Earnings Labs

Avino Silver & Gold Mines Ltd. (ASM)

Q3 2017 Earnings Call· Sun, Nov 12, 2017

$6.28

-2.34%

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Transcript

Operator

Operator

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Third Quarter 2017 Earnings Call taking place November 9, 2017 at 8 AM Pacific Time. 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] At this time, I would now like to turn the conference over to Charles Daley, Corporate Communications. Please go ahead.

Charles Daley

Analyst

Thank you, operator. Good morning, everyone and welcome to the Avino Silver & Gold Mines' third 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. David?

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

Thanks, Charles. Good morning everyone and welcome to Avino's third quarter 2017 financial results conference call. Thank you all for joining us 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 third quarter 2017 financial and operating performance and then we will open up for questions. Before I begin, I would like to note that all figures are stated in U.S. dollars unless and otherwise noted. The third quarter 2017 was a productive quarter for the company where we maintained consistent production and we were able to continue progress on key initiatives necessary to further our long term strategic growth plan. In Mexico, construction continued on Mill Circuit 4, which will be used to process feed from the Avino mine and will increase throughput capacity of our processing plant by approximately 70%. Thus far, construction is on schedule, within budget and is expected to be completed in early 2018. For tailings management, we are looking at a flexible of backfill system that will allow us to make cemented backfill for underground or thicken tailings for disposal in the open pit depending on our needs. We also completed a 22 hole drill program which was successful in evaluating a new area of the Avino's Vein system between historic San Luis workings and Elena Tolosa, which is the current area of production. The results support the continuation of the extensive Avino Vein system and provide further confidence that should allow us to go underground to develop this area for mining. Additionally, we commenced new drill programs on the Avino property to target three areas of mineralization, all of which are outside the existing mining area and have the potential to extend resources.…

Operator

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from line of Joseph Reagor. Please go ahead with your question.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Good morning, guys. Thanks for taking my questions.

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

Good morning Joe.

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Good morning Joe.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

So, a couple of things, I guess the first one being San Gonzalo, looking at cost on put on mill basis, the costs have stepped up pretty significantly this year with Q3 being the peak that I have in my model since, maybe 2015 timeframe when Avino wasn't running. Is this a level that we expect to continue with the third quarter in a particularly more elevated costs and any color you can give us to what's driving those costs higher at the per time level?

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Hey, Joe its Malcolm. The main driver is we mine fewer tons, our fixed costs obviously being fixed really drove the price up. We are obviously looking at ways to bring that down and we've also had a number increases were inputs such as electricity, fuel so again we are looking at other ways that we can gain some efficiencies on our cost.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay, so there is a step like some room to bring it back down a bit it is what I should take from that?

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Correct.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay. Then looking at kind of production versus sales, the gap is a little wider than normal I mean I know that it's pay ability thing, but was there anything particular in Q3 that of the wider gap, I mean if you just look on year-on-year, last year you guys produced fewer ounces and sold higher number of ounces such as any additional color you can give there.

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Sure, from that it really stands on timing of our shipments. In this case we did produce more silver equivalent ounces during the quarter. We shift everything that we could within our sales agreement and so we had some leftover at the end of the quarter which we'll be shipping shortly.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Can you give us an idea of the magnitude of that last shipment maybe on silver equivalent ounces basis?

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

Yeah, Joe basically at San Gonzalo what has been happening is we have a contract that allows us to ship approximately 200 wet tons a month. And in our production reports we are basically showing our production level of about 270 tons a month, so that that has been allowing us to build up an inventory on site.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay. At what point you guys think you guys can reverse that inventory build is so that's getting continued for next couple of quarters so?

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

We will try to do this in our fourth quarter.

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Yeah, generally we don't have a practice of sitting on in material we sell everything that we produce. Again, sometimes it really is it a timing issue. In this case we intend more product so we could shift at a particular time, but we certainly have waited moving it rather quickly so.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay and then switching gears, yeah, you guys touched on Bralorne I saw you at the premise, what's the latest internal estimate on timing of a startup of that mine.

Jasman Yee

Analyst · Joseph Reagor. Please go ahead with your question

Joe, its Jasman here. I think the start of mine is really contingent on the results we are going to get from this drilling program, while we were trying to frame up the resources. A lot of the initial work that we've done on this included inferred resources, so we are looking at this drilling program to firm up these resources and basically to size the plant that we would look at going forward such that it would be a profitable operation. And that part of the exercise that we'll be doing going ahead once the drilling program gets underway.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay, so right now it's to be determined.

Jasman Yee

Analyst · Joseph Reagor. Please go ahead with your question

More or less, yes.

Joseph Reagor

Analyst · Joseph Reagor. Please go ahead with your question

Okay, I will turn it over. Thanks guys.

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

Thanks Joe.

Operator

Operator

Thank you. Your next question comes from the line of Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Good morning, guys.

David Wolfin

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Bhakti, how are you?

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Good. Just a quick one with regards to gold grades, they have significantly improved on a quarter-over-quarter basis. Just kind of curious is that something that you guys see sustainable both at San Gonzalo and Avino. Going forward or this was just one of the sections that maybe you were mining and you hit better grades.

David Wolfin

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

You are right Bhakti. Basically, it's in sections where we are currently mining, we have higher grade in those areas, but as the Avino mines as we get a look into the lower levels like level 15, 16 and 17 the gold grades will drop.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Just to get a kind of get a rough idea, what kind of grades should we be modeling for Q4 and 2018?

David Wolfin

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

I would say that the - for your model, if we use point five it's probably in line with what I think will be mining out of ET.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Okay, perfect. Also with regards to the capital expenditure, how much more of CapEx spend you guys are expecting in Q4 especially regarding the addition of the new circuit?

Malcolm Davidson

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Hi, Bhakti, it's Malcolm. Today we've - at the end of September 30 we spend approximately 6 million. We budgeted between 8 and 9. A lot of the items - the remaining items will come in this quarter. We are anticipating as David noted, it will be on budget hopefully a bit less. So, I would say couple of million between now and the end of year, purposely that. The circuit almost done, right now it's only two big components are waiting on, which is the new filter press which I understand arrived in a right Manzanillo last week and the float cells are being built on site now, so those are the two remaining items for the circuit.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Fair enough. Also, the new circuit that you guys would be adding in, would that be exclusively used for processing Avino mine or would that be used in combination of San Gonzalo?

Malcolm Davidson

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

No, at the moment it will be close to single start poles [ph] in the surface we have about a half million tons. Until we get the updated permit to mine in the new San Luis gap area and that's the area that we completed drilling on and a new resource has been compiled. I believe the two new scoops arrive. We are waiting for a jumbo and the permit before we can get in there. It's an old mining area, so it's not like starting from scratch and we are going to be coming in from the back of mine and there an old rap in there. We are going to go in there and rehab that, so I would say sometime next year we'll have new fresh ore to feed into plant Circuit 4.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Got it. Just one last one I know Joe kind of touched on the Bralorne mine, but you mentioned in your earlier remarks that you guys are looking for a higher throughput to start the mine. Can you have kind of a sense or an estimate on what ton per day you guys would be looking to make the mine profitable at this point?

David Wolfin

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Yeah, Bhakti, right now based on what've done so far - with the scoping study that's done with some of our consultants we are basically looking at a 400 ton a day operation.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Okay, also the drilling program that you guys are conducting at Bralorne, what is the budget for that or the CapEx spent?

Malcolm Davidson

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Well, both the CapEx and the budget for exploration are being finalized. Now we are just dropping up for year-end budget. I think we would like to be able to spend a few million on exploration as far as capital in the mill, we are looking at various plans as we speak.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

So, in Q4 there would not be any capital spend on Bralorne right? Is that?

Malcolm Davidson

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

There will be a little bit, but it would be nominal, just waiting for the underground drill permit.

Bhakti Pavani

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Okay, got it. That's it from side, thank you very much guys.

David Wolfin

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Thanks Bhakti.

Malcolm Davidson

Analyst · Bhakti Pavani with Euro Pacific Capital. Please go ahead with your questions

Thank you.

Operator

Operator

Thank you. Our next questions comes from the line of Raymond [ph] a Private Investor. Please go ahead with your questions.

Unidentified Analyst

Analyst

Yes, it's Ray. I acknowledge that the San Gonzalo mine that the equivalent amount of silver that you were getting per ton was substantially higher than the Avino mine or Durango and my question would be is, does that come and go as you mine different areas or is that pretty much comparable? You showed 11.81 ounces is in San Gonzalo and a 455 with Avino mine and my question would be if the tonnage mined at San Gonzalo was that much more productive which yields more, why wouldn't you put more effort into digging more tonnage in San Gonzalo?

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

It's restricted to the size of the mineralized zone. So, it's not that simple and that would drive the cost way up if were to and the fleet delayed from mining faster.

Unidentified Analyst

Analyst

All right so wouldn't be any benefit for you to - I'll use the word stock pile tonnage on the side or you just as you mine you sell it.

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Correct, yeah.

Unidentified Analyst

Analyst

Okay that's - and Bralorne, you did some test holes sometime ago. Was there any kind of result what you expected you might get per ton mined out there?

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

We drilled right after we acquired the asset and we increased the resource estimate which was made public. So, we - this is a gap between the Bralorne and the Kind mine and that this is where we were planning to go back and expand.

Unidentified Analyst

Analyst

Okay. And that should be when?

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Well we are still working on that. We got the main mining permits, now we have filed for a drill permit which we have to wait for the main one first, so we got that and we have already - we filed, I think we are filing. Yeah, so we hopefully you will hear very soon and we are already to drilling companies to get in there as quick as possible.

Unidentified Analyst

Analyst

Thank you very much

Malcolm Davidson

Analyst · Joseph Reagor. Please go ahead with your question

Thank you.

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

You are welcome

Operator

Operator

Thank you. [Operator Instructions] our next question comes from the line of Mike Horne with AIS Group. Please go ahead with your question.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Hello, hey, good afternoon. Thanks for taking my question. You touched a little bit about the Mill Circuit and you said next year and - so when would you expect that to start operating will that be next first half of next year, second half of next year and I have some follow ups. Thank you.

Malcolm Davidson

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Q1

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Oaky and when would you expect it to be full throughput, would that be Q1?

Malcolm Davidson

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Absolutely.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Okay. That's great. And then in terms of - in the MD&A, there was some discussion about Bralorne and some discussions of the equipments, that's already there and you need to maybe refocus some of the buildings or perhaps not come down to make new ones and possibly replace some of the equipments because the mine time will be different. At this point of view, I know you talked about CapEx in taking about next year, so my question was around what do you think CapEx will be for next year and do you have any kind of sort of a top level view for how much it's going to take to start of Bralorne, thank you.

Malcolm Davidson

Analyst · Mike Horne with AIS Group. Please go ahead with your question

With respect to what we plan on spending in 2018, as we mentioned a few minutes ago, we planned to spend a few million on exploration. As far as CapEx into new equipment and building, again once we finalized our mine plan and you will get a better idea but at this point we are going to focus on exploration and drilling.

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Yeah, there will be some structures that we are working on with we have actually brought down the old process that was there or we got rid of the old lab building, we have just approved building thickener and purifier in the Mill building so there is some few million that would be spent on infrastructure, but the primary focus is drilling for next year.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Okay, so you are not really expecting to be producing there until 2018 then?

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Yeah, we won't be producing in next year and let we had been [indiscernible].

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

So, in terms of your capital you have the inventory and someone asked about the inventory, given the inventory you have on the balance sheet and then the cash you have, so do you feel like now you are towards the end of the Circuit of new Circuit that you are pretty good on capital for the near term?

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Yes.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Okay and finally thanks again for answering all my questions. The option grants, is that - when was the last time you did option grants is that the ones yearly auctions grand, so as the last time you did that a year ago and maybe just a little more detail on where those were? Thank you very, much.

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

We did an auction grant in September 2017. We don't generally do annual auction grants, we don't have any policy in place to make those exhibition. We generally do them from time to time when available and depending on market conditions.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Okay and I did have one more, I am forgetting which the mine rates on San Gonzalo its relatively short right.

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Well, at this point it is, I mean, we've we'll be mining it for - well, we had a five year mine like when we started now for more than five years ago. It is - we are depleting the mine, we continue mining operations, we are also doing exploration though that may add a few years on the delays that it is shrinking but it's can't - I wouldn't say for sure that for long is going to be at the time.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

And I keep thinking of more questions. Last question, the tailings projects which you touched about in the past, is that do you kind of need higher pricing for that or you still moving along with that as well and that's it for me thank you.

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

The oxide tailings project is contingent on us decommissioning that is an active tailing done. So, what we are doing right now, is what we mentioned was investigate a bulk on page back fill before the open pit in the underground so that will be completed during the next couple of months and we will build that plant next year and decommission the oxide tailings and then we can move that project forward. Partial believe by late next year we could get on to the tailings and do the drill - follow up drilling that was recommended in PEA. And then once we have that it will become a reserve and then we can make construction decision on that and it usually takes about a year to build that.

Mike Horne

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Okay, thanks a lot. Good luck.

David Wolfin

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Thank you

Malcolm Davidson

Analyst · Mike Horne with AIS Group. Please go ahead with your question

Thanks for the question.

Operator

Operator

Our next question comes from the line of Heiko Ihle with HCW. Please go ahead with your question.

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Hi, guys can guys hear me okay.

David Wolfin

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Yeah

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

How are you Heiko?

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Sorry, I got on the call late somewhere in Africa here, just a couple of questions. You entered, right you entered the quarter with 3.8 million of cash ended I know some of the inventories obviously, but walking through measures taking to sort of get the actual cash on the balance sheet up a little bit by the end the year which I assume is plan alright?

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

We have got total of about 7.5 million U.S. we have got some short term investments for CITs that we've deprived from cash for a while. As far as increasing our cash balances I mean think it across for higher metal prices.

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

And given all the inventory

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Oh, yeah, I mean its copper couple of times in the call we don't ever sit on inventory sometimes we have a bit of balance over quarter end of year end, but we move everything as quickly as possibly can.

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Fair enough. And I have been looking around, I have been talking to people there are some more assets that seem to be coming on the block and I noted everyone looks for the same thing - near term production while the cash falls and then a lower price and I am assuming you guys are and exactly in the same boat. Just so walk me through if you have been seeing anything interesting like we have any NDAs been signed. I don't know much detail you can give on this, but to show walking through what you are seeing on the M&A from which

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Well it was an opportunities out there and if you have seen a lot of them, even if were engaging and it would be able to talking about it, but yeah, I mean they - because approach in a regular basis with also some interesting projects and when there are something we are looking out, we have look at. Yeah, I mean we are still growing our operations and want to expand organically as much as we can before we look at M&A acquisitions.

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

It sounded less than a month ago and it certainly looks like there is a lot of growth coming I mean yes good equipment there and there and it seems like the operations are running quite smooth and with that I'll go back in queue, but I think there is a lot of organic growth less of the size, this thing there are operations for so long I don't see, I know there was a question mine late earlier, I don't see why anything should be going away late?

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Yeah, I mean we just completed some drilling, you will get some more results before the end of the year and a new resource that's being coming in next year and so expect mine life to be maintained maybe grow up.

Heiko Ihle

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Excellent, thanks for taking my questions guys.

Malcolm Davidson

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Thanks.

David Wolfin

Analyst · Heiko Ihle with HCW. Please go ahead with your question

Thanks, Heiko.

Operator

Operator

[Operator Instructions] And it seems that we have no further questions at this time. I would like to turn the floor back over to management for any closing comments.

David Wolfin

Analyst · Joseph Reagor. Please go ahead with your question

Thank you, everybody for taking the time to call in today. We really appreciate it. We feel that we are going to meet our internal guidance for the year, so Q4 should be pretty good for us. And next year is going to be exciting year with all the drilling that's going on in both projects and the expansion and we expect to see higher revenues generated from the expansion at Avino. So, thanks again and have a great day.

Operator

Operator

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