Avino Silver & Gold Mines Ltd. (ASM) Q4 2019 Earnings Report, Transcript and Summary

Welcome to the Avino Silver & Gold Mines Fourth Quarter and Year-End 2019 Results 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 fourth quarter and year-end 2019 financial results conference call and webcast. On the call today, we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; and our VP, Technical Services, 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 Q4 and year-end 2019 financial results conference call and webcast. Thanks everyone 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 fourth quarter and year-end 2019 financial and operating performance and our plans for 2020 and then open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. 2019 was a transitional year for Avino. Firstly, the transition began with the winding down and ultimately the stoppage of mining at San Gonzalo during the fourth quarter of 2019. The San Gonzalo mine, which began commercial production in 2012, outperformed its five-year mine life by exceeding that timeline by two years and produced just over six million silver equivalent ounces at an average all-in sustaining costs of $10 per silver equivalent ounce.During the year, we had some operational challenges, where we faced a few last days of production during upgrades to the crusher labor negotiations due to the transition of work from San Gonzalo as well as heavy seasonal rain, which is reflected in our financial and operational results. However, we’re pleased to have been able to improve recoveries during the third and fourth quarter.We achieved operating cash flow of $1.3 million positive EBITDA with a renewed focus on Mexico and our Elena Tolosa mine, cash in the bank that will help fund our search for another exciting high grade similar deposit to San Gonzalo within the Avino property.Finally, the last significant transition this year is attributed to the sale of Bralorne to Talisker Resources, which has shifted our focus from Mexico and Canada to a pure silver play in Mexico only. We sold Bralorne to Talisker for total cash and consideration of close to $29 million. Our investment is up significantly since the close of the sale and we continue to wish them success at Bralorne. 2019 saw both silver and gold prices increase during the year and I've been continued to appreciate, so we remain optimistic that the metal prices will continue in that direction.On a consolidated basis, silver equivalent production for the fourth quarter decreased 15% to 609,000 ounces compared to Q4 2018 and our 2019 annual production was down 16% compared to 2018 to just under 2.4 million ounces of silver equivalent.Silver equivalent production was affected due to marginal amount of production from San Gonzalo due to the mines plan stoppage, processing continued using the remaining stockpiles from the past production, which is lower grade offset by slightly higher mill throughput, consolidated silver, gold and copper feed grades at Avino and increased consolidated recoveries.The lower consolidated feed grades were mainly caused by the fact that that San Gonzalo was near the end of its economic mine life. Our silver production was down 23% to 221,000 ounces in the fourth quarter and our annual silver production also decreased compared to 2018 by 25% to $0.9 million. Gold production during the fourth quarter increased by 3% to 2,032 ounces, and was 15% lower on the year compared to 2018 with 6,912 ounces produced.Copper production during the fourth quarter was up 1% to 1.4 million pounds, and also 3% higher on the year compared to 2018 with just under 5 million pounds produced. On a mine-by-mine basis, overall silver equivalent production at Avino increased by 7% compared to Q4 2018, as a result of increased gold and silver grades as well as increase in gold recovery.During Q4 2019, mill feed at Avino increased by 6% over Q4 2018, which help maintain the mill throughput at a maximum capacity despite the drop off from San Gonzalo, silver and gold grades increased by 10% and 37% respectively. On a yearly basis, overall calculated silver equivalent ounces were 10% lower as a result of lower silver and gold feed grades, which decreased by 18% and 8% respectively for the year compared to 2018.During Q4 2019, San Gonzalo reached the end of its current resources and mining was stopped, the mine will remain open for continued exploration at different underground levels. Overall, silver equivalent production at San Gonzalo decreased by 95% in Q4 2019, compared to Q4 2018 as a result of lower silver and gold grades. On a yearly basis, and as a result of plan shutdown of San Gonzalo, the overall silver and gold feed grades declined for the year by 47% and 55% respectively, combined with decrease in both silver and gold recovery led to San Gonzalo producing 66% fewer silver equivalent ounces on a year-over-year comparison basis.Accordingly, our consolidated cash cost per silver equivalent ounce for Q4 2019 was $13.14 and our all-in sustaining was $18.27 compared to $8.93 and $11.69 respectively and for our year, consolidated cash costs was $12.08 and our all-in sustaining was $17.19 compared to $9.32 and $12.94 during 2019.Finally, as previously mentioned in the final quarter of the year, the company negotiated the sale of the Bralorne Gold Mines to Talisker Resources Ltd, which closed in December with Avino receiving a cash consideration of CAD8.7 million. The issuance of 12.58 million common shares comprising 9.99% of the issued and outstanding common shares of Talisker after the close of the transaction.The issuance of 6.29 million share purchase warrants exercisable at $0.25 per share until December 13, 2022 provided that if, at any time following April 14, 2020 the closing price of Talisker common shares exceeds $0.35 for 20 days or more consecutively, then Talisker may accelerate the expiry date of the warrants upon 30 days notice to the company, also a cash payment of $2.5 million U.S. contingent on the commencement of commercial production at the Bralorne Mine and the transfer of all future restoration, reclamation obligation liabilities to Talisker.I will now ask Nathan Harte, Avino’s Chief Financial Officer to present the financial results for Q4 and year-end 2019.

Thank you, David.It's my pleasure to be on the call and I would like to welcome everyone who has joined us and is viewing our presentation today. Firstly, I would like to note that all financial results relating to Bralorne including the disposition of the property have been presented as discontinued operations in our consolidated financial statements, and are not included in the company's results from continuing operations.During Q4, we generated revenues from mining operations of $10.4 million, up 26% compared to Q4 2018, and up significantly compared to each of the first three quarters of 2019. This brings full-year revenues from mining operations for 2019 to $31.7 million, compared to $34.1 million in 2018.Despite higher revenues, we reported mine operating losses for the year of $0.3 million compared to mine operating earnings of $6.3 million in 2018 and net losses after taxes from continuing operations of $2.3 million compared to net income after taxes from continuing operations of $1.7 million in 2018.This translates to a loss per share of $0.03 from continuing operations for 2019 compared to earnings of $0.03 per share in 2018. The decrease in profits at the mine and consolidated levels were attributable to the winding down of San Gonzalo which had much lower grades and recoveries during the latter stage of mine life, and lower overall production from the Avino mine.During Q4, we have strong earnings from continuing operations before interest, taxes, depreciation and amortization, or EBITDA of $1.3 million compared to $1 million for Q4 2018.This brings full-year 2019 EBITDA to $0.5 million compared to $5.7 million in the full-year of 2018.Adjusted EBITDA was $1.6 million for Q4 compared to $1.5 million for Q4 2018 and $1.9 million for the full-year 2019 compared to $5.9 million for full-year 2018. Net loss from discontinued operations which as I mentioned previously relates directly to the sale of the Bralorne Gold mine was $29.1 million with no comparable transactions in 2018.Working Capital at the end of Q4 2019 increased by 31% to $13.2 million compared to $10.1 million at the end of the third quarter of 2019. And it was relatively unchanged compared to the end of 2018. Cash of $9.6 million was on hand at the end of Q4 2019 up 234% from $2.9 million at the end of the third quarter and up 196% compared to $3.3 million at the end of 2018.As David mentioned earlier, our fourth quarter consolidated cash cost and all-in sustaining cash costs per payable silver equivalent ounce were $13.14 and $18.27 respectively compared to $8.93 and $11.69 respectively in Q4 2018. For the full-year 2019, our consolidated cash costs and all-in sustaining cash costs for silver equivalent payable ounce were $12.08, and $17.19 compared to $9.32 and $12.94 during 2018.When we first commenced mining at San Gonzalo in 2012, our sellable product was subject to minimal additional penalties and charges and as we move forward with mining and move forward with mining at Avino, we continue to report our costs in that same manner. Now that San Gonzalo is no longer in production, we have reviewed the policy and consolidated all-in sustaining cash costs mentioned previously now include penalties, treatment charges and refining charges and we continue to include these charges on a go-forward basis.Our revenues from mining operations of $31.7 million in 2019 were derived 37%, from silver 27% from gold and 36% from copper. Capital expenditures during 2019 were $8.9 million compared to $14.8 million in 2018 and do include the expenditures on the Bralorne property up until the sale on December 13, 2019. Capital expenditures at the Avino property mainly related to the open pit area for tailings deposition, as well as milling and processing equipment for the Avino Mine to improve overall recoveries and production throughput.During the fourth quarter and throughout 2019, management kept their focus on previously announced cost reduction initiatives which resulted in a cost savings of $0.4 million in our G&A expenditures compared to 2018. We will continue to control costs throughout 2020. And we are looking forward to continued improvement in the metal sector.And now regarding the sale of Bralorne, the net loss was calculated by taking the cash consideration, the fair value of the common shares and warrants of Talisker Resources on the date of sale and comparing this against the net assets of Bralorne which were de-recognized at the time of disposition, as well as the operating results for Bralorne during 2019 up to the date of disposition. The loss did not account for the contingent production payment of $2.5 million upon achievement of commercial production, nor does it consider the significant increase in value in the company's investment in Talisker since the closing of the transaction on December 13, 2019.As of Tuesday’s market close, the company's investment was valued at over CAD9 million and is up over 140% since the transaction closed. The company is of the view that our strategic investment in Talisker is considered a long-term partnership and we’re excited to follow their story throughout 2020 and beyond.I will now hand it back over to David for a discussion on our plans for 2020.

Thank you, Nathan.We’re optimistic and look forward to a stabilization in current metal prices and hope for continued improvement. We will also maintain control of our capital, operating and administrative costs. Looking ahead to 2020, I'm really excited about repositioning and creating value in Mexico. We have planned 11,500 meter exploration program that will include some trenching, we believe the Avino Property is unique. It has 20 name veins on the property as well as over 50 additional veins.It's on the edge of Caldera structurally controlled which has created multiple conduits for mineralization and composite vein sets with different compositions including bulk veins, narrow veins, gold and silver and copper and abundance of potential exploration targets. So yes, I'm excited. At Avino Property in Mexico, our plans are as follows. Continue underground mining at Elena Tolosa mine continue our evaluation of dry stack tailings for the permitted tailings storage facility we now refer to as TSF number 2. There will be a number of mill upgrades focused on automation to improve on stream data collection and operator decision making.Various metallurgical improvements to Circuit number 4 to improve gold and silver recovery. Avino’s longevity demonstrates a commitment to maintaining our mission, vision and values. So as we enter our 52nd year, we’re looking forward to positive and productive 2020 as well as potential continued strengthening of the market and commodity prices. Finally, I would like to say thank you to the teams in both Canada and Mexico for their dedication and hard work and contributions.We'd now like to move the call to the question-and-answer portion. Operator?

[Operator Instructions] Our first question is from Heiko Ihle with H.C. Wainwright & Company. Please go ahead.

This is Tyler Bisset on for Heiko. Thank you for taking our questions. At the end of the year, you had almost $10 million in cash and working capital of $13.2 million. Given the current turmoil in the equity markets, what is the minimum balance for both cash and working capital that you feel comfortable with? And has this figure changed over the last two weeks given what's going on geopolitically across the globe? And if so, can you quantify that a bit?

Tyler, Nathan here. It's a very good and pertinent question, I guess, considering the markets over the last few days, and I guess a couple of weeks. From a cash perspective, I mean I don't know if I wouldn't give you an exact number. That number agreed has probably gone up in the last few weeks, and just to be safe and certain, we haven't really had any delays with our concentrate shipments or anything like that. From this point, we are taking a bit more of a conservative approach than maybe we did at the beginning of the month. And so that would be on cash basis as well as the working capital basis. Did that kind of answered your question or you looking for some specific figures?

No, that will do. I appreciate it. And just another a more conceptual question. The gold to silver ratio is currently around 92 to 1. When excluding copper, last year, you guys produced almost 7,000 ounces of gold and 960,000 ounces of silver. When using the current ratio, that's about 636,000 ounces of silver from the gold produced or about 66% of the silver produced. Is there an intelligent way to increase gold production, even if it were to the detriment of silver production from the assets in anyway and was also just curious if you've seen any impact on refining charges, given the changes in the ratio?

Yes, once again, another good question. This is Peter here. As far as targeting gold recovery over silver recovery from a technical perspective, that's not necessarily a trade-off, I can say that some of the equipment we've purchased does help improve gold recovery. And that is something that you've seen in some of the numbers we've improved gold recovery more than silver or copper over the previous year. But they do usually come together from a technical perspective. Regarding refining charges, we've certainly seen a drop in copper GCs and RCs. So that's significant, but gold and silver kind of remain the same.

Our next question is from Joseph Reagor with ROTH Capital Partners. Please go ahead.

So two things, first one on costs in the fourth quarter, they seemed a bit elevated, not at the all-in sustaining but just at a cash cost level. Is this a bit reflective of you have certain fixed costs and now as San Gonzalo basically completely shutdown. Those are being just eaten by the Avino Main.

Joe, it’s a good, very pertinent question. So in Q4, and I might, I'll let Peter speak to the technical side of this. There was a bit of elevated costs with specifically the historical stockpiles. Obviously, there's an elevated costs with San Gonzalo in Q4. But there didn't make up a lot of our production. But regarding the old stockpile, we ran into an issue where we noticed there was fluorine in some of our product outlet. Pete talked a little more on the technical side of that.

Yes, I'll jump in there. Yes, Joe, we had an issue with a deleterious element in thehistoric above ground stockpiles, which penalized us fairly severely when it came to selling at the smelter. And that's something that we were able to quarantine pretty quickly, but it has hit us pretty hard for two months. So you're seeing that reflected in the financials there.Once again, though, going forward, we've since stopped processing the stock piles, we were kind of going down towards the end, towards the end of last year anyway. So that won't be an issue going forward and this element does not affect the fresh water.

Okay. Kind of a follow-up on this, yes, that makes sense. Follow-up on it though. If you guys are not processing the stockpiles anymore in San Gonzalez factory shut down. How much like stope inventory do you have at the Main Avino mine and is it enough to fill the mill in the first half of the year?

Yes, it's a good question, Joe. Something that we talked about, I think last quarter as well as there's the Avino mine does have the potential to keep the mill full. We're running into a little bit of a traffic issue in the underground. However, we're able to keep two of our big circuits full which is the critical part. So we're up to around 2,000 tons a day.

Okay, and then the other main question I had on the Talisker investment, it looks like you guys exercised your warrants and then in order to pay for that sold some shares in Talisker, is this because you guys want to stay below the 10% threshold, is it because just want to keep the cash balance higher like you guys kind of answered on a previous caller questions or is there something else driving that decision?

David here, well there's a force conversion if it traded above $0.35 for 20 days and we could see that it was heading that way. So one of the brokers that helped them raise money called us and asked if we'd like to exercise our warrants because it looked like it was about to happen, and then he would find some institutional buyers for that. And so that's what led to that. And I guess it was a good thing to do because today it's down well below today.

Yes, Joe another part of that was, so what we did is we exercised all the ones and then used some of the proceeds to pay sorry, we sold a block of shares, pay for the exercise of the warrants in order to preserve our cash balance. So essentially it’s a cashless transaction for us, and we upped our ownership. So yes, I think we're just around 10% now.

And Talisker sanctioned it.

[Operator Instructions] Our next question is from Bhakti Pavani with Alliance Global Partners. Please go ahead.

Just a quick follow-up, I wanted to understand how's the development of the underground connection between the two portals at Avino coming along and you kind of, Joe kind of asked when do you see to see the mills get closer to Avino Mine. So just wanting to understand, what's kind of the timeline you have set internally and when should you provide an update on that?

It has been going slow. I mean, the talent pool nearby the mine is kind of low for operating heavy machinery. So we've been training them. We've been avoiding, trying to bring in outside people. And this is in part in dealing with the Union and the issues that we face since the San Gonzalo closed.And so we've just taken a slow conservative approach and also with the virus going on and what was just asked about being conservative, we've really maintained our cash balances, and we're just taking a more conservative approach. So we'll have an update for everyone in the coming weeks.

And just one more, with Avino being the single mine, what are your thoughts on acquiring or on M&A? Or would you at this point prefer to do more exploration and expand Avino?

Yes, we’re looking at more exploration and expansion. We're also looking at the district next door, you've got [indiscernible] and they’re not mining or doing anything. So we're looking at how we feed the mill on a long-term basis. And there could be some toll milling opportunities going forward, [indiscernible] just 28 kilometers away, so they have no infrastructure. So we're exploring all opportunities to make this a bigger operation.

This concludes the question-and-answer session. I'll now turn the conference back over to Mr. David Wolfin for closing remarks.

Well, thank you, everybody, appreciate it, taking time out of your busy day, the markets in the red, so make it short, just want to thank everyone. We're hoping that metal prices stabilize and wish you all well. Thank you again. Goodbye.

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