Avino Silver & Gold Mines Ltd. (ASM) Q3 2017 Earnings Report, Transcript and Summary

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.

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?

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. Revenue from mining operations for the quarter was $8.4 million, compared to $10 million during the third quarter last year. The decrease is mainly a result of lower average realized prices for gold and silver and fewer ounces sold. Mine operating income was $2.1 million compared to $ 4.5 million in corresponding quarter. The primary reason for the change was that fewer tons of broken material were mined at San Gonzalo. Further the company experienced the effects of increased costs for fuel, electricity and other inputs which have also affected other mining companies operating in the region. Our average realized silver price decreased by 14% from $19.49 to $16.81 per ounce sold. Our average realized gold price decreased by 4% from $13.28 to $12.81 per ounce sold compared to the third quarter of last year. Our average realized copper price increased by 31% from $4,804 to $6,292 per ton. As a result of the previously mentioned factors, net income for the quarter before income taxes were $353,000 compared to $2.5 million last year. After taxes we incurred a net loss of 716, 000 or a loss of $0.01 per share, compared to net income of 847, 000 or $0.02 basic and diluted earnings per share during the corresponding period of 2016. Cash of $3.8 million and short-term investments consisting of cash of $4 million was on hand at the end of the quarter. Capital expenditures during the nine months ended September 30, 2017 were $8.7 million, compared to $9.9 million for the corresponding period of 2016. Capital expenditures in the current period relate to the Avino mine advancement, mining and production equipment including Mill Circuit 4 to advance the operations at the San Gonzalo, Avino and Bralorne mines. Now, onto operations, in Q3 2017, our silver equivalent production increased by 17% from 650,000 to 761,000 ounces due to higher gold feed grades and greater mill availability both at Avino and San Gonzalo. Individually, our silver production was down 10% to 368,000 ounces, gold production was up 47% to 26,073 ounces and copper production was up 6% to GBR1.1 million. Our consolidated all-in sustaining cost for the quarter was $11.25 compared to $10.60 last year, an increase of 6%. All-in sustaining cash cost at the San Gonzalo Mine during the third quarter of 2017 was $12.91 per silver equivalent ounce, compared to $8.66 during the third quarter of 2016. All-in sustaining cash cost at the Avino Mine for the third quarter of 2017 was $10.76 compared to $11.34 in the comparable quarter, a decrease of 5%. At Bralorne during the third quarter we completed our review of the potential scenarios for developing and operating mine. Our new plan involves opening the mine at a higher throughput rather than scaling up operations to reach our desired level. We're currently in the final stages of planning of surface and underground drill program to expand and improve confidence in our resource base. Following the drill program, plans are being considered for a new tunnel at the 800 level, large enough to accommodate the new mechanized equipment for proposed long-haul retreat mining method. In addition, we are making final arrangements with North Island College to hold their third annual underground mining training cohort. This year the cohort is going to be held in the Pemberton Valley to accommodate community members from N'Quatqua and other communities associated with the Lower St'at'imc Tribal Council. Subsequent to the quarter ending on November 3, we received an approved permit amendment from the Ministry of Energy and Mines. The permit amendment is an important step in the company's strategic plan to reopen the Bralorne gold mine. With the receipt of this modern mining permit, the company anticipates an easier and quicker transition to amended permit that will allow for future expansion. We will be releasing more details about this next week. Overall, we are pleased with the quarter, which yielded a strong balance sheet and production results. We are confident that we will achieve our intended projected production for the year and increase our production profile in 2018 with the completion of Mill Circuit 4. Now let's move on to our outlook for 2017 and 2018. Management remains focused on the following key objectives, maintain and approve profitable mining operations while managing operating cost and achieving efficiencies, complete the Mill Circuit 4 expansion to increase Avino Mine production, conduct surface and underground drill programs to increase and improve confidence in the 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?

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.

Good morning, guys. Thanks for taking my questions.

Good morning Joe.

Good morning Joe.

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?

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.

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

Correct.

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.

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.

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

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.

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?

We will try to do this in our fourth quarter.

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.

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.

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.

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

More or less, yes.

Okay, I will turn it over. Thanks guys.

Thanks Joe.

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

Good morning, guys.

Bhakti, how are you?

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.

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.

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

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.

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?

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.

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?

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.

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?

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.

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

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.

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

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

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

Thanks Bhakti.

Thank you.

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

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?

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.

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.

Correct, yeah.

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?

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.

Okay. And that should be when?

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.

Thank you very much

Thank you.

You are welcome

Thank you. [Operator Instructions] our next question comes from the line of 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.

Q1

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

Absolutely.

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.

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.

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.

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

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

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?

Yes.

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.

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.

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

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.

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.

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.

Okay, thanks a lot. Good luck.

Thank you

Thanks for the question.

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

Hi, guys can guys hear me okay.

Yeah

How are you Heiko?

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?

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.

And given all the inventory

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.

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

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.

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?

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.

Excellent, thanks for taking my questions guys.

Thanks.

Thanks, Heiko.

[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.

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.

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.