Avino Silver & Gold Mines Ltd. (ASM) Q1 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines First Quarter 2017 Earnings Conference 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]. 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 first quarter 2017 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 everybody and welcome to Avino’s first quarter 2017 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 first quarter 2017 financial and operating performance and then we will open it up for questions. Before I begin, I’d like to highlight the fact that Avino commenced reporting its financial results in US dollars as of the first quarter 2017. Accordingly, all dollar amounts expressed in the conference call and associated interim financial statements and MD&A are in US dollars unless otherwise noted. Periods were reported in Canadian dollars, asset and liability amounts previously reported in Canadian dollars have been translated into US dollars as at January 01, 2016 and December 31, 2016. The first quarter of 2017 was a productive quarter for the company. We were able to move forward with several key initiatives necessary to progress our long-term strategic growth plan. In Mexico, construction began on Mill Circuit 4 which will be used to process mill feeds from the Avino mine and will increase the throughput capacity of our processing plant by 70%. Thus far, construction is on schedule, within budget and expected to be completed in Q1 2018. In April, we released results and updated preliminary economic assessment on the oxide tailings resource and began studies on alternative storage methods for tailings for our ongoing operations. Both will help us move the oxide tailings resource project forward. Exploration continued in the gap zone between San Luis and Elena Tolosa where 18 holes were drilled during Q4 2016 and Q1 2017. We also recently announced that based on positive results, the program has been expanded to include an additional 20 holes. Revenue from mining operations for the quarter was $8.1 million compared to $2 million during the first quarter last year. The increase is mainly a result of the commencement of production, mining at the Avino Mine which began April 1, 2016. During the first quarter last year, the Avino Mine was in the development phase and proceeds from the sale of concentrate were classified as a recovery of explorations and evaluation expenses. Higher metal prices of silver and gold were also a contributing factor. Mine operating income was $3.5 million compared to $1.3 million last year. The increase was also due to new revenue from the sale of Avino Mine concentrate and higher metal prices. Our realized silver price increased by 6% from US$16.42 per ounce to US$17.38 per ounce sold. Our realized gold increased by 2% from US$11.94 per ounce to US$12.18 per ounce sold compared to the first quarter of last year. Earnings for the quarter before income taxes was $1.1 million compared to $690,000 last year. Net income for the quarter after taxes was $721,000 compared to $42,000 last year resulting in earnings of a penny a share up from nil last year. The increase was a result of factors discussed earlier which also had a positive effect on earnings. Cash of $7.7 million and short-term investments consisting of $10 million was on hand at the end of the quarter. Capital expenditures during the first quarter 2017 were $2 million compared to $946,000 last year, net of concentrate proceeds. Capital expenditures during the first quarter relate to the advancement of the operation at the Avino and Bralorne mines. Now into operations. In Q1 2017, our silver equivalent production decreased by 16% from 715,000 ounces to 605,000 ounces mainly due to lower feed grades at the Avino Mine. Individually, our silver production was down 21% to 320,000 ounces; gold production was up 23% to 1,837 ounces and copper production was down 24% to just over 1 million pounds. Our consolidated all-in sustaining cash cost for the quarter was $9.55 compared to $8.22 last year. The increase resulted from the fact that during Q1 last year our costs were only reflective of operations at the San Gonzalo Mine. All-in sustaining cash cost at the San Gonzalo Mine - the first quarter 2017 were $6.21 per ounce of silver equivalent compared to $8.22 during the first quarter of 2016, a decrease of 24%. All-in sustaining cash at the Avino Mine during the first quarter of 2017 were $10.81, there is no comparable data from last year. At Bralorne, we continue to review strategic operating plans for recommencing production. Our new strategy includes changing the mining method to long-hold mining which is considered safer and less labor intensive than previous trail methods. New mining equipment has been acquired to replace older equipment which will allow for further mechanization and a larger operation. Engineering is in progress to expand the mill and to upgrade the surface infrastructure to accommodate a larger operation. Work in the mill during the quarter was focused on the removal of old ore bins and all of the crushing equipment to create room for new larger components. Additionally, we recently completed our second underground mining training cohort for members of the St'at'imc First Nation and we’re working with a number of educational, governmental partners and other mining companies within B.C. to develop additional training initiative. It’s our goal to train and hire locally and we are proud of the progress we’ve made in this regard. Now let’s move on to the outlook for 2017. Management remains focused on the following key objectives; maintain and approve profitable mining operations while managing operating cost 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 process in the oxide tailings resource from previous milling operations; and identify, evaluate potential projects for acquisition. We’d now like to move the call to questions-and-answer portion. Operator?

We will now begin the question-and-answer session. [Operator Instructions]. The first question is from Bhakti Pavani with Euro Pacific Capital. Please go ahead.

Good morning guys.

Hey, Bhakti. How you’re doing?

Good. Quick question on Avino, in the first quarter, the mine experienced some water issues and because of that the underground development or the mine development kind of reduced. So I’m just kind of wondering will that in any way impact the production in second quarter?

Bhakti, basically all the water problems have been resolved. We’ve put in larger pipes and larger pumps and we’ve got electrical substation upgraded. So all the power is in place for the water and pumps and it shouldn’t be an issue going forward.

So no impact on production at all in second quarter, correct?

The water won’t be an issue in the second quarter, no.

And how should we look about the grades, because there was a slight reduction in the silver grade in Q1. So, how does the grade look like going forward?

Going forward, depending on the area that are being mined for mill feed will be a little more selective in where we’re selecting the grades and typically in the upper levels where would be in whether stopes have already been developed, we will be experiencing probably lower copper grades but the gold grades will be higher. But as we mine from the deeper levels, the copper grade should increase.

Okay. That’s good color. Also, in the prepared remarks, or in the press release, you mentioned that as the Ball Mill 4 comes online initially you guys would be processing the stockpile then? Just kind of curious, how many tons of stockpiles do you have and what ore mix does it include? Is it the San Gonzalo ore or the Avino ore?

It’s David here. We estimate between 300,000 tons and 500,000 tons of stockpile, goes back a long way, it’s all from the Avino Mine. We – has done a lot of work on it so it’s just a general estimate.

So yeah, based on our past experience, when we were processing these stockpile materials, the silver grade that we experienced during those periods when we were processing the stockpile material, technically ran anywhere between 60 grams to 90 grams silver and above 0.3 grams, 0.4 grams gold and the copper grades were really low. So we were able to sell that bulk concentrate without any problems. We got credits for the silver and gold content and the copper basically was not high enough to make it a payable metal.

But just to get a sense about an approximate grade, would you be able to provide a number for the copper grade?

Well based on our past experience, the copper grade was round about 0.1% to 0.2%. The silver grade range anywhere from 60 grams to as high as 90 grams silver, gold would be about 0.3 grams per ton to 0.4 grams per ton. And in some places the gold could get as high as 1 gram.

Okay. That’s helpful. Thank you. With regards to the tailings storage facility, I know in the prepared remarks you mentioned that right now you guys have halted the construction of the new tailings facility. So I’m just kind of curious to know what does that mean in terms of CapEx? And the other thing is how much capacity do you have left on the existing tailings facility?

The existing tailings facility, we have about close to two years of capacity, if we want. And since we sent the structural engineer down there to look at the mining methods, basically initial report recommended that we look at – backfilling. So that’s why we halted the construction of the tailings while we do that study. And initial results are favorable from the study.

Yeah basically, some of the test work-up was done on the tailings suggest that we should be able to thicken our tailings to a density that’s good enough for pumping.

Yeah. So we’ve got lot of capacity in the open pit and the underground so that’s why we decided to look at that and put the construction of the new TSF on hold until we figure that out.

And with respect to the CapEx done, we haven’t spent that much on the new tailings facility and the CapEx of about 2.5 million to 4 million which we allocated to the new tailings would just be deferred till we make a decision on what we’re going to do.

So at this point, do you guys have a sense on the timeline as to when do you anticipate to begin construction for the TSF?

Well, it depends on if we decided to go to pay thickening, then we’ll have a budget for that prepared in the next month or so.

Yeah basically the result of the study from our consultants who are working on this for us.

I think we’ll review all the studies and come to a conclusion. Then we’ll…

Not that complicated of a process, and probably won’t take that long to build it out. It will be much cheaper than the current TSF.

Okay.

Yeah, from that study we will get a schedule.

Also, Malcolm, question for you, with regards to the Ball Mill CapEx, I know you guys allocated about $7.1 million. How should we think about the spend for the remaining three quarters this year?

Well, we’ve spent – I’m going to say about $1.5 million to about $2 million on Circuit 4. A lot of that is deposits on long lead items. I would suspect that will be a significant portion of the $7 million or $8 million spent in Q2 or Q3.

Two and three.

And I would – I mean they could average afterward -- I wouldn’t say it’s 50-50s but…

Okay. All right. Thank you. That’s it from my side.

Thanks, Bhakti.

Thanks, Bhakti.

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

Good morning, guys and thanks for taking the questions.

How you’re doing, Joe?

Hi, Joe.

Good. So, Bhakti hit on a lot of the stuff already if – follow a little bit more on the tailings timings. How long do you think the reviews could take, I mean what’s the magnitude of potential cost savings, the new tailings facility going for $2.5 million or $4 million? So are we talking, you could save that whole now – half of that amount, is it there a larger savings in the long run on a cost basis like what else is going into this?

Yeah a lot of this costing will probably come from the study that’s being done by our consultants Joe. I cannot suspect it on the capital cost side, it could be slightly lower than the conventional tailings design, depending on the post-efforts being selected. If we just go with the thickening without the filters, then the capital cost would be a lot less. So a lot of this really depends on the consultants’ recommendations. And from that -- develop a schedule for us, based on the selected process and how we’re going to handle the tailings, we’ll have a better timeline as to when we could expect this system to be put into operation.

And also we have plenty of water there, so we’re leaning towards not having a filter, which is good and it will be cheaper if we could kept – we’re just producing the paste.

Yeah some of the [indiscernible] we got were filter press are fairly steep. So we’re leaning towards having an effect rather than having to filter the tailings, but that really depends on the consultants’ recommendation.

Okay. And then timing wise, when do you think you’ll get that recommendation from them?

Their schedules go down to the mine site towards the latter part of this month. So I would expect it would probably take may be a month or so before we get a report from them, after their site visit.

Okay. So we’re not talking a significant delay from – the prior expectation was some time during 2019 I believe you guys had stated that tailings could be up and running. Is 2019 still a good timeframe just maybe a few months later in the year than previously thought?

Are you talking about the oxide tailings?

Yes.

Yeah, that’s going to take a bit longer because that – once we decommission it, then we have to drill it, we have to metallurge, we test the upper sulphides and then based on that information, we could then go to permitting phase and then look at construction. So probably 2020.

Okay. And - but cost wise it might be some savings there as an offset, so towards taking a look at?

Oh definitely but it reduces the footprint for many, many – for a long time, we help filling the open pit and the underground for future reclamation, we just be – ongoing it’s been waiting to do at the end.

Okay. Then, kind of more big picture, you’re working to grow the Avino Mine this extra 1,000 tons per day, you initially gave view to stockpile it sounds like you got a significant stockpile there. But is there any adjustments that you need to make to the underground mining once the stockpile are used up in order to be able to meet the mill feed or do you have any other plans around that?

We won’t be using all the stockpiles to tune up Circuit 4. So it maybe a month or two using the stockpile.

Okay. So you’re not going to use the whole thing?

Actually it really depends on when the new jumbo and scoop arrives and when we can get in to the San Luis area and develop it, really depends on that. So, if there’s delays in getting that equipment, it could take a bit longer, but we have sufficient stockpile to carry us through that time.

Okay. And the additional equipment you’re ordering is already in the budget you guys have given us as far as additional cost, it’s not like additional upfront development cost, in addition to that, are there?

No.

Okay. All right. I’ll turn it over. Thanks.

Thanks, Joe.

[Operator Instructions]. The next question is from Heiko Ihle with Rodman & Ranshaw. Please go ahead.

Hey good morning, guys. Thank you for taking my questions.

Good morning, Heiko.

I apologize for the background noise, I’m actually driving to a mine site which really gets [indiscernible] staff until next Monday. But two questions, first of all, can you go through the quarter-by-quarter cash or capital requirements for the rest of the year please, just approximately?

Most of our CapEx, there’s two components, the tailings facility and Circuit #4 and as we discussed, the construction on the tailings is on hold for the moment until we reviews – and review various proposals. But we suspect we will reallocate that capital to Qs three and four possibly and with respect to Circuit #4, we spent about $1.5 million on some items mostly deposits on long-lead items. The Circuit is coming together quite nicely and we’re expecting to make significant advancements in Q3 and Q4. So I would say the remaining $5 million to $6 million will be distributed between mostly between Qs three and four, probably little bit in Q4 as well.

Okay. Moving on from that, balance sheet wise, you guys obviously have a very, very strong balance sheet. Where should we expect to see - going from here, should we see any acquisitions I mean keep having people – the assets in the Americas, anything that you guys think is it sport to buy, anything that you might be interested in or do you have your plate full, taking care of what you’ve got?

I think, I’ll let David comment on it - growth look at opportunity that are set to us. With respect to changes in the balance sheet, we’ll see some increases in property plant equipment for the additions in Circuit #4? We’re also beefing up our exploration programs, so we’ll see some increases in our deferred cost there, probably in Qs three and four, I’m not sure of the actual timing of the plant at the moment, but David do you have a comment on the other opportunities.

We’re not actively looking, but like you said, if presented to us, we will take a look at them. We’re focused on what we’re doing.

Yeah.

And that’s fair. I think you guys are A, doing a lot and B, I think you’re doing a good job at it.

Thanks.

I wasn’t trying to talk to you into anything, I was just purely curious. So happy birthday and I’ll get back in queue.

Thank you.

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

Thank you everybody for calling in. we certainly appreciate you taking the time out of your busy days. We’re very, very excited about where we are going. The expansion is moving ahead nicely, Carlos and his team are doing a fabulous job down there. We encourage you analysts to come down and see it. We’re very excited about how next year’s going to look when Circuit #4 is up and running. So thanks again and stay tuned for more news. Take care.

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