Avino Silver & Gold Mines Ltd. (ASM) Q3 2019 Earnings Report, Transcript and Summary

Welcome to Avino Silver & Gold Mines Third Quarter 2019 Conference Call and Webcast. 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 Jennifer North, Manager of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to the Avino Silver & Gold Mines Limited third quarter 2019 financial results conference call and webcast. On the call today, we have the company's President and CEO, David Wolfin; our Interim Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; and our Technical Services Manager, Peter Latta.Before we get started, please note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements.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. For more information, we refer you to our detailed cautionary note in the presentation accompanying this call or on our press release of yesterday's date.I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on the website. Thank you.I will now turn the call over to Avino's, President and CEO, David Wolfin. David?

Thanks Jen. Good morning, everyone, and welcome to Avino's Q3 2019 financial results conference call and webcast. 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.Today we will cover the highlights of our third quarter 2019 financial and operating performance and our plans for the remainder of 2019, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.During the third quarter of this year, silver equivalent production was affected due to decrease in consolidated silver and gold feed grades that were offset slightly by higher mill throughput copper feed grades at Avino and an increased consolidated recoveries.The lower consolidated feed grades were mainly caused by the fact that the San Gonzalo mine is near the end of its economic life, as well as variability in the deposit at the Avino mine. In addition, production was affected by minor production interruptions as a result of delays due to heavy rain season.The expectations are for higher production in Q4 2019, as we changed our mix to focus more on Elena Tolosa area of the Avino mine.Overall, silver equivalent production was down 19% to 570,000 ounces, compared to 704,000 ounces in the same quarter of 2018. During the quarter and compared to Q3, 2018 our silver production was down 34% to 222,000 ounces from 342,000 ounces. Gold production was down 34% to 1,448 ounces from 2,204 ounces and copper production was up 39% to 1.4 million pounds from 992,000 pounds in Q3, 2018.While Q3 2019 production results were lower compared to the same period in 2018, they were in line with our internal expectations and output remained similar to the first two quarters in 2019. The quarter witnessed an increase in throughput and recoveries and significant progress in the Open Pit tailings storage work, specifically the installation of a geomembrane which is almost complete.The newly commissioned Tailings Thickener has transitioned to full operation and has reduced the water content sent to the tailings facility while similarly increasing the amount of water recycled back to the processing plant.During the fourth quarter and into 2020, we are looking forward to advancing our processing plant optimization initiatives and transitioning to full mining production in the Elena Tolosa area of the Avino mine.The mill configuration in the third quarter of 2019 was the same as the second quarter in 2019 where Mill Circuit 1 processed material from the San Gonzalo Mine, Mill Circuit 2 processed materials from the San Luis area of the Avino Mine, Mill Circuit 3 processed materials from Elena Tolosa and Mill Circuit 4 processed materials from Avino's Historic Aboveground Stockpiles.At the Avino Mine, mill throughput was up 43% on a quarterly basis, which offset lower silver and gold grades of 28% and 42% respectively. Copper grades increased by 10% compared to Q3 2018. Silver and gold recoveries increased by 3% and 10% respectively. These factors resulted in a 12% increase in sliver equivalent which totaled 418,352 ounces in Q3 2019 compared to 372,604 during the same period last year.At the San Gonzalo mine, silver equivalent ounces produced during Q3 2019 totaled 560,203 representing a decrease of 64% compared to 155,990 in Q3 2018. During Q3 2019, silver and gold feed grades declined by 75% and 65% respectively, compared to Q3 2018. Recoveries for silver increased by 2%, while recoveries for gold dropped by 3%.As we have been messaging over the last year, San Gonzalo is approaching its end of life and the grades and recoveries and production are rapidly in decline. This is in line with our internal expectations. In Q3, 2019, the Mill Circuit 4 processed 62,656 tonnes of AHAG Stockpiles, which represents 29% decrease in throughput compared to Q3 2018.Accordingly, our consolidated cash cost for the quarter were US$12.74 and our all-in sustaining was $15.56, compared to $9.69 and $11.15 respectively during Q3 2018. The increase in the cost is due to less ounces produced. We anticipate an increase in production in the fourth quarter and into 2020, as well as transition from development to long hole mining at Avino, which should lead to cost being spread over more ounces which should result in a lowering in our all-in sustaining cost per ounce.At Bralorne, Avino continues its exploration and drilling campaign in Q3 2019 using flow-through funds that were raised in April of 2018. Phase one of the drilling proceeded from Q4 2018 to Q1 2019 targeting unexplored portions of new events. Phase 2 of the drilling continued from Q1 and will continue into 2020 and we will target new drilling in underexplored portions of the property. Phase two drilling has confirmed a new targeting model in the Northeast block and highlights potential for another large-scale Bralorne-style narrow vein gold system.Today, 29,000 meters have been drilled in the program, which is intended to be between 28,000 and 30,000 meters. I will now ask Nathan Harte, Avino’s Interim CFO to present the financial results.

Thank you, David. It's my pleasure to be on the call today and welcome everyone who has joined us and is viewing our presentation today.During the quarter, we generated lower revenues on mine operating loss and a net loss after taxes, compared to Q3 2018, which is directly related to the winding down of the San Gonzalo Mine, as well as lower than expected productions in the Avino mine due to seasonal heavy rains and variability in the deposit.In addition, the company had a larger than average concentrate inventory balance of $4.8 million, of which the majority was sold subsequent to the end of the third quarter 2019. This is expected to have a positive impact on the Company’s Q4 2019 revenues.Revenues from mining operations during the third quarter were $6.8 million, compared to $8.5 million during the third quarter of 2018. Mine operating losses were $177,000 compared to mine operating income of $657,000 in Q3 2018.After taxes, there was a net loss for the third quarter of 2019 of $1.6 million or $0.02 loss per share compared to a loss of $1 million or $0.02 per share in the third quarter of 2018. Losses before interest, taxes, depreciation and amortization or EBITDA was $1.6 million in Q3, 2019 compared to earnings of $264,000 during Q3 2018. Adjusted EBITDA was a loss of $136,000 in Q3, 2019, compared to earnings of $536,000 in Q3 of 2018.Working capital at the end of the quarter was $10.1 million, compared to $113.1 million at the end of 2018 and $9.1 million at the end of Q3 2018. Cash of $2.9 million was on hand, compared to $3.3 million at the end of 2018 and $7.1 million at the end of Q3 2018.Subsequent to the end of the quarter and following the realization of concentrate inventory, cash on hand today is approximately $6 million.Our consolidated cash cost per silver equivalent ounce increased 31% to $12.74 in Q3 2019 compared to $9.69 in Q3 2018. And our all-in sustaining cash cost increased 40% to $15.56 in Q3 2019, up from $11.15 in Q3 of 2018. Our revenues of $6.8 million were derived of 35% from silver 34% from copper and 31% from gold.Capital expenditures during the first nine months of 2019 were $7.3 million, compared to $10.9 million in the first nine months of 2018. These capital expenditures at the Avino property mainly related to the membrane of the previously mentioned Open Pit area for holding tailings, buttressing of the existing tailings storage facility, moderate upgrades to the tailings thickener and equipment purchased to improve metallurgical results and the completion of the Tailings Thickener and Crushing Circuit, as well as equivalent to facilitate metallurgical improvements.Exploration capital expenditures at the Bralorne mine amounted to $4.7 million for the year-to-date period in 2019.During the quarter management continued to remain focused on its previously announced cost-reduction initiatives which have resulted in a cost savings of 23% in our G&A expenditures when compared to Q3, 2018 and a 29% overall reduction in the first nine months of 2019, compared to the first nine months of 2018. Along with others in the mining space, we look forward to continued improvement in the metal sector throughout 2019 and beyond.At this point, I will hand it back over to David for a discussion on our plans for the remainder of the year.

Thank you, Nathan. We would like to see the stabilization in current metal prices and certainly hope for continued improvement going forward while we continue to control our capital, operating and administrative costs.Looking ahead into Q4 2019, we have outlined our expectations as follows: at the Avino property our plans are transition from development to underground mining at the Elena Tolosa area of the Avino mine; develop along Level 9 on the Hanging-wall Breccia material and test the material using Mill Circuit One; continue to explore options to add minable tonnage that will increase overall head grade.At Bralorne, Phase two drilling will continue to target new discoveries in underexplored areas of the property. We remain focused on our projects and controlling costs across the company, as we continue to optimize operations and evaluate other areas of the vast Avino property for future exploration.Finally I would like to say thank you to the teams in both Mexico and Canada for their perseverance and dedicated efforts during what has been a challenging quarter and specifically for decreasing our corporate G&A by 29% compared to 2018.We would now like to move the call to the question-and-answer portion. Operator?

Our first question comes from Bhakti Pavani with Alliance Global Partners. Please go ahead.

Good morning guys. Thanks for taking my question.

Hi, Bhakti Pavani.

Just a quick question. You did mention about transitioning from development style mining to Long Hole Retreat. Just was curious to know, could you maybe provide some information on the cost economics and if possible quantify the number as to what kind of percentage reduction should we expect to see in the mining cost maybe in 2020?

That’s a loaded question there, Bhakti. Right now, I mean, for Long Hole caving, I mean – I don’t think we could say…

I don’t think – hey, Bhakti, Nathan here. I don’t think we can give an exact cost estimate at this time, especially as it is a transition. So, you may not realize some of that right away. Obviously, we are expecting and hopeful that cost will decrease on per unit and overall basis. But at the time, we can’t give you a number.

Okay.

Yes, it’s Carlos here. This is Carlos here, Bhakti. The thing is that in the last five, six years we have been developing the mine and we don’t have a reference for production. But, yes, I guess in the first or second quarter, we can provide you with approximately cost per tonne.But, yes, of course, mining is cheaper than developing along the banks in the different levels. The only reference that we have is that, I was working in 2001 in Avino and then, at that time I recall that it was cheap, but yes, certainly, we don’t – we cannot provide you with our cost per tonne, right now, maybe in the middle of next year.

Oh, so, if I understand correctly, would you be testing the mining method in Q4? Or is it more of a 2020 timeframe item?

No, I think that, yes, we can in Q4, we can start testing. We can start mining by the long hole mining method and yes, it maybe – yes, Q1, yes, we can provide a preliminary number for you. But yes, Q4 will be a testing time for us.

Okay. Fair enough. Then, moving on to the product mix. The San Gonzalo coming at the end of the mine life, I just was curious to know, how does your product mix look like in Q4? And when should we expect to see the Avino mine throughput processing or feeding all four mill circuits at this time?

Bhakti, it’s Peter here. I can take that one for you. So, Nathan will let you hear, we finished of San Gonzalo in mid-October. So we won’t be processing that any further. And as we mentioned in the press release, we are processing Hanging-wall Breccia material through Circuit One right now. The Q4 is all about just working out the bugs to ramp up production to meet all the circuits for eating material. And so we expect that to be done in the fourth quarter here.

So, Q4, if I understand correctly, Q4 will have some of the stockpiles that you would be processing, am I correct in doing that?

Yes, and as we transition to full scale mining as Carlos mentioned with ET.

Okay. Perfect. The other question was related to inventory. I know, I think Nathan did allude to inventory balance, would you - $4.8 million – would you be able to quantify as to what percentage was recovered already subsequent to the quarter?

Hey, Bhakti. Percentage-wise, I would say, just over half. I think a lot of it was due to just the timing of when our shipments went out. And so, that obviously affected our revenues for Q3 and should have an impact on Q4 kind of the other way. But yes, I would say half of that is realized in October, already along with our regular shipment cycle.

Got it. And lastly, what – how does your stockpile inventory currently look like?

Hi, Bhakti. Peter here. I’ll jump in on that and Carlos jump in if I am incorrect here. We plan for about another three to four weeks of processing stockpile material before we can fully transition to ET, just to give you a bit of a background on that. We do have a bit more stockpile material, but like, we can use it strategically depending on how the full ET production is going.

Yes, correct, Peter. Bhakti, yes, geologists – the geologists they have been sampling around the all open pit mines and identifying some literal piles with still economic values on it. So, yes, we are expecting or we are planning to feed the Circuit Number Four in the next two, three weeks or four weeks. But after that, yes, it will be gone.

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

Thank you, Bhakti.

[Operator Instructions] Our next question comes from Troy George. Please go ahead.

Okay. I have a question about the drilling report that you had issued back in August. I was wondering what economic level for grams per tonne is for Avino to make it economical?

Sorry, can you repeat the question?

What grams per tonne level are you looking for to drill for gold up in Canada to make it economical? I know you had one hole that produced 12.35 grams per tonne over 0.9 meters. Is that’s something that would trigger you to actually dig a hole and extract that gold? Or are you looking for a higher level?

We are looking at adding quantity of mineable ounces. So, currently, we have 43,101 of about a 150,000 ounces or looking at trying to double or triple that number before an economical mining decision is made.

Okay. And are you going to have to…

It really depends on what the metal prices are, where the ore is located, how close to the surface, all of that drives what is economical.

Okay. And then, it’s on the property that you already have in Canada. So, does that mean that you don’t have to buy out for a new premise or is there going to be sort of a…

Currently, we have the M207, which is a mining permit that allows us to mine up to a 100 tonnes per day on the property. But a year-and-a-half ago, we decided due to metal prices in the site, the deposit that we have, we needed to find more ounces. And so, we are – and look at a higher throughput. So we are looking at 400 tonne to 500 tonne per day operation. So, an amendment to the permit will be required.

Okay. All right. Thank you.

Thank you.

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

Okay, well, thank you everybody and thanks to the team in Canada and Mexico for controlling cost. We are optimistic that next year we are going to see higher output. I mean, this year we are processing the historic stockpiles which were cheap, because there was no mining. But the grades and recovery rates are lower than the pressure work on the underground.So, now, we are transitioning to mining in the underground. We should see higher output which should effect our all-in sustaining. So, these are things that we are looking at controlling and maintaining and just want to thank everybody for taking the time today to be on the call.

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