Avino Silver & Gold Mines Ltd. (ASM) Q4 2016 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Fourth Quarter 2016 Earnings Call taking place March 2, 2017 at 8:00 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 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 ended 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 2017 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. Good morning everyone, and welcome to Avino’s year-end 2016 financial results conference call. Thank you all for joining us here today. Before we begin, please note that the full financial statements and MD&A are now available on our website. During this call, I’ll cover the highlights of our year-end 2016 financial and operating performance and then we will open it up for questions. 2016 was a very positive year for the company, where we continued to deliver strong financial and operating results. We maintained consistence over equivalent production and solid performance from our Avino and San Gonzalo mines. Our steady results are due to the dedication of routines in both Canada and Mexico. The year was highlighted by the transition to production at the Avino Mine, as well as the decision to move forward with our plans for Bralorne. Our focus for 2017 involves moving forward with our improved budget plants, for plant and mine expansion in Mexico to increase the throughput capacity in our processing plan by an estimated 70%, as well as the advancement of the oxide trailings resource project. At Bralorne, we are moving forward with steps outlined in our recently announced three-phased expansion plan. Revenue from mining operations for the year was 39.9 million, compared to 19.1 million during 2015. The increase was a result of Avino Mine entering into production at levels intended by management on April 1st, which resulted in the sale of Avino Mine concentrate being classified as revenue. In 2015, the Avino Mine was in the development phase and proceeds from the sales of concentrate were classified as a recovery of exploration and evaluation expenses. Higher metal prices for silver and gold were also a contributing factor. Mine operating income was 14.5 million, compared to 8.1 million in 2015. The increase is also due to the revenue from the sale of the Avino Mine concentrate and higher metal prices. Our realized silver price increased by 15% from $15.46 to $17.71 per ounce sold. Our realized gold price increased by 10% from 11.48 to 12.58 per ounce sold compared to 2015. Earnings for the year before income taxes were 7.5 million compared to 2.9 million in 2015. Net income for the year after taxes was $2 million compared to $0.5 million in 2015, resulting in earnings of $0.05 per share, up from $0.01 a share year prior. The increase was the result of the factors discussed earlier, which also had positive effect on earnings. Our consolidated all-in sustaining cash cost for the year was CAD13.70 or $10.34 compared to CAD12.14 or $9.49 in 2015. The increase was a result of us no longer being able to capitalize expenses related to ongoing development of the Avino Mine. We expect cost to continue to go down as we complete the transition from development mining to production mining at the Avino Mine. Our cash and short-term investments consisting of cash increased from 7.5 million to 29 million which positions us well to move forward with our expansion plans. Our cash position improved due to positive earnings. The strategic use of our ATM facility, our prospect bought deal offering in November, as well as an additional small financing with an institutional investor. We continue to maintain a strong balance sheet, which will keep us well-positioned for expansion and new opportunities. Now on to operations. This quarter our silver equivalent production decreased by 11% to 2.7 million ounces. The primary factors that contributed to the decrease were the use of Mill Circuit 2 to process lower grade Avino Mine material were in 2015 Mill Circuit 2 was used to process high grade San Gonzalo feed. Mill Circuit 3 went offline during the second quarter for required maintenance. Overall, our silver production was relatively consistent at 1.6 million ounces. Gold production was up 1%, 7,119 ounces and copper was down 11% to 4.2 million pounds. At Bralorne, we continued to develop a strategic operating plan for profitable production. Our new mine plan includes changing the mining method to long hole mining, which is considered safer and less labor intensive than previously trial mining methods. New mining equipment has been acquired to replace older equipment to further mechanize to allow for a larger operation. Engineering is in progress to expand the mill and to upgrade the surface infrastructure based on the three-phased development plan outlined in our January 23rd press release. In order to create more room within the existing mill building to facilitate expansion. We’ve decided to move the primary crushing circuit to a separate new building, civil works are scheduled to begin March 6th. Construction is already underway on the surface infrastructure on item such as a new electrical sub-station and a new medical facility. We also added a buttressing to the tailing storage facility, ensuring its long-term viability and build a facility to house our new microfiltration water treatment plant. In January 2017, Avino released its strategic operating plan involving a three-phased, multi-year operating plan, which provides a favorable root to Bralorne growth with manageable sequenced capital expenditures, details are available on our Web site. Additionally, we recently completed our second underground mining training cohort for members of the St'at'imc First Nation and are working with the number of educational governmental partners and other mining companies within British Columbia to develop additional training initiatives. It is our goal to train and hire locally and we are proud of the progress we have made in this regard. Now, let’s move on to the outlook for 2017. 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 to identify and evaluate potential projects for acquisition. We would now like to move the call to the question-and-answer portion. Operator?

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Rob Chang with Cantor Fitzgerald. Please go ahead.

I know you touched upon a bit for the Avino Mine and I noticing that Q3 to Q4, the cost seemed to flatten out a little bit. You did mention that you’re looking to reduce cost there. Could you give us a sense of where those costs savings could be had?

Hi Rob, it’s Malcolm here. In general, our class models are pretty stable. But as David mentioned earlier, as we continue to transition to more production cell mining, which is much cheaper at Avino Mine, we'll expect to see our cost come down and that’s the main area where expect to see cost reductions.

Yes. In the lower levels, we’re still development mining, so how that works is, we break into the vein, we drift in either direction on the vein and then we flash out to the wall rock. And that’s in ore, but that's slightly more expensive than long hole sublevel caving which comes after.

All right. Great. Well, thanks a lot then.

The next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.

So couple of questions. First one on San Gonzalo, and you expand it a little bit that this transition to more -- or going from Avino. But just looking at the history of San Gonzalo on a mining cost per ton basis, it seems to fluctuate a good amount, just over this year ranged from low-40s per ton up to $90 per ton quarterly basis Canadian dollar. What drive that, is there something as far as timing with the mill, is it a product of the wafers [ph] veins, underground development, whatever color you can provide would be great?

Okay. Jos, it's Malcolm here. On the cost, it does fluctuate a little bit and part of that is foreign exchange, because we continue to report in the Canadian dollar. A little bit is timing, Jasman will comment to grades or any of the --.

Yeah, Joe on the technical side, what I could provide you with color on this would be the development with the mining method that we use. This is the stooping method and what has happened is as these stopes are developed, once they are developed, then the mining cost would drop. But during the development stage when we are mining it, basically we can only withdraw 30% the swell out of the stopes. So once the development has been completed, we could draw that entire stope which basically reduces the mining cost.

Yeah, it really depends, its David here if its cut and filled.

Yeah, the stringent stope is what I am referring to, where you are only able to take 30% of the tonnage.

And it really depends on the width of the vein.

Okay, so we should look at it on kind of an average basis and then expect some quarter-to-quarter fluctuation from that, but on the annual average should be pretty steady overtime.

Yes, correct.

And then looking at Avino, you know your cost have been stepping down on a dollar per ton milled basis in Canadian dollars as that's how you guys report. How much more room do you have to improve costs there and then once the extra thousand tons per day comes online, how much more will that give you guys in cost savings?

Good question. We haven’t modeled though exactly how it will look with the additional thousand ton per day expansion. The timing is a little bit uncertain at this time, but with respect to the underground cost, on timing I guess it really depends on when we really ramp up productions online and decrease the amount of development lining.

Correct. And we’re planning to go into the new St. Louisia area that we’ve been drilling off. So yeah it’s a good question but we have to figure out when we can do long hole sublevel caving.

Exactly. To answer your question a bit more clearly Joe, in the mill we’d expect to see some cost production once the next circuit comes online.

Yeah, because we won’t be adding very many people, maybe one of two more people in the mill.

Right. But we'll have -- obviously have some economies of scale there and for the underground for the mining cost, the cost should continue to come down as we again move the way from the development which is online.

Okay. And you said that, is there any gaps -- I know you said you have modeled out after a 1,000 tons per day but you know the order of magnitude are we talking maybe few dollars a ton of additional savings just economies of scale?

That could be reasonable, but I want to put a few numbers together before you can officially quote me on that.

Okay, thanks. I’ll turn it over.

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

Just a quick follow up on Rob’s question. I know you mentioned that the production cost is expected to come down. Could you maybe provide additional color on what percentage are we talking about?

Hey Bharti, its Malcolm here. Our percentage basis, I don’t like to give out percentages, but -- good question. We will see a reduction, exactly how much and when, I think we'll have to continue to access that quarter-by-quarter.

Okay. Also with regards to the capital expenditures that you have for 12.2 million with regards to San Gonzalo and Avino. Could you maybe provide a breakdown on a quarter-to-quarter basis how do you look -- this expenditure is going to look like.

Sure. Included in those numbers is the large deployment is the expansion, the mill complex for the next circuit. For San Gonzalo, they’re really isn’t a lot allocated there.

But in the mill is really depends on how we get the equipment and we’re trying to spread out costs.

Right. We place orders for some of the long lead items for the next circuit. But I would say we’ll incur the costs even throughout the next four quarters.

Okay. Also with regards to the Circuit number 4. Should we anticipate that it would be operational in 2017 at all or we should or are we looking at 2018?

2018, Q1.

Okay. So what’s your strategy? Are you -- I mean once the Circuit number 4 is operational, at that time you plan to increase production at Avino or do you plan to stockpile the material right now and ramp up production this year. What kind of strategy are you looking at?

Increasing production, we don’t need a lot of equipment because we’re nearing the bottom of the original mine plan. So lot of that equipment jumbos and scoops could be moved over to San Luis, but I think we’re going to order a couple of new pieces of equipment.

But basically, you guys would be stockpiling the Avino Mine ore in order to feed the Circuit number 4.

Yes. Definitely we’ll be stockpiling as much as we can.

Okay. So the entire production or the Circuit number 4 would be feeding or from Avino nothing from San Gonzalo. Correct?

Correct.

With regards to Bralorne, I know you guys provided a three-phased development plan. But just wanted to clarify in the MD&A, it's that you guys are still working on obtaining permit. So I believe, the Phase 1 of your development plan should not have any hitch bags and should not relay on this permits. Correct?

Well, the permitting requirements has been ongoing thing in British Columbia since the Mount Polly disaster. So the requirements have been changing, so we’ve had to upgrade them. So we do have a mining permit, but based on our expansion plans, we have to upgrade and modify those permits and that’s what we’re working on.

Okay. And the 4.1 million CapEx spend for this year. I’m assuming that’s going to be evenly spread out through the quarters as well. Right?

That’s what we expect at this time.

Okay. That’s it from my side. Thank you very much.

[Operator Instructions]. The next question comes from Michael Rodgers with Boenning Scattergood. Please go ahead.

Good morning. She's pronouncing the name of our firm phonetically, it’s spelled BOENNING. But Mr. Boenning pronounces it like Benning as in Fort Benning, Georgia. But it's his name he can pronounce it as he wants, but if you do it phonetically you say Boenning. With that being said, with our cash we consider one of two if not both paying a dividend and buying stock back?

Not at this time, we’re still using the money for expansion.

Okay. I was looking at the cash statement, you feel the cash can be better spent in expansion and with the stock trading where it is, one, it’s relatively inexpensive compared to the possibility of the future of the stock, appreciation wise. And rewarding the stockholders is a nice way to do it with a dividend or even a stock dividend, with a range in the past 12 months at a high at $3.14 and low at $0.90, which running at $1.79. Would like to see a little bit more appreciation. As you were too I understand.

Correct.

Okay. But is a conclusion the cash goes -- gets more bang for your dollar in putting into the ground, then putting in the shareholder's pocket?

That’s why we raise the money.

Okay. Thank you.

Ultimately, we do plan to do a dividend, but not in during expansion phase.

[Operator Instructions]. This concludes today’s -- this concludes the question and answer session. I would now like to turn the call back over to David Wolfin for any closing remarks.

Thank you operator and thank you everybody. It’s been a great year and we're proud of our results and we’re going to continue with our expansion this year and we’re very optimistic that next year it's going to be a break out year, once all are expansions are complete. So thanks and keep an eye on us. Take care.

Thank you, everybody.

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