Avino Silver & Gold Mines [ASM] Conference call transcript for 2022 q1
2022-05-12 15:03:13
Fiscal: 2022 q1
Operator: Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines First Quarter 2022 Financial Results Conference Call. 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. . I would now like to turn the conference over to Jennifer North, Manager, Investor Relations. Please go ahead.
Jennifer North: Thank you, operator. Good morning, everyone. And welcome to the Avino Silver & Gold Mines Limited Q1, 2022 financial results conference call and webcast. To join this webcast and conference call is there is a link in our news release stated May 4th, which can be found on our website under news 2022. 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 that 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 of 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.
David Wolfin: Thanks Jen. Good morning everyone, and welcome to Avino's Q1 2022 Financial Results conference call and webcast. Thanks for joining us. Before we begin, please note that the full financial statements and MD&A are now available on our website. On today's call, we'll cover the highlights of our first quarter 2022 financial and operating performance, and our plans for the second quarter, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. We had a strong start to the year highlighted by record revenues and minor operating income. Our financial performance in the first quarter demonstrates strong operational achievements that helped to generate revenues of $11.1 million, and $4.7 million in mine operating income. Nathan Harte, Avino's CFO, will expand on our financial results later in the call. We had a very active first quarter, which was highlighted by closing of the La Preciosa acquisition. La Preciosa hosts one of the largest undeveloped primary silver resources in Mexico, and is the located adjacent to our existing operations at the Avino mine. This is a major milestone for Avino and sets us on the path of achieving our goals of intermediate producer status. Also, during the quarter, we released drill results from our extensive 2021 exploration program, and the target areas included Brecha de Bajo vein below level 17 and west of the current ET mine workings, La Malinche, Nuestra Señora Santiago, El Trompo, and San Jorge veins, as well as encouraging results from La Potosina and the oxide tailings project drilling. Overall production in Q1 was slightly down compared to the fourth quarter 2021. This was expected due to mine sequencing. The production came from Avino mine only, and is compared to Q4 2021 as that was the most recent quarter of consolidated production. The highlights are as follows. Silver equivalent production decreased by 15% to 458,000 ounces. Silver production remains steady at a 164,000 ounces. Copper production increased by 8% to 1.2 million pounds. Gold production decreased by 66% to 801 ounces. Milled increased by 7% to 111,138 tonnes. The recoveries for both silver and gold increased by 3% to 92% and 77% respectively, with the copper recoveries decreasing slightly by 1% to 89%. We continue moving forward on the capital projects that we outlined for the year. We're making great progress with the dry stack tailings facility, and completion is expected near the end of Q2. To reiterate, we chose dry stack for its environmental safety and economic advantages with a high solid content. The significantly improved safety and stability reduces the need to extract water from local sources by recycling the water removed from the tailings. We aim to be responsible community stewards. As previously touched on, at the beginning of the quarter we released drill results from Phase two of the 2021 drill campaign, and had completed over 15,500 meters of drilling, focusing on several targets. In addition, the initial results from La Potosina were announced on early March, and included 2400 meters of drilling. This area of the Avino property has been known to host high grade low-sulphidation style mineralization similar to what we saw at our San Gonzalo mine. La Potosina area is only three kilometers from San Gonzalo, and just five kilometers from the mill facility at the Avino mine. We're excited to continue exploring La Potosina as it factors in prominently, as one of our high grade near surface targets. We believe La Potosina has the potential to supplement our current mill feed from Avino, in the near to medium-term. Also, just subsequent to the end of Q1, we released results from the 110 hold drill program on the Oxide Tailings project, which included 3,645 meters of drilling. And since we have drilled a further 17 holes on the Oxide Tailings project, samples are being prepared for metallurgical test work, as recommended in the 2017 Preliminary Economic assessment. We're thrilled to be able to advance to another Avino asset, to results from the program showed the gold grades are better than anticipated. And we're excited to understand the implications for the total resource. To date, the company has completed 5,075 meters of drilling in 2022. With the dry stack Tailings facility nearing completion, this means we're closer than ever to decommissioning the current Tailings pond TSF number one, we call it. The team in Durango continued to make significant progress during Q1 on the facility, which includes the infrastructure associated with transporting the dry Tailings. As mentioned, this project is expected to be fully operational in the second half of this year, and brings the company towards achieving the guidelines with the global industry standards on Tailings management, along with previously mentioned community stewardship. We have posted a great timelapse video on the website that shows the construction of the tailings filter plant, so I encourage you to go to the video section of our website under the Investor tab, and watch it. On March 21st this year, we announced the closing of the acquisition of La Preciosa project from Coeur Mining. I've always believed that the Avino and La Preciosa projects belonged under one common ownership given the clear synergies and common infrastructure. La Preciosa is an excellent strategic fit within Avino's existing operations, and further strengthens our presence in Durango by adding not only a large, high quality silver development project with near-term production potential to our portfolio, but also increasing our mineral exploration concessions by more than seven-fold to over 7,000 hectares. We're moving ahead with our internal mine plans, focusing on Gloria and Abundancia veins. Our goal is to be producing from Gloria vein by late 2023, early 2024, which would add 300 to 500 tonnes per day, with longer-term outlook being to add 1,500 tonnes per day from Gloria, Abundancia, and Martha veins. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. During the first quarter, the company continued its training of local workforce at the mine. ESG initiatives completed during the first quarter; were community road repairs to improve visibility of speed reducers and categories for safer driving conditions, delivered water tank with capacity of 5 thousand leaders to the primary school in the community of San Jose de Avino, supplies delivered to the health center of Zaragoza to help with building improvements, recycled containers for waste collection were given to the high school Zaragoza. Sports and recreation are important to the communities, and the company repaired some lighting in its sports complex in San Jose de Avino, as well as donating volleyballs to support them in their local tournament. Avino hosted a mining and my community conference at the high school in Zaragoza. And the students were provided with general knowledge of the mining processes, as well as the importance of the industry in the development of other sectors. Avino continues to offer inclusive opportunities by hiring locally, training women for many different roles at site, including underground heavy equipment operators, rock breakers at surface, in the mill, and in the assay lab. The metal markets for the first quarter have been bumpy with volatility brought on by the global crisis. The Russian invasion of Ukraine, which is nearing its third month, has added uncertainties with the global economy, just as the world was emerging slowly from the two-year pandemic. We've seen a range and silver prices since the beginning of the year from $22 to $25 in the beginning of March, it has since tapered down and sits between $21 to $22. According to the World Silver Institute, with no clear end to the Russia and Ukraine war. The near-term outlook remains uncertain, with a jump in energy prices, ongoing supply chain disruptions, and the reemergence of COVID-19 cases in China. All this points to downward risk to the global economy. With very high rate heights coming, these factors along with high inflation could mean investment inflows to silver. We continue to believe that the outlook for silver is positive, and that demand should see solid growth from 2022 onwards, and will be driven by record silver industrial fabrication, increase in green technology, and investment demand for physical silver. All this bodes well for the silver miners and their shareholders. The best leverage to metals is owning producers such as Avino. I will now ask Nathan, our CFO, to present the financial results. Nathan.
Nathan Harte: 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. Following a strong end to 2021, Avino continued to deliver with great financial results in the first quarter of 2022. We set records for both quarterly revenues and mine operating income, and on a cash operating basis, we generate a mine operating margin of 47%. The company also generated $3.7 million in operating cash flows before working capital changes, and $0.03 per share in adjusted earnings. On top of our strong results and as David previously mentioned, we are thrilled to announce that we have closed the strategic acquisition of the neighboring La Preciosa project from Coeur Mining. This project adds over a $135 million silver equivalent resource ounces on a property within 20 kilometers of the current Avino mining and milling operation. In total, Avino now holds over 290 million silver equivalent resource ounces with a 190 million or 65% of these ounces being silver. Following the acquisition payment, the company remains well funded with $11.7 million in cash available at the end of the quarter, which represents a net increase of $2.2 million at the end of the year after factoring in the acquisition payment made in March. During Q1, we reported net revenues of $11.1 million from 495,000 silver equivalent payable ounces sold, which resulted in mine operating income of $4.7 million for the quarter. This includes non-cash depreciation and depletion, and on a cash basis, minor operating income was $ 5.2 million for the first quarter. Avino reported net income after taxes of $0.6 million or $0.01 per share for the first quarter of 2022. As you can see, Q1 continued to build off our strong fourth quarter for Avino, as we continued to demonstrate strong operating margins. This was despite significant inflationary pressures seen around the world, and I want to commend our team in Mexico for the diligent work and keeping our cost structure intact. Earnings before interest, taxes, depreciation, and amortization, or EBITDA, was $2.8 million for the quarter, and adjusted earnings was $3.4 million or $0.03 per share. Cash flow from operations before changes in working capital was $3.7 million or $0.03 per share on a diluted basis. Capital expenditures for Q1 2022 was $0.9 million on a cash basis, with total additions being approximately $2 million as the company continues to work with our partners to finance equipment at below or at-market interest rates. Capital expenditures for this quarter related to the addition of a new underground mining group to assist with the ramp-up of mining operations, as well as exploration expenditures. La Potosina and below the current mining operations AT. Also included was additional drilling on our Oxide Tailings Resource, as we completed another 17 step-out holes to increase the footprint to the resource. This project continues to move forward towards the pre-feasibility level in the near-term. Rounding things out and most importantly, Avino generated net income for the second consecutive quarter. And 2.5 million in free cash flow net of capital expenditures and working capital movements. Which brings our total up to 5 million in free cash flow generated over the last two quarters. Cash costs for silver equivalent payable ounce for the first quarter were 1181 and all-in sustaining cash costs were 1990. As we continue to ramp up, we expect the all-in sustaining cash costs figures to continue to decline due to increased ounces sold, and lower pre-unit variable costs. With Q1 marking the second quarter of uninterrupted mining operations since 2019, I'm pleased to report that the financial outlook for Avino is very positive. With strong operating margins and cash-on-hand of 11.7 million following the completed upfront consideration payments. Our focus is on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022. I will now hand it back over to David for a discussion on what Avino has planned, for the rest of the year.
David Wolfin: Thank you, Nathan. To recap, the first quarter was busy with the completion of La Preciosa acquisition, drill results from several areas on the Avino property, and the ongoing construction of the dry stack tailings. Activities at the mine site during the second quarter include continuing production ramp-up at the Avino mine, ongoing training, dry stack facility nearing completion. We currently have drills turning on La Potosina at ET below level 17, and Brecha de Bajo veins. Moving forward with the comprehensive metallurgical test work program on the Oxide Tailings project to move it to development stage. Internal mine plan focused on Gloria and Abundancia veins at La Preciosa. Production for the full year is on track between 2.2 million to 2.6 million ounces of silver equivalent. We expect to generate significant operating cash flow this year, which we plan to reinvest in exploration and further mine development. Also, in keeping with our strategy of divesting of non-core assets, we announced last week that we had granted an option to Endurance Gold to acquire the Olympic Claims, which are located on the south side of Carpenter Lake in the Lillooet Mining Division near Bray Lauren in British Columbia. The closing of the acquisition of La Preciosa sets us on the pathway to expand our current mining complex through regional growth, and the goal of achieving intermediate producer status. Together with exciting drove results from La Potosina and the Oxide Tailings, the events of the quarter are just the beginning of an important time in Avino's history. And we are looking forward to the remainder of the year and beyond. The first quarter is behind us, and we are well into the second quarter, and we're excited as we look forward to keeping the momentum going. We would now like to move the call to question-and-answer portion. Operator.
Operator: Thank you. We will now begin the question-and-answer session. . We will pause for a moment as callers join the queue. Our first question comes from Jake Sekelsky of Alliance Global Partners. Please go ahead.
Jake Sekelsky: Hey, David, Nathan and team. Thanks for taking my questions.
David Wolfin: Hey, Jake.
Nathan Harte: Good morning, Jake.
Jake Sekelsky: Just starting with costs and Nathan you mentioned this, obviously we've seen industry-wide cost inflation across the board. Keeping off any costs below $20 an ounce in the first quarter was quite impressive to me. Can we just touch on some of the things you're doing and some proactive steps that you're taking to manage cost inflation going forward, whether it's flavor, energy consumables, anything like that?
Nathan Harte: That's a good question, Jake, especially given where the world is right now. Some of the things Avino is doing really is just continue what we've always done. I think we've always maintained a pretty strong cost structure. And to get ahead of the curve on the inflation side, we have done a bit of stockpiling at site. And that's more just to deal with any supply chain disruptions, not just the cost side of things. So we're just contain -- continuing to maintain what we've always done and making sure that we're ready for any interruptions moving forward.
David Wolfin: And during the COVID shutdown, we increased our inventory of parts and reagents and consumables. So we're sitting in a good position, yes.
Jake Sekelsky: Got it. And then just on La Preciosa, I mean, the acquisitions closed now, when do you think we might see some type of or more work or exploration program announced there, is that a mid-year type event, do you think?
David Wolfin: Currently, we're working on the social aspects, getting an agreement with the Heetos. There's three different Heeto groups, and there's agreements pending. So we think probably within six or seven months will have those in place. And then we'll roll out our plants following that.
Jake Sekelsky: Okay. So it sounds like you may see some activity there. First half of next year
David Wolfin: Yes. I mean, based on internal mine plant planning. We expect to start surface works early next year, and we also have the 20 kilometer dedicated power line cable, five megawatts, only utilizing three. We're planning to extend that over the La Preciosa to the portal where we're planning a new portal. We're planning to put a decline in six or seven levels. And so that development work, and we'll be underway early next year and possibly be generating ore by late next year. Also, there's 50,000 tonnes of ore sitting on surface from when Louis Manhattan, the 80's and 90's, and that was never processed. So that's a little gift there. That's worth above five or six million bucks. That's probably going to pay for the portal and the surface works. So we're in discussions with locals there to remove that so that, that could happen this year.
Jake Sekelsky: That was all on my end congrats again on a strong quarter.
David Wolfin: Thank you.
Nathan Harte: Thank you.
Operator: Our next question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.
Heiko Ihle: Hello there. Building on what Jake just ask would you be willing to eventually guess on how much you spend on La Preciosa in the last two months?
Nathan Harte: Sure. Nathan here so far, not a whole lot. Given we're just working on the integration and just making sure that the transition goes smoothly. We're still pretty focused on Avino and ramping up there. And then our focus will shift once we have the proper agreements in place, then we can start on surface works and some more exploration.
Heiko Ihle: And I mean do you have a figure that you'd be willing to say that we should expect and spend for the rest of '22 or for all '22.
Nathan Harte: Does that specific to Preciosa or company-wide on capital?
Heiko Ihle: Yes. The Preciosa.
Nathan Harte: On La Preciosa? It really depends again, on the timing, getting all the proper social licenses and agreement in place. So I can't say for sure would it really depends on that timing. I would say any spend would come later in the year and we're not thinking multi-millions here. It's not going to be fairly significant as any development to likely start in 2023.
Heiko Ihle: Got it. And then finally, David, you mentioned earlier on this call that you always thought that Preciosa should be under the same umbrella. Are there any quantifiable advantages that you can already take advantage of access to different drilling side or road access or anything like that that you didn't have before since closing.
Nathan Harte: Yes. I mean, Heiko, I can probably take that one back. I think the most important thing is going to be the low -- having one giant -- one management operation and one operating asset really in one location. And I think the synergies there, and the cost structure there will be extremely beneficial, and it will save us on infrastructure and developing. And I think that's why Avino was able to be so competitive in acquiring them.
David Wolfin: Yes. But also the Oxide Tailings project. If we need to build the leach pads out in the valley, we've got more ground now available, so we could be trucking Oxide Tailings material in one direction and bringing or back in another direction. So yes. I mean, that -- that's pretty good synergies there.
Nathan Harte: Yes. And given the goals of increasing production and overall ounces produced at Avino, this is probably the best, most accretive way to do it versus acquiring something in another state or another area, because we can -- we have the administrative team already in place, and we just need to expand on that to manage it.
David Wolfin: And there's no competition for labor. I mean, I was after Mitch for years telling them that Newmont and Barrick can do it in Nevada, we should be looking at operational synergies here, and I thought that they would take the bull by the horn, but apparently they turned over the reins to us. So it makes sense to what we're doing, because we have the expertise in the area with Carlos's and his team.
Heiko Ihle: I think that is a wonderful transaction, and why you did it some. That's all for me, I will get back in queue.
David Wolfin: Thank you.
Nathan Harte: Thanks, Heiko.
Operator: Our next question comes from Matthew O’Keefe with Cantor Fitzgerald. Please go ahead.
Matthew O’Keefe: Thanks. Good morning. Just a quick question for me on the Avino, what's your throughput now? I guess because you're still ramping up, where are we with throughput sort of end of Q1. And now, as we're well into Q2, where are we and is that continuing to rise through the year? What are the bottlenecks there?
Nathan Harte: Right Matt. Yeah, thanks for the question. I think I'll answer that last part first actually. The bottlenecks right now, we have to improve the quality of the ramp from a physical standpoint. Just smooth that out to increase the speed for trucks, and reduce kind of maintenance there, in addition to some operator training. So that's kind of the key focus for us as getting qualified, trained underground miners to help us ramp up production. Because we're currently mine limited at this point. So that's our focus.
Matthew O’Keefe: Okay. Do you -- can you tell us what your throughput is right now or?
Nathan Harte: Yeah, on a daily basis or a monthly basis, we're looking to transition some time into Q3 to get us up to that nameplate production up to 2500 or 2200 to 3500 tons per day. Right now we're operating about 1400 to 1900 tons per day.
Matthew O’Keefe: Okay, so pretty much on track, I think from what we talked about last time.
Nathan Harte: Yes, we're hoping to.
Matthew O’Keefe: Okay. And then just one other question on CapEx. I know Heiko touched on this, but what is the sort of estimate for the balance of the year company-wide on CapEx?
Nathan Harte: Yes, I think at the beginning of the year, we put out our guidance. around $8 million range and that was including all exploration. We think it might be a bit less on a cash basis just because some of the larger pieces we are leasing. And so those costs to be spread out over a few years. But I still think we have probably in the range of about $4 million to $5 million left, including Q2, and that includes exploration as we look at a fairly low cost. And again, they want to emphasize that not including La Preciosa, which will start in '23.
Matthew O’Keefe: Right. So no real inflationary hits to you there.
Nathan Harte: No, we've kind of -- we factored those into our budgets pretty heavily already at the beginning of the year, we kind of -- everyone saw the freight train coming. So we think we're still going to be well within our under -- our guidance of I think was $7 million to $9 million.
Matthew O’Keefe: Okay. Great. That's it for me. Thank you.
Nathan Harte: Thank you.
Operator: . Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.
Joseph Reagor: Hey, guys. Thanks for taking the questions.
David Wolfin: Hey, Joe.
Nathan Harte: Hey, Joe.
Joseph Reagor: So most of things I want to touch on were already asked by prior callers. But just thinking about how the markets are right now. Are there any precautions you guys are taking from a balance sheet standpoint or from -- as you make decisions on capital spending over the rest of the year to maintain your strong balance sheet.
Nathan Harte: Yeah, Joe, good question. Nathan here. I think we're continuing to monitor everything as far as what's going on with silver and copper and gold prices, and what's going on in the market. We don't need to raise money. I mean, I think we've gotten that question a number of times. But we definitely do not need to raise money to continue funding our general operating and capital activities. There's not really any pressure there. So some of the things we're doing just to preserve that. Again, just checking in daily, monthly, weekly on the progress of our projects. All of them are financed as it stands now, so we're not overly concerned. But again, just ensuring that we're maintaining the core structure that I touched on earlier in the call
David Wolfin: And filling the mill as our number one priority.
Nathan Harte: Yeah, and bringing our per-unit cost down, as David mentioned, by filling the mill.
Joseph Reagor: Okay. And then I noticed during the quarter there was booked at there was a bit of an inventory sale, your silver equivalent sold was greater than the production. Was that intentional or just a timing things?
Nathan Harte: I would say a bit of both. We obviously we're building inventory in Q4. Production was well over 500 close to 520,000 ounces silver equivalent. And we only sold about 80% of that. So we did have a bit of an inventory build at the end of December, which was subsequently sold in January, February. It wasn't really intentional, per se to hold it back, but we were -- we did receive embedded some benefits as far as pricing goes on that standpoint. So we're happy with how that turned out and yes, our inventory did decline a bit in the end of Q1 compared to the end of year.
Joseph Reagor: Okay, thanks.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to David Wolfin, President and CEO for any closing remarks.
David Wolfin: Thanks, Operator. And thanks, everyone. We're thrilled about the Q1 financial performance with record revenue and closing of left Preciosa was a major milestone for us, puts us on a path to achieving intermediate producer status, which will share with everyone as we develop those plans. So thank you very much and have a great day.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
