Avino Silver & Gold Mines Ltd. (ASM) Q2 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Second 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 now like to turn the conference over to Charles Daley. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to the Avino Silver & Gold Mines second 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 everyone and welcome to Avino’s second 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 will cover the highlights of our second quarter 2017 financial and operating performance and then we will open up for questions. Before I begin, I would like to highlight the fact that Avino commenced reporting its financial results in U.S. dollars as of the first quarter of 2017. Accordingly, all dollar amounts expressed in the conference call and the associated interim financial statements and MD&A are in U.S. dollars unless otherwise noted. Prior periods were reported in Canadian dollars, asset and liability amounts previously reported in Canadian dollars have been translated into U.S. dollars as at January 01, 2016 and December 31, 2016. The second quarter of 2017 was a productive quarter for the company where we were able to move forward with several key initiatives necessary to progress our long-term strategic growth plan. In Mexico, construction continued on Mill Circuit 4 which will be used processed 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 is expected to be completed in Q1 2018. In April, we released the results and an updated positive preliminary economic assessment on the oxide tailings resource and began studies on alternate storage methods for the tailings from our current operations. Both will help us move the oxide tailings resource project forward. Revenue per mining operations for the quarter was 7.9 million, compared to 9 million during the second quarter last year. A decrease mainly a result of few ounces sold from San Gonzalo, as well as remaining inventory at the end of the quarter. Mine operating income $2.5 million, essentially the same as last year. Our realized silver price increased by 1% from $16.99 to $17.09 per ounce sold. Our realized gold price decreased slightly from $12.62 to $12.59 per ounce sold compared to the second quarter of last year. Our realized copper price increased by 20% from $4,706 to $5,643 per ton. Earnings for the quarter before income taxes were $1.5 million compared to $1.2 million last year. During the second quarter of 2017 net income increased to $1.2 million or $0.02 per share from a net loss of $336,000 or $0.01 per share during the corresponding period of 2016. This increase is mainly due to operational efficiencies achieved at the Avino and San Gonzalo mine. Cash at $5.9 million and short-term investments consisting of cash of $7.5 million was on hand at the end of the quarter. Capital expenditures during the second quarter of 2017 were $4.5 million compared to $7.4 million last year. Capital expenditures during the second quarter relate to the advancement of operations at the Avino and Bralorne mines. Now onto operations. In Q2 2017, our silver equivalent production increased by 11% from 630,000 ounces to 698,000 ounces due to higher silver and gold feed grades at the Avino Mine and also greater mill availability. In Q2 2016 mill circuitry was down for several weeks for required maintenance. Individually, our silver production was up 1% to 386,000 ounces; gold production was up 29% to 1,954 ounces and copper production was up 7% to 1.1 million pounds. Our consolidated all-in sustaining cash cost for the quarter was $10.42 compared to $10.97 last year, a decrease of 5%. All-in sustaining cash cost at the San Gonzalo Mine during the second quarter 2017 was $9.99 per silver equivalent ounce compared to $10.89 during the second quarter of 2016, a decrease of 8%. All-in sustaining cash cost at the Avino Mine during the second quarter of 2017 were $10.56 compared to $11.01 last year, a decrease of 4%. At Bralorne, we continue to review strategic operating plans and in July published a comprehensive news release outlining our objectives. Our new plan involves opening the mine at a higher throughput rather than scaling up operations to reach our desired level. We're currently planning an underground drill program to expand and improve confidence in our resource base which is scheduled to be followed by the construction of a new tunnel at the 800 level, large enough to accommodate new mechanized equipment for the proposed long-haul retreat mining method. In addition, we also received notification that funding to hold our third annual underground mining training cohort was approved. This year we're planning to hold the cohort in Pemberton Valley to accommodate community members from the [indiscernible] and other communities associated with the lower staffing and tribal council. For more information, please see our news release dated July 10, 2017. Now let’s move on to our outlook for 2017. Management remains focused on the following key objectives, maintain and approve profitable mining operations while managing operating cost and achieving efficiencies, continue with Mill Circuit 4 expansion to increase Avino Mine production in 2018, conduct a successful underground drill program in 2017 to increase and improve confidence in our resource base at Bralorne, continue mine expansion drilling and explore regional targets on the Avino property, follow the recommendations made in the 2017 PEA on the oxide tailings resource at the Avino Mine, and assess the potential for processing the oxide tailings resource. We’d now like to move the call to the questions-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 joined a little bit late in the call, so I apologize if you’ve already answer these questions. But for the sales for the quarter, do you have a breakdown of gold and silver? I can see the silver equivalents, but I’m not sure you have a broken out for commodity?

I do internally, we don’t generally disclose it by certainly buy up an e-mail with that information.

That will be appreciated. And also, then, what would the exploration budget PEA for this year and maybe next year if you have that already decided or have an idea?

We don’t have it for 2018, but for the remainder of 2017, we saw couple of million left for Avino Mexico. So, we’re doing it, the exploration for Bralorne. We’re looking for the drill permit from Bralorne.

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

Just a quick question on the grades. The grades have certainly improved both at San Gonzalo and Avino in second quarter. Is that sort of the go to run rate for the remainder of the year?

Yes. Basically Bhakti, that’s what we are projecting those grades would sort of continue for the balance of the year.

Perfect. Also with regards to the insulation of the Ball Mill 4, you said it's on time and on budget. Could you maybe provide some additional color with regards to what kind of equipment are you still awaiting? Because last time, I believe it was till the filtration press and [thickener time] [ph]. So, if you could maybe provide some additional color?

Basically, it’s the -- the long lead items were the filter press for the concentrate and also for the flotation cells. As of currently information that we have, they are basically on-time, we've basically been chasing the supplier with regards to the delivery date and basically, they’ve confirmed that those dates are within their, what they quoted in their proposal.

Also waiting for jumbo and two scoops.

Okay. Got it. With regards to CapEx. How much has been spent and how much is expected to be spent over the next two quarters?

I think we're about [indiscernible] for Circuit 4 particularly. I think we're about half way there. We'll be spending more in Q3 depending on when long-lead items come in. But it's fairly consistent quarter-over-quarter.

Okay, perfect. Also, I believe in the last quarter, on the last quarter call you did talk about the [indiscernible] removal dash [ph]. Just kind of wondering, do you have any additional color on that?

Basically, we've got some preliminary bench scale work done at SGS and they have been sort of trying to finetune the process lead conditions. And so far, the initial indication show that they've got those parameters just about nailed down. So, it's taking it to the next stage which is really to treat -- how best to treat the printing [ph] lead solution. Basically, what we've done is the business and the lead removal from the concentrates being successful with minimal copper and silver going into solution. So, we're looking at the next phase as to how to handle the POS. So that's going to take time.

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

So, I guess first one on the treatment charges you guys have seen so far, this year, they have been a bit elevated compared to the first half of this year. I think they're about 14% in Q1 about 13.4% in Q2. Is that a product of more concentrate coming from Avino with copper in it or is that -- has there been higher penalty charges for something else?

I think Joe, it's mostly attributed to the higher penalty charges which is why we're working to see what is the best method for reducing the business.

And when do you guys think we might see some improvement there?

I guess that is a really based on how successful we are at coming up with the test conditions for renewing the business. That's going to take time because basically we're looking at how best to treat the pregnant lead solution and then what to do with it afterwards. So, it will require probably a piloting phase somewhere in 2018 with suspect and probably some engineering and costing during the CapEx and OpEx to come up with the trade off as to the cost for this additional circuit that we have to add to the mill.

Yeah Joe [indiscernible] getting better terms with our penalties on business as we hoping to working through it right now and it's coming along but that will also reflect some reductions in the future quarters.

Okay. Then second thing Malcolm, you have a bit of an inventory build in the quarter, could we just assume that that was the direct inventory build on the balance sheet of about $2.3 million is that what the net impact was to revenue or is that before treatment charges or can you give us an estimate there what the impact on revenue was from inventory?

It's a little bit, but the biggest impact on revenue was the fact that in Circuit 2 -- Q2 2016 via Circuits 1 and 2 the process San Gonzalo and San Gonzalo is a lot more profitable, is an ET material. But a little bit contributed to inventory, I would say 200,000 maybe 700,000.

Okay. And then do you have expected an inventory reduction in next quarter?

Yes. The inventory that was on hand at the end of quarters were being sold and we proceed for that.

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

Its Heiko, not Michael. But thank you for taking my question. I just realized today that the agreement with Samsung was done in July 2016, that was supposed to be for 24 months. How much concentrate is there still left to go, if any?

Well, we’ve extended our agreement with Samsung for a couple more years. We've continue to have good working relationship with Samsung and favorable terms. So, we extended the agreement to, I think it’s 2021.

Fair enough. I must have missed something in my model there, I'll go back and find that.

It's in the news release.

Yes. I bet there is. You happen to have the current amount that’s less?

The dollar amount?

Yes.

$8.666 [ph], correct.

Perfect. Okay. You guys have been doing some good work with the oxide tailings. Just walk us through the next steps there, capital that you think needs to be spent this year, maybe in capital that you think needs to be spent next year. And I don’t know, if there is any updated timelines you could hint at, but if you have that, that will be useful as well?

Well, currently, we’re working on alternative disposals for the current tailings. We had a group of engineers [indiscernible] engineering down at the mine about a month ago, six weeks ago to look at backfilling the open pit and open scopes in the underground. We thought this would be more favorable than a traditional TSF. And so, we’re waiting to make a decision on that, they’re still some discussions back and forth and test work to make sure we offer the right pace.

Pace for second test, filter tailings. But basically, we’re relying on the consultants come up with their recommendation with regards to what is the best material that we could use for not only use as backfill, but also for the story on the tailings in the open pit.

So, some concrete might need it to be blended.

Exactly.

And so, at the moment, we’re thinking it’s a few million dollars for that equipment, but it’s not highlight. Once we decide on that, build that out, then we can decommission the current tailings, so that we’re not dumping water on it. And then in the recommendations in the PA, they wanted to complete the drilling that we did last year. And from the three of the sulfides through the oxide so then we could have a pre-feasibility study and make a construction decision based on that.

There are no further questions at this time. I will now like to turn the conference back over to David Wolfin for any closing remarks.

Thank you, operator, and thank you everybody for attending today. I know it's a busy day with more earnings calls. So, I just want to thank you all for keeping close eye on us and all your recommendations are very good. We're very excited about now Mill Circuit 4 coming online so keep an eye on it. And also, we've got three drills turning in Mexico so there are exploration results coming out before the end of the year. Thanks again and take care.

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