Avino Silver & Gold Mines Ltd. (ASM) Q2 2023 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Second Quarter 2023 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, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Limited second quarter 2023 financial results conference call and webcast. To join this webcast and call there is a link in our news release dated August 3 and in our news release of yesterday's date, which can be found on our website under News 2023. As well you may find a link under the Investors tab then click on Events and you will see the link at the top of the page. 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. he 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 related to this call or on our press release of yesterday's date. Please note, that the full financial statements and MD&A are now available on our website under the Investors tab then click on Financial Statements. As well, the full statements are available on Avino's profile on SEDAR and on EDGAR. 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 hand over the call to Avino's President and CEO, David Wolfin. David?

Thanks, Jen. Good morning, everyone and welcome to Avino's Q2 2023 financial results conference call and webcast. Please note that the full financial statements and MD&A are now available on our website. Also note that all figures are stated in US dollars unless otherwise noted. On today's call, we will cover the highlights of the second quarter financial and operating performance. And in addition, we will go over the work that we are currently performing and then we will open it up for questions. I'll begin with the discussion on operations for Q2 and then I will turn it over to Nathan Harte, Avino's CFO to discuss the financial performance for the second quarter; and Jennifer North, our Head of Investor Relations for an overview of Q2 ESG initiatives. Turning to slide 5, I will go over the second quarter highlights, which include the following. Avino achieved production results of just over 587,000 silver equivalent ounces, which was a slight decrease of 10% when compared to Q2 2022. The Avino Mine continues to provide stable production results although it was impacted by mining and lower grade areas and equipment delivery delays, which are now behind us. We used the time to implement upgrades to the haulage ramp that have since allowed us to increase haulage rates. Just subsequent to the quarter, we announced the best drill intercept in company history. We released the results of three drill holes from below Level 17, the deepest workings of the Avino Mine. Drill hole ET-23-09 shows 57 meters true width of mineralization. The mineralized intercept is exceptionally wide and has very high silver gold and copper grades. We are thrilled by these results and the Q2 drill results from May of this year, which included 10 holes from below Level 17. The drilling demonstrated that the Avino Mine continues to get better as we explore depth. I will expand further on the exploration program later in the call. Also during the quarter, the metallurgical testing was completed on the Oxide Tailings Project and the pre-feasibility study is now underway. I will go over this information a bit later in the presentation. The dry stack tailings facility is completed and operational. And during the quarter, the conveyor system is currently transporting the press dry tailings to the Avino open pit area. At La Preciosa, the company continues with its community engagement in nearby towns adjacent to the property. We are fully committed to moving this project forward as it factors in prominently into our five-year growth plan. Here on slide 6, we show our Q2 production results. As mentioned earlier the production results from the Avino Mine were stable. The production results were announced on July 20th and the news release can be found on our website. Highlights are as follows and are compared to production results from Q1 2022. Silver equivalent production decreased 10% to 587,000 ounces. Silver production increased by 3% to 232,000 ounces. Copper production decreased by 12% to 1.45 million pounds. Gold production increased by 13% to 1,520 ounces. Mill throughput increased by 33% to just over 157000 tonnes. We expect production to catch up to our internal guidance in the second half of the year as we continue our clear path to transformational growth. Our five-year growth plan takes us from production levels of 2.8 million to 3 million ounces of silver equivalent to between 8 million and 10 million ounces of silver equivalent by 2028. Turning to slide 7. I will now touch on the exploration results and ongoing program. During the quarter, we focused on further drilling below Level 17 at the ET area of the Avino Mine. 8000 meters of drilling is planned for the full year. And during the second quarter, 3,075 meters were drilled, bringing the total end of the first half of 2023 to 7,100 meters. We released results on May 23rd that included 10 drill holes from below Level 17. And on July 5th, which was just subsequent to the end of the quarter we released a further three holes. The results from May indicate that the Avino Vein was extended a further 500 meters and that the extent of the vein has been established to be at least 1,100 meters downdip from surface outcrop. In addition a previously undiscovered breccia vein was intersected approximately 15 to 30 meters in the footwall intrusive rocks, which was very high grade. The full intercepts and drill data can be viewed in the news release, which is on our website. Moving on to slide 8, the title says it all. Avino drills the best intercept in company history. On July 5th, we released a further three holes and one of the intercepts drill hole ET-23-09 showed 57 meters true width mineralization and is a step out of 50 meters to the west of Avino's most westerly drill hole at 200 meters downdip below Level 17. The whole assay 296 silver equivalent grams over 57 meters of true width, including 407 silver equivalent grams over 37 meters of true width and 2,866 silver equivalent grams over 3.43 meters of true width. There are two images on the slide. The one at the top is a long digital view of the Avino Vein showing the drill hole locations and the projection of the mineralization in red and the lower images across section of the above mentioned whole ET-23 and the downdip extension from the current mine workings. The exceptionally wide and very high-grade silver gold and copper grades are extremely encouraging for continued exploration of the Avino Vein and associated stock work in breccia at depth and suggest a much more complex mineralization system. We are still open along strike and at depth. Avino has enlisted several world-renowned structural geologists to contribute to the geological theory, to help understand the structural controls of the Avino Vein. Turning to Slide 9, now. On April 5, we announced the results of our comprehensive metallurgical program on the Oxide Tailings Project. I know that we went over this on our Q1 call. However, the Oxide Tailings Project forms part of our growth story. So, I feel it's important to briefly touch on the results. Again, the results were favorable, with up to 90% recovery on the ancient oxides for both gold and silver, as well as 86% and 83% recovery on gold and silver respectively for the more recent oxide material. Both the ancient and recent oxide materials, make up all the mineralized resource shown in the table here. This table also highlights the mineral resource growth from approximately 150 holes that were drilled during the mine closure, which also allowed us to move the project forward. You can see here the measured & indicated has grown by over 400%, providing us with a higher degree of confidence of the contained resource, within the tailings deposit. At this time, I will now hand it over to Nathan Harte, Avino's CFO to continue with Avino Q2 financial results. Nathan?

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. Turning to Slide 10 now, for a review of the Q2 2023 financial highlights. Our results for the second quarter were mixed from a financial results perspective, with positive net income and cash flow generation from operations. Even after 55 years, the Avino Mine continues to generate cash flows which we are seeing as being an elusive feat in the challenging inflationary landscape both in Mexico and around the world. In the second quarter, cash flow generated from operations before working capital adjustments was $1 million, bringing the total for 2023 up to $2.2 million. On the flip side, revenues and mine operating income decreased compared to Q2 2022 and Q1 of 2023. We are optimistic of increased financial performance in the second half of the year, following some operational challenges in the second quarter, with delays to replacement parts in the plant and some upgrades targeting copper recoveries, which have also struggled in 2023. In June, we added a new scoop to our existing underground mining fleet. This addition is already paying dividends with noticeable increases, in haulage rates to the plant from underground throughout July. Coming to Slide 11, I will walk you through some key financial results on top of the ones discussed in the previous slide. As noted already, net revenues came in lower than expected at $9.2 million, a slight decrease from $9.3 million in the quarter previously year-over-year. While we started Q2 strongly with additional sales, the decrease corresponded to lower sales later in the quarter, as our production was impacted by the items mentioned previously. Avino generated mine operating income of $1 million for the quarter including noncash depreciation and depletion compared to $3.9 million in Q2 of 2022. The decrease is a result of higher mined and milled tonnes during the quarter, alongside a strong peso to US dollar rate which is further offset by lower revenues when compared to previous quarters. I'll provide more insight on costs, during the discussion on cash cost per ounce and per tonne later in the presentation. On a cash basis, mine operating income was $1.7 million, representing a cash 20% operating margin. Avino reported net income after taxes of $1.1 million or $0.01 per share for Q2 while EBITDA was $0.4 million for the quarter and adjusted earnings came in flat. Cash flow from operations for Q2 was $0.5 million after working capital adjustments, with the company spending $1.8 million in capital investment, primarily relating to new equipment additions for Avino and for La Preciosa as well as exploration activities and to a lesser extent, mill upgrades. Here on Slide 12, you can see our cash cost for silver equivalent payable ounce for the second quarter did continue to rise from the 2022 average and the preceding quarter at $16.33. All-in sustaining costs, were also up from the previous period at $23.06. The increases for both metrics are a result of lower ounces sold for this quarter, as a result of lower production from mill recovery challenges and lower grades arising from the planned mine sequence in the underground. On top of this, the Mexican peso appreciated by over 15% in the second quarter, which had an impact on our costs as the majority of all expenditures are incurred in Mexico with local suppliers, employees, and contractors. The increased costs from a larger production volumes with lower level of ounces sold had a substantial impact on operating margins and cost per ounce. Again we remain confident for a decrease in cost per ounce in the second half of the year. Coming to slide 13, you can see our cash cost per tonnes processed for the quarter came in around the recent average at $46.90. All-in cash cost per tonne processed were down significantly from 2022 and again, relatively in line with the first quarter. Our steady cost per tonne reflects the resilience of our operational team in Mexico during times of inflationary pressure all around the world alongside a strong local currency in the peso as the team continues to deliver and manage to stick within our cost budget. Controlling costs remains the key priority to Avino alongside our future growth plans. At this point, I will turn it over to Jennifer North, Head of Investor Relations for an overview of our second quarter ESG initiatives.

Thank you, Nathan. Turning to slide 14, we have listed our recent ESG initiatives for the second quarter. These initiatives continue to build on Avino's efforts to incorporate on a daily basis the principles of sustainability and social responsibility. These initiatives are carried out by our teams in Mexico and are as follows. In the community of San Jose de Avino, the team delivered over 20 trees for the reforestation of the green areas, provided a forklift and operator for several hours for part cleaning, provided sensing to a designated path in one of the parks, provided a backhoe for preventative maintenance to the road leading to the community bridge. Children's and Mother's Days were supported by Avino in all three of the communities and a children's drawing contest was organized in all three of the communities to commemorate World Environment Day and Avino supported the five schools that participated. Avino also provided Samsung tablets to the winners of the drawing contest. In the community of Zaragoza, the team delivered palm trees for planting and two waste drums for the benefit of the Community Plaza. As detailed in the slide, environmental and community works are extremely important as well as supporting and celebrating families where we can. One of the top priorities for Avino is to provide jobs to those in the surrounding communities with the goal of fostering generations of enthusiastic and dedicated ambassadors of Avino. Currently, we have 438 direct jobs, which includes the workers at the mine site and in our office in Durango. This number of jobs will typically translate to three times the number of indirect jobs for services, consultants, and suppliers in the surrounding communities in the Durango area. After diligently working towards obtaining a CSR designation, the team in Durango received the ESR Award for the first time in August of 2022 and is on track to receive this important designation for a second year. We are committed to performing the CSR diagnostic processes with diligence each year to show our support and commitment to the local communities and the environment. We have strategic alignment goals that span across the company, ensuring all employees from entry level to the executive team are working towards share goals and vision. We have an action plan to inform educate and support all employees and community members to become ambassadors of Avino and that we will all benefit when community and company are aligned. The success of Avino is dependent on its people, profitable operations, community support, and the strong and sustainable future. I will now turn it over to David to continue on with the presentation providing a metals and mining overview and our plans for the coming quarter. David?

Thanks Jen. Moving to slide 15. Just a quick look at the outlook for metals and mining. We continue to see volatility in the markets. In June, the US Fed left the rates unchanged, which was its first pause after 10 consecutive hikes, which came one week after the Bank of Canada increased rates by another 0.25 percentage point. Then in July the US Fed increased the interest rates to its highest point in 22 years. US now has an interest rate between 5.25% and 5.5% and possibly higher in coming days. In the second quarter, silver price ranged from a low of $22.34 an ounce early in June, was as high as $26.02 an ounce in mid-April. The London fixed for the price of gold in Q2 ranged from $1,899 to $2,048 per ounce. The experts in the silver space continued to agree that silver will perform strongly in the years to come. We share this belief. The demand for silver and other precious metals will continue to increase over the coming years, as the governments around the world press forward with their net-zero and green-future policies. As well as the US Department of Energy just officially added copper to its critical materials list. And as you know, the Avino Mine is also copper intensive, reaching approximately 37% of our production profile in 2023. Turning to slide 16. You can see our plans for 2023. We are now well into the third quarter of 2023 and the prefeasibility study on the Oxide Tailings Project is well underway. We expect to present the results to the market in Q4. We are also focused on our plans for the Gloria and Abundancia veins at La Preciosa, with community engagement ongoing as we ready ourselves to begin development work. Equipment is being sourced. Environmental permit application is being prepared. We have 8000 meters of drilling plan for 2023 and we are currently drilling below Level 17. Our recent drill results can be found on our website detailing the best intercept in the company's 55-year history. Lastly, the main goal is to replenish the treasury through cash flow generation from the Avino Mine, as we look to the future at La Preciosa and the tailings project. As shown on slide 17, we want to reemphasize the company's plan for growth. We have three assets within 20-kilometer footprint, totaling hundreds of millions of silver equivalent mineral resources. On the same area, we have an operating mill complex which is currently producing from our Avino Mine. Additionally, access to water power, tailings storage, all the ingredients to grow organically, without the major capital investment required that would expect, if we were starting from scratch. As you can see on this slide, our goal is to scale up by 2028 through production from these three assets and become the next low-cost intermediate producer. Here on slide 18, we present our continued initiatives for growth which are development production and optimization of La Preciosa, the tailings project prefeasibility study and eventual construction decision, further exploration at the Avino ET Mine. Other exploration and evaluating regional areas on the Avino properties. We'd now like to move the call to the question-and-answer portion. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jake Sekelsky of Alliance Global Partners. Please go ahead.

Hey David, Nathan and team, thanks for taking the questions. Just focusing on some of the development work that you mentioned, the improvement to the haulage ramp specifically. Are you able to quantify the impact of that going forward, whether it'd be on haulage rates or throughput?

Pete, do you want to take that?

Sure. Sure. Yes, no problem. It's been pretty significant. You oscillate between being mine limited or mill limited when you're operating a mine. And earlier this year and -- and last year as well, we were mine limited. And that is now shift -- that bottleneck has now shifted to the mill. So it's a good problem to have, but it just shifts the problem to somewhere else and you debottleneck that area. So, we're no longer haulage limited as far as our throughput which is fantastic. And that is credit to the improvements in the ramp. So that's both the haulage from underground and the backfill which is fantastic. So now our focus shifts to how do we debottleneck the mill?

Got it. Okay. And then just switching over to foreign exchange. I mean, we've all seen the peso strengthen quite a bit recently, and it's had an impact on operating costs across Mexico. Any color on the impact that you guys have been seeing related to site costs and any steps you've taken or looking to take to try and mitigate the impact here?

Yes. It's a good question, Jake. Nathan here. Obviously, I mentioned even just in Q2 alone the pace was appreciated over 15% or around that range. It's kind of stabilized now, which has been good, and it just allows for better forecasting. Considering as I mentioned on the call, we're first a Mexican company, and we pay in pesos in country to local employees, suppliers and contractors. So the impact is obviously not -- it felt easily on our operation. What we're doing to mitigate it is, we're working with vendors and also looking at our hedging options. I think, it's still -- no one really predicted that it would get down this low across the industry. So we're still -- we're looking at kind of what's going to happen next and what's the best move for us as far as mitigating any further movement.

Okay. So as of now you're still fully exposed you're just evaluating options?

No, not fully exposed. But yes, we're still exposed, because we do still pay in pesos, but we've taken some measures kind of to mitigate that risk.

Okay. That's makes sense. That's all on my end. Thanks guys.

Thanks, Jake.

Our next question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.

Hey, there. Thanks for taking my questions. A - David Wolfin Hi, Heiko.

Hey, when I look at La Preciosa and your current steps, your release stated that you're conducting a variety of community engagement in the nearby talents adjacent to the property. Walk me through the feedback that you're getting from folks there? Are they recommending any particular steps that they would like to see anything particularly want you to incorporate anything that they sort of say, hey, this may be holding up permitting or anything? I mean, I assume, they can't really stop permitting per se, but they can all rattle some changes. And I assume that you haven't really found anything historical or otherwise that you didn't expect correct?

David here. So we've been informing them about our plans. It's going to be a low footprint. We're not planning to build a big open pit mine. So it's taken some time to get that message out because that's what core was planning. And so we've been doing that. They're all pro mining. There are several different Tahito [ph] groups. We're down to the last one negotiating on terms. So we're anticipating positive results here this year and we are making the environmental permit application. And once we have the blessing of the final Tahito group we'll file that. So that's where we're at right now.

Fair enough. Then just a quick clarification so we have it out in the open. The prefeasibility study as per your release is due by the end of 2023. Looking at this for essentially mid-August right now so it's really only 4.5 months left in the year. Could you maybe quantify it a little bit closer with a date when you think we're going to get our hands on that? And also what exactly is currently being undertaken with the PFS like what step of the process are you in place?

Sure. Pete, do you want to take that?

Yes, sure. Heiko, thanks for the question. Yes we're right in the thick of it now as far as the PFS working with the engineering company being Tetra Tech. They had visited site already as part of the requirements for the pre-feasibility study. That went extremely well. We're reviewing flow sheets. We're trying to lock that in as well as the process design criteria. So we're right in the middle of it. Right now the way the project is scheduled, it's looking like we'll be able to release that information in early December. There's opportunities to fast track that to bring that schedule forward a couple of weeks, but then there's also the potential that that could slip a few weeks into January. Best case scenario, we're looking at November for press releasing the information. Right now it's targeted for early December. But as I mentioned it could slip a couple of weeks both ways. It's something that we're actively working on. As I mentioned, there's a lot of back and forth as far as optimization of the flow sheet and that sort of thing. And that's sort of the discussions going on. We've done kind of preliminary pit shells at this point in time. We've looked at the resource. We've kind of done the cutoff grade calculation. So there's been a lot of headway on the project. And I think I'm pretty happy with the results thus far.

That's really helpful. I appreciate it. Peter, thank you.

Thank you.

Thank you all.

Thanks Heiko.

Our next question comes from Matthew O'Keefe of Cantor Fitzgerald. Please go ahead.

Thanks, operator. Good morning everyone. Just a couple of questions here, one on operations I'll start with that one. The -- you mentioned the bottleneck has shifted now from the mine to the mill. Just can you remind us again, what kind of haulage capacity, or do you have it to mine now or in where you're running at? And then, what's the current mill capacity?

Peter here, yeah, I'm happy to take that. So the current mill capacity is just over 2,500 tonnes -- call it 2,500 tonnes per day with all four circuits running. And we have just recently commissioned Circuit two to run. If you recall that we weren't running Circuit two because we didn't have the mill feed, let's say. So our haulage capacity is above 2,500 tonnes per day. And…

Okay. And are you running -- oh, sorry go ahead.

Sure. And we're just fine-tuning that capacity in the mill, because that's -- as you shift the bottleneck there then you end up understanding what are the limiting factors in the mill and you kind of have to optimize those -- that criteria therefore making sure that you can hit 2,500 tonnes per day.

Okay. But we won't see that reflected in -- where we see that capacity come up through the balance of the year from Avino mill?

Yeah, I believe so.

Okay. Okay. That's good. That's very good. So that kind of feeds into the -- you're still expecting to make sort of that internal guidance numbers as far as I think it was 2.8 million to 3.2 million out to silver equivalent?

That's what we're hoping to get to. Sorry, Nat, go ahead.

No. That's right.

Okay. Thanks. And then one more question if I may, on CapEx, it looks like you spent about just over $5 million this year. What's it look like for the balance of the year? And what are you going to be spending it?

Yeah. Nathan, here. Good question. So as I mentioned earlier there's not many large-scale items left for the year. It's just going to be some improvements throughout the mill and just some mine development. So we're not expecting any larger ticket items really until we get into the development at La Preciosa.

Okay. So we can assume less CapEx through the balance of the year than -- for the second half of the year than the first half?

Yeah. I think the first -- especially the first quarter was pretty -- was a little more intensive. Second quarter was a little lighter and we're expecting that kind of continue. Yes, probably either second quarter rates or slightly lower.

Okay. And I guess one final question here $1.2 million in cash. Obviously with everything you're talking about it looks as though cash will start to build again from here, assuming we don't have some sort of awful change in the metal pricing. What is your kind of backstop on the cash side should you need to tap into additional capital for any reason for additional cash...

Yes. Nathan, here. So we do have – we did renew our ATM in June and we did use it to back up a little bit and I think as disclosed in our financials as well too. So we did add treasury a little bit, but obviously not a huge amount as we're not looking to dilute too hard. So we have that available to us on a continuous basis to use if needed.

Okay. Okay, great. Well, that’s it. Well, thanks. Looking forward to a upswing in a second half.

Thanks, Matt.

[Operator Instructions] Our next question comes from Chris Temple, National Investor Publishing.

You answered some of what I wanted to ask with Heiko's question but to expand on that. I was curious, if you could clarify exactly what is inbound and what is out of bounds the space in Mexico, generally. Is there an issue with you getting this environmental permit in the end, assuming you qualify for – in all the regulatory ways given that the government has not been too free in the recent past with new projects?

David here. We don't expect any delays. But Carlos, do you want to expand on the environmental permit process?

Yes, yes. Of course David. This is Carlos here Chris. Yes our environmental consultants they are working on the permits. As was mentioned by David early in the call, an important part of the process is a blessing from the communities in the project La Preciosa project is in the middle of different hills there. And we have the blessing for the water hill, but still we are working in one of the one of the hills and still negotiating with them. But yes, so the clinical permit for mining and everything is in the way. We can submit in the next couple or three months ahead.

Okay. Thanks, Carlos.

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

Thank you, operator and thank you to everyone for the time today. As I said, we have embarked on a clear path to transformational growth and our focus continues to be on delivering the best performance to our shareholders and stakeholders while executing the growth plan. We're looking forward to the second half of the year. Have a great day.

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