Avino Silver & Gold Mines Ltd. (ASM) Q1 2024 Earnings Report, Transcript and Summary

Good day. And welcome to the Avino Silver & Gold Mines Limited First Quarter 2024 Financial Results Conference Call and Webcast. As a reminder, all participants are on a listen-only mode and this 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 ma'am.

Thank you, operator. Good morning everyone and welcome to the Avino Silver & Gold Mines Limited first quarter 2024 financial results conference call and webcast. To join this webcast and conference call, there is a link in our news release dated May 1st, 2024 and in our news release of yesterday's date, which can be found on our website under News 2024. In addition, a link can be found on the homepage of the Avino website. 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 related to this call are 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 from this conference call and webcast will be available on our website. Also please note that all figures stated are in U.S. dollars unless otherwise noted. 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 Q1 2024 financial results conference call and webcast. We will cover the highlights of our financial and operating performance and then we will go over the work that we are currently performing followed by a Q&A. I will start with a discussion on operations and then I will turn it over to Nathan Harte, Avino's CFO and to discuss the financial performance for this period. And then Jennifer North, our Head of Investor Relations will present an overview of Q1 ESG initiatives. Please turn to Slide 5 as we go through the production results. Our Q1 production results were released in mid-April and are as follows. Silver equivalent production was 629,000 ounce. Silver production was 251,000 ounces. Copper production was 1.3 million pounds. Gold production was just under 1,800 ounces. Mill throughput was 170,000 tons. 2024 has started strong and we are on track to meet our production target for the year. In addition our first quarter production results saw a notable improvement to mill throughput of 18% compared to Q4 2023, which contributed to positive overall results. Positive developments for Q2 production include the processing of La Preciosa stockpile material through Avino's Mill Circuit Number 2. Supply chain delays that started with the pandemic are improving. In addition we are currently mining at Level 15 at Elena Tolosa, which is expected to yield higher silver grades. Our five-year plan aims to increase production levels from 2.5 million to 2.8 million ounces of silver equivalent in 2024 to between 8 million and 10 million ounces of silver equivalent by 2029. Continuing on to Slide 6, we will review Q1 milestones and ongoing initiatives. Beginning with La Preciosa, we'd like to emphasize that it represents a key pillar in our transformational growth strategy and hosts a large endowment of silver and gold resources which we expect to process for years to come. In early January, a long-term land use agreement was signed in January with the local community for the development of La Preciosa. This signals the beginning of a new era for Avino and the neighboring communities around La Preciosa. During the quarter, we were also able to commence hauling of old stockpiles from La Preciosa to our mill at Avino for processing. We have submitted the application for environmental permit and we have been in communication with them. We anticipate that the permit will be issued in the coming year. After, we are in receipt of the environmental permit a further application for a permit will be submitted which is required to begin construction of the portal Haulage ramp and mining of Gloria and Abundancia Veins. We anticipate receiving these permits in the coming year. Next, I will briefly touch on the pre-feasibility study on the Oxide Tailings Project, which was completed and then announced in early February. We went through the pre-feasibility study on our Q4 call and year-end call. And I won't spend too much time on this. I will highlight the key metrics, if you would like more information please visit the website where the information and technical report are available. The completion of the pre-feasibility study was an important key milestone for Avino, and outline the project's economic parameters expected costs and potential revenues offering a road map for future implementation. Highlights of the PFS included net present value of $98 million pre-tax and $ 61 million post-tax at a 5% discount rate and an IRR of 35% pre-tax and 26% post-tax. The study also highlights proven and probable mineral reserves first for Avino's long history of 6.7 million tonnes of silver and gold created 55 grams and 0.47 grams respectively. Next step includes community engagement and environmental impact studies. We are committed to prudent planning and strategic growth and we will use the study to make informed decisions about project execution. Currently La Preciosa is our top priority. At this time, I will now hand it over to Nathan Harte, Avino's CFO, to present Avino's Q1 2024 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 in viewing our presentation today. Turning to Slide 7 now for a summary of the key financial highlights for the first quarter. In the first quarter built off the end of the year results with revenues on budget and improved costs, translating to solid operating margins from the Avino Mine. We had positive net income of $0.6 million and adjusted earnings came in at $2.1 million or $0.02 per share both improved over previous quarters in 2023. Per ounce metrics improved from the 2023 average with cash costs and all-in sustaining cash costs decreasing. And we continue to generate additional operating cash flows with $2.3 million generated after operating and administrative expenses. As highlighted at the end of the year, our working capital position has improved significantly since earlier in 2023, with the balance of just under $10 million at quarter end or almost double where we were 12 months prior. Coming to Slide 8 I will walk you through the details of our financial results some of which I already touched on in the highlights. Revenues came in at $12.4 million up significantly from $9.8 million in Q1 of 2023 with 26% growth and about on pace with last quarter's revenues of $12.5 million. Avino generated gross profit of $2.3 million for the quarter including non-cash depreciation and depletion, compared to $1.9 million in Q1 of 2023. The increase is a result of higher sales volumes and higher realized silver prices when compared to Q1 of last year. Increases in revenues were offset by the impact of the Mexican peso, which did begin to strengthen during Q2 of 2023. On a cash basis gross profit was $3.1 million and represented a 26% cash operating margin. Compared to Q4 2023, gross profit did decrease slightly but was fairly flat on a cash basis. Avino reported net income after taxes of $0.6 million for Q1, compared to a loss of $0.4 million in Q1 of 2023 which is a positive swing of $1 million. Earnings per share came in at just under $0.01 for the quarter. EBITDA was $1.7 million for the quarter, showing meaningful increases from both Q1 and Q4 2023, which were $0.3 million and $1.1 million, respectively. Adjusted earnings paints a similar picture, with improvements in the quarter compared to the rest of 2023, with $2.1 million or $0.02 per share generated in Q1 of 2024. Cash flow from operations for the first quarter was $1.6 million before working capital adjustments compared to $1.2 million in Q1 of 2023 and $2.2 million in Q4. After working capital adjustments, cash flow from operations generated in the first quarter was $2.3 million, as noted on the previous slide. As you can see, we were free cash flow positive for the first quarter since 2022, and testament to cost management company-wide. We are looking to build off this quarter into the rest of the year, especially with positive movements in all three metals being produced from the Avino Mine that came subsequent to the end of the first quarter. Here on slide 9, you can see our cash cost for silver equivalent payable ounce for the first quarter showed meaningful improvement coming in at under $15 at $14.89. As you can see on the chart, this was our lowest quarter for the trailing 12 months and lower than the average for 2023, which was $15.61 All-in sustaining cash cost for silver equivalent payable ounce improved further, coming in at $20.23, again, our lowest quarter for the trailing 12 months and lower than the 2023 average of $21.87 per ounce. Coming to slide 10, you can see our cash cost per tonne processed for the quarter came in slightly above the yearly average of $53.64 per tonne. However, this was much improved on Q3 and Q4 costs. All-in sustaining cash cost per tonne process tell a similar story for the quarter, although this one did come in below the yearly average of $74.16 and well below the previous two quarters. The Mexican peso continues to hold strength, which has impacted our cost structure as the majority of our expenditures are incurred in Mexico with local suppliers, employees and contractors. As we highlighted on our year-end earnings call, we have put in a number of measures in place for cost reduction, which included lowering haulage rates to match mill throughput as we had generated a large ore stockpile over the previous few months. These measures have paid dividends with these first quarter results with significantly lower unit costs compared to previous quarters, as noticed on the graph in this slide and on the previous slide. With the increases in metal prices and the anticipation of La Preciosa we are looking forward as our focus shifts over to the growth side throughout the rest of 2024. With silver currently above $27 per ounce, copper above $4.50 per pound and gold above $2,300 per ounce, these prices will have positive impacts on our second quarter results as we look to continue managing costs at Avino and advancing La Preciosa. At this point, I will now turn it over to Jennifer North, Head of Investor Relations for an overview of our Q1 ESG and CSR initiatives.

Thank you, Nathan. Moving on to slide 11, we have listed the ESG CSR initiatives that were completed in the first quarter of 2024. The Several members of the corporate team from Vancouver have made trips to Durango over the last six months and spent time visiting the communities. David, Nathan and Pete were there in November and also in February. Myself and Jennifer Trevor were there in December and again in April. Avino follows the ESG standards and the United Nations sustainable development goals, the SDGs that work together to address the most pressing challenges facing the world. One of our major objectives is to make a positive impact on our communities and society. Maintaining a friendly dialogue is key to learning and improving and maintaining strong relationships and developing trust as responsible corporate citizens. In Durango, the CSR team meets regularly with the stakeholders and the communities and is focused in the areas of education, infrastructure and environment. And following the guidelines of the SDG, the team was able to accomplish the following. In relation to education. Avino considers education of the children and adults of our local communities extremely important and several important considerations that we keep in mind are, one, cultural sensitivity. We make an effort to understand and appreciate the culture and tradition of each community. Two, community engagement, we endeavor to foster strong relationships and collaborate with community members, leaders and stakeholders involve these groups when appropriate in decision-making processes related to education initiatives to ensure local perspectives are considered. One of the ways we accomplish this is the CSR team regularly communicates with the principles of the schools to see how we as a company, can help fulfill certain needs. And three, broadening the curriculum, we make an effort to incorporate information about mining by going into schools regularly to show mining as meaningful and relatable to children as a future potential career. During the first quarter in the communities, Avino continued contributing to the schools and the communities by donating Samsung TVs and tablets for the benefit of the women in the communities, workshops in embroidery, knitting and pinata making were held. These workshops not only help them establish their own sense of community and belonging but encourages the women to pursue entrepreneurial ventures and not only drive some economic growth but also fosters innovation, community engagement and empowerment. At San Jose de Avino, the company has performed road maintenance and cattle guard installations donated the lime to paint a town's church for the annual event of its Patriot Saints festivities, which are held every year and are attended by the entire population of the community and surrounding communities. Moving to Slide 12, for the benefit of the environment, Avino delivered recycled containers to the church at San Jose do Vino, rehabilitation road works were carried out at the main road from Panuco to Coronado to Zaragoza to Avino and Avino delivered waste wood to Javier Mina [ph]. For the benefit of good health and well-being, Avino takes mental health seriously and our commitment to the community also includes giving presentations on the subject to ensure that these matters are okay to talk about and the space is given for those who wish to ask questions about mental health and well-being. One of Avino's top CSR priorities is to create employment opportunities for residents and nearby communities, aiming to cultivate generations of passionate and committed advocates for Avino or as we like to say ambassadors of Avino. We aim to educate the younger generation about local resources, motivating them to appreciate the benefits of mining and envision a future where they can pursue rewarding careers in their own community. Currently we have 490 direct jobs, which includes the workers at the mine site and in our Durango offices. This number of jobs will typically translate to three times the number of indirect jobs for services, consultants and suppliers in the surrounding communities and the Durango area. I will now turn it back over to David to continue on with the presentation providing our plans for the coming quarter. David?

Thanks, Jen. Moving to Slide 13. We are well into the second quarter of 2024 and I mentioned earlier, our ongoing priority is proceeding with our plans for the Gloria and Abundancia veins at La Preciosa. Community engagement is ongoing as we ready ourselves to begin development work. We have hauled La Preciosa stockpiles to the Amino Mill Circuit number 2 for processing. We are mining higher in Elena Tolosa. And currently we are now up to Level 15, which is expected to yield higher silver grades. And lastly, our objective is to bolster our treasury through cash flow generation from the Avino mine as we plan the future development of our wholly owned La Preciosa property. As outlined on Slide 14, we want to reemphasize the company's growth plans. We have three assets within a 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 and tailing storage, all ingredients to grow organically without the major capital investment required that we expect, if we were starting from scratch. As you can see on this slide, our goal is to scale up by 2029 through production from these three assets by capitalizing on our existing assets and resources we can execute our growth plan efficiently and effectively. This approach not only mitigates risk associated with new project development but also positions us for long-term success and value creation. 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] Thank you. Our first question is coming from Heiko Ihle with H.C. Wainright. Your line is live. Q – Heiko Ihle: Hi, there. Thanks for taking my questions. I assume you can hear me okay?

Yes. Q – Heiko Ihle: Perfect. Good quarter. Congratulations. Shares are up 10% so that's nice to see. Hi, Nate what are your quotes in the earnings release to see a positive net income cash flow generation reduced operating costs? You can probably guess, where this question is going. And you're hinting at my answer later in the release, but we're essentially halfway through Q2 at this point. Have you managed to continue reducing operating costs in Q2? And maybe, just give us some guidance on where you expect the company to be through the remainder of the year?

Yes, that's a fair question. I think obviously, I can't say too much at this point, but things continue to be under control as they were in Q1. I think the team in Mexico has done a great job of managing operating costs given the peso strength, and still being right around 17.1. We have seen I mean improvement in grade in the second quarter. And as David mentioned on the call, just with where we're mining now on the silver side. And I think overall, you see -- I mean everyone has seen the metal price movements since April 1. I think we're up over 15% on all three metals, that we produce from the mine. So even if we were just able to maintain costs, I think we're going to see a very positive swing in our operating cash flow margin. Q – Heiko Ihle: Fair enough. Building on the last question and maybe just a bit of a clarification. You essentially produced 630,000 ounces in Q1, multiplying that by four gets us to 2.156 -- 2.516. Assuming the target is the midpoint of guidance, you're sort of hinting at maybe a slight increase in production in the second half of the year. Am I -- or am I just reading too much into this?

Yes -- that's fair to say. Obviously, we want to be either at the midpoint or above. And then we've also got the potential of La Preciosa stockpiles and on the outside chance of fresh ore. But from what we're expecting right now, yes, we're hopeful for some improvements based on our budgeted production, later in the year. Q – Heiko Ihle: That one's good. Thank you very much. I’ll get back in queue.

Thanks, Heiko.

Thank you. Our next question is coming from Jake Sekelsky with Alliance Global Partners. Your line is live. Q – Jake Sekelsky: Hi, David, Nathan and team. Thanks for taking my questions.

Hi, Jake

Thank you. Q – Jake Sekelsky: Building a bit off of Heiko's, first question on costs. So we've seen them come down for two consecutive quarters and it seems like they've stabilized quite, a bit. I'm curious, how that sort of changed your view on exploration and sort of the budget there going forward, with where metals prices are and sort of the positive cash flow outlook at the Avino Mine. Any comments there would be helpful..

Yes, that's a pretty fair question obviously, given the movement in metal prices. As we've said on the previous couple of calls, I mean the focus is La Preciosa. So I think that's where our folks are going to be. Any exploration. Obviously, we -- as cash flow becomes available for that we would put that to use. But the focus is La Preciosa, and moving that forward first and foremost. Q – Jake Sekelsky: Okay. That's fair. And then speaking of La Preciosa, just looking at the stockpiles or at surface. Can you remind us, if there are any no modifications that need to be made to accept that ore or are you pretty much ready to go once that decision's made?

So no, there were a few modifications to be done. Luckily, those have been completed now in Q1, actually, for processing in Q2.

So we are already processing.

We're past that. Q – Jake Sekelsky: Okay. That's perfect. That's all for me. Thanks again.

Thanks, Jay.

Thank you. Our next question is coming from Nathan Lindstrom [ph], who is a private investor. You line is live.

Hello. Congrats on the good quarter of execution. I just had a couple of questions that I wanted to see if you could comment on. You mentioned in Q1 that you signed the surface rights agreements. Was there a payment made for that? And was it a prepayment for a number of years of surface rights? Can you comment on that?

Yes. So that's a fair question. Obviously, it's a long-term land use agreement for 20 years. Some was paid upfront, and there are some community improvements that are paid along the way as well, too. But yes, some payments were made in the first quarter that have already come out of cash.

Okay. Great. And one other question. I really liked in prior slides that you guys have presented sort of your road map for decision-making around sort of the pre-feasibility study that was just done. Can you put out sort of a similar road map in terms of how you're thinking about the next five years of development?

I think we had something in our corporate presentation, but for the earnings call, just given the time and the size of the presentation, I think we took it out. But I think -- we can expand on that a bit more offline if that helps, but also I believe there is something in our corporate presentation that does that.

Yes, the five-year plan.

Yes.

Okay. I'll take another look. Thank you.

Okay. Thank you.

Thank you. We currently have no further questions on the lines at this time, so I will hand it back to Mr. Wolfin for any closing comments he may have.

Thank you, everyone, for your time today. We're looking forward to a good remainder of 2024, with the big milestone of getting the permit on La Preciosa that's going to be a game changer for the company. So keep an eye out for that. Thanks again, and have a great day.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. We thank you for your participation.