set what 80% of the spot price. So I’m just kind of looking for comments, maybe more comments than you already touched on on things involving the gold to silver ratio that are way out of whack, just getting to the realization of the true supply and demand? And maybe you can touch a little bit on what happened in 2011. Why did the price jump up to $48? Why are we out where we’re at now? What's changed? We’re looking at something in 1980 that, as we all know, the Hunt brothers, two wealthy brothers bought too much of it and the raised the price to $50. So it’s a very interesting commodity and I’m just seeing if you can touch on some of –

Yes. I think supply and demand is what helped – that drove it up in the mid-2000s. And then, in 2011, it was the COMEX that raised the margin requirements about five times in two weeks because the warehouses in Chicago couldn't keep up with the delivery and they wanted to stop the speculators from driving it up too fast. So that's what capped the ascent. But I think it’s just all a sign. I think that demand is growing. They’re using it in solar, they’re using it in electronics. All of that is growing. And they say it’s the poor man’s silver. So a lot of people are buying coins and putting them away. So I just don't see the demand slowing down anytime in the future. A lot of people are concerned about what’s going on in the world and they are loading up. There’s going to be like a squeeze, like it’s going higher. But I just can’t tell you within a year or two, but in the long-term it's going up.

Would you guess it would be more driven on industrial usage? Silver is something – now we really can’t live without it, with the way we use it now in our life. And we’re talking about a monetary metal that a lot of people forget. The financiers think so much about gold, but pre-1933 is when we have to go back to see gold as a currency. We can go all the way up to 1970 to see silver used as money. So, to me, silver is a much more monetary –

Absolutely. And I think a lot of people agree with you. That’s why they buy the coins because if they had to use it for money, it’s a lot easier to sell them because they’re in smaller denominations than gold.

So you think investment demand in the future could be just a stronger of a driver than industrial –

Absolutely. The US mint can't even keep up with demand on printing – making the coins.

Or I hear. Well, some of the largest players setting the price are buying it.

[indiscernible] anyone’s interested.

But one last question, guys, if you don’t mind.

Sure.

I know one of the largest players in the industry has spoken recently of – suggesting a hold back of silver to help fight back against the silver fix.

Sure, sure.

Any comment on that?

We’d love to be able to do that, but we’re using all our cash to finish our expansions and grow operation. So at some point, we'd like to be able to do that. But we’re just not at that stage just yet. But it's a good idea.

And one of those easier said than done things for [indiscernible].

First Majestic is holding back some of their production, but they're issuing equity. So which is better for the investor in the long run, I'm not sure.

I wish the best to you guys. I'm really liking your company. I’m liking the future of silver, as we spoke about. So keep going.

Thank you very much.

Thanks, Grant.

You bet. Thanks, guys. Have a good day.

Yeah.

This concludes today's question-and-answer session. I would like to turn the conference back over to David Wolfin for any closing remarks.

Well, I just want to thank you all very much for your time and interest in the company. Those questions were fantastic. Stay tuned. We have a lot of good news coming, more expansions coming. So keep an eye on us. And thanks again. Take care.

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