Avino Silver & Gold Mines [ASM] Conference call transcript for 2022 q2
2022-08-11 21:57:06
Fiscal: 2022 q2
Operator: Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Second 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 Ltd. Q2 2022 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated August 10, 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 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. 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 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 Q2 2022 Financial Results Conference Call and Webcast. Thank you for joining us. Before we begin, please note that the full financial statements and MD&A are available on our website. On today's call, we will cover the highlights of the second quarter 2022 financial and operating performance and our plans for the third quarter, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. Our second quarter performance was strong operationally, highlighted by steady production from the Avino Mine and higher grades that helped to drive positive results. In addition, the mine optimization work continued in Q2 for the underground mining processes. They are aimed at managing and tracking and planning underground movements, which helps increase efficiencies across communication and planning. We have also received encouraging drill results from the Oxide Tailings project and from the Avino ET mine area below the current Level 17 mining area. The acquisition of La Preciosa closed during the first quarter and during the second quarter, we continued developing our internal plans for the property. The property holds one of the largest undeveloped primary silver resources in Mexico and is located adjacent to our existing operations at the Avino Mine. Our financial performance in the second quarter indicates strong operational achievements that helped to generate revenues of $9.4 million, $3.9 million in mine operating income and as well, lower cash cost and lower all-in sustaining costs were realized. Nathan Harte, Avino's CFO will expand on our financial results later in the call. The second quarter production marks the third full quarter following the restart of operations in August 2021. With production coming from the Avino mine only, it is compared to Q1 2022 as that was the most recent quarter of consolidated production. The production highlights are as follows. Silver equivalent production increased 42% to 649,569 ounces. Silver production increased to 225,537 ounces. Copper production increased by 35% to 1.6 million pounds. Gold production increased by 69% to 1,350 ounces. Mill throughput increased by 6% to 119,224 tons. The recoveries for copper increased by 3%, and gold recovery increased by 1% with the recoveries of silver decreasing by 1%. On a gram per ton basis, the feed grade for silver increased by 30%. For gold, the increase was 57%. And for copper, the grade increased by 23%. During the quarter, our exploration and drilling program provided encouraging results across the Oxide Tailings project and the Avino ET area below Level 17. At the end of Q2 2022, a total of 7,694 meters have been drilled. In April, we announced drill results from 2021 drill program on the Oxide Tailings project that sits within our Tailings Storage Facility number one. There were 110 holes for a total of 3,645 meters of drilling. This drilling follows up the 2015/2016 campaign from which the 2016 NI 43-101 preliminary economic assessment is based on. The results were encouraging and included 0.76 gold grams per ton over 19.5 meters. With gold grades better than anticipated, we are eager to understand the implications for the total resource. Additionally, the 2022 drill program from the Oxide Tailings project included 17 drill holes, which we received and released in May. The gold grade in the oxide portion of the recent holes continues to be encouraging and giving the distance of the step-out holes, we feel this will provide meaningful resource expansion significantly beyond whatâs described in the previous PEA. The positive results from the Oxide Tailings drilling supports our belief that this project will factor significantly into Avino's growth strategy. Also during the quarter, we announced drill results from the Avino ET area below the current Level 17 mining area. We received and reported assays from six holes. These results confirm the down-dip continuity of widths and grades of the Avino vein extending significantly, potentially to a depth of at least 290 meters down-dip below the current development. This is encouraging and confirms our expectations that mineralization continues at depth as well and contains significantly higher copper mineralization with grade of copper intercepts encountered at depth within our permit boundaries. We encourage you to view the interactive 3D model on our website, which is linked to the June 13 press release showing the location of the drill results in proximity to the current mine area. Full drill results, including images for the 2021 and 2022 drill programs are available on our website. Since 2019, following our sale of Bralorne, we have focused our resources on creating value at the Avino property by optimizing production, executing an exploration strategy focused on growing the resource base and completing a strategic property acquisition in La Preciosa. At La Preciosa, we are currently conducting community engagement in the nearby towns adjacent to the property, as well as studies on how to optimally integrate into our mine plan to leverage the existing facilities and infrastructure. Avino is fully committed to moving this project forward as part of the company's organic growth strategy. This is a major milestone for Avino and sets us up on the path of achieving our goals of intermediate producer status. During Q2, we continued moving forward on the capital projects that we outlined for the year. The dry-stack tailings facility is nearing completion, which means we are inching closer to decommissioning the current Tailings Storage Facility number one. The team in Durango continues to make significant progress during Q2 on the facility, which I was able to see firsthand at the end of May. The project is expected to be fully operational during the second half of 2022 and brings the company towards achieving the guidelines within global industry standards on tailings management, along with the previously mentioned community stewardship. We have posted updated photos of the construction as well as the time-lapse video on our 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 Investors tab and watch it. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. Following the restart of operations, it has been the company's directive to train and hire a local workforce. By providing jobs to those in the surrounding communities, we aim to foster generations of enthusiastic and dedicated ambassadors of Avino. ESG initiatives completed during the second quarter were: tree planting campaign in the community of Panuco de Coronado, donating over 100 fruit trees; volleyball tournament held in the community of San Jose de Avino to promote sport and family coexistence as well as other sport equipment delivered to the surrounding communities; mining training and education seminar held for secondary school students of San Jose de Avino and the elementary school of Panuco de Coronado; cleaning and maintenance campaigns of landfills in the communities of San Jose de Avino, Panuco de Coronado and Zaragoza; continued work to repair Panuco roads to Madero, San Juan; classroom renovations at the San Jose de Avino Community Elementary School; provided construction materials for modernization projects, which is commencing at the San Jose de Avino cemetery. In collaboration with city council of the municipality of Panuco de Coronado and the local authority of the community of San Jose de Avino, the company assisted the communities with an upgrade well for drinking water; delivered hand tools for the technical school number 47 of the community of Panuco de Coronado for their agricultural classes; continued road maintenance to the main access road to the mine. Finally, we are very pleased to announce that Avino has received for the first time the ESR Award granted by the Mexican Center for Philanthropy and the Alliance for Corporate Social Responsibility. The ESR Award is obtained through a diagnostic process based on indicators reviewed and endorsed annually by a committee of experts in the various CSR areas. This is an extremely prestigious award in the Mexican business world, granted each year to a select group of enterprises in recognition of the efforts to make a voluntary and public commitment to implementing socially responsible management and ongoing improvements as part of business culture and strategy. We are thrilled to receive the ESR award as this is a great accomplishment for Avino. I would like to express my congratulations to the entire Avino team with a special thanks to the ESG team in Durango led by Oscar Lara, Avino's Superintendent of Corporate Social Responsibility, whose proactive approach to governance was the top priority since joining the company a little over a year ago. Avino continues to be committed to our employees, communities, shareholders and stakeholders as part of our mission, vision and values. During the second quarter, volatility in the markets persisted with some negativity due to rising interest rates, inflation and a strong U.S. dollar, which put pressure on precious metals. We've seen a range in silver prices during the quarter from a high on April 19 of $25.91 to a low on June 30 of $20.41. This is an interesting time, and we should probably brace for continued volatility and higher interest rates. We will take a measured approach to all operational activities during this inflationary period. We continue to believe that the outlook for silver is positive and that the silver 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. I will now ask Nathan Harte, Avino's Chief Financial Officer to present the financial results for Q2 2022. 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 of 2021 and first quarter of 2022, Avino continued to deliver meaningful financial results in the second quarter. On a cash operating basis, we generated a consistent mine operating margin of 47%, same as in the first quarter. The company also generated $2.5 million in operating cash flows before working capital changes and $0.02 per share in adjusted and unadjusted earnings. Following the acquisition cash payment of $15.3 million, the company remains well funded with $12.8 million in cash available at the end of the second quarter. This represents a net increase of $3.3 million from the end of the year after factoring in the acquisition payment made in March. During Q2, we reported net revenues of $9.4 million from 595,000 silver equivalent payable ounces sold, which resulted in mine operating income of (ph) million for the quarter, including noncash depreciation and depletion. On a cash basis, mine operating income was $4.4 million. The company was impacted by provisional pricing adjustments by $1.8 million during Q2 with provisional net revenues coming in at $11.2 million before these adjustments. Avino reported net income after taxes of $2.3 million or $0.02 per share for the second quarter of 2022. As you can see, Q2 continued to build off the strong preceding quarters for Avino as we continue to demonstrate consistent operating margins well above 40%. This was despite significant inflationary pressures seen around the world, and I want to commend our team in Mexico for their diligent work in keeping our cost structure intact. Earnings before interest, taxes, depreciation and amortization, EBITDA, was $4.1 million for the quarter, and adjusted earnings was $2.5 million or $0.02 per share. Cash flow from operations before changes in working capital was $2.5 million or $0.02 per share on a diluted basis. Capital expenditures for Q2 were $3.4 million on a cash basis with total additions being approximately $5 million as the company continues to work with our partners to finance equipment at below or at market rates. Capital expenditures for this quarter related to the addition of the new underground mining scoop to assist with the ramp-up of mining operations as well as a dozer for the new dry-stack tailings facility and exploration expenditures at La Potosina and below the current mine operations at Avino. Also included was additional drilling in our oxide tailings resource as we completed the additional 17 step-out holes to increase the footprint of the resource. This project continues to move forward towards the prefeasibility level in the near term. Rounding out and most importantly, Avino generated net income for the third consecutive quarter and $1.2 million in free cash flow net of CapEx and working capital movements, which brings our total up to $6.2 million in free cash flow generated in the three quarters following the restart of operations in Q3 2022. Cash costs for silver equivalent payable ounce for the second quarter were $8.39 and on an all-in sustaining cash cost basis, they were $15.95. Lower cash and all-in sustaining cash costs were a product of higher production grades and recoveries than in previous quarters as well as strong cost management by the operational team. With Q2 marking the third quarter of uninterrupted mining operations since 2019, I am pleased to report that the financial outlook for Avino remains very positive. With the strong operating margins and cash on hand of just under $13 million, following the completed upfront consideration payments to core mining, our focus is fully on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022 and in the future years. I will now hand it back to David for a discussion on what Avino is planning for the rest of this year.
David Wolfin: Thank you, Nathan. To recap, we had a busy second quarter with strong operational performance. The quarter was highlighted by encouraging drill results from the Oxide Tailings project and the ET area of the Avino Mine, ongoing optimization from underground processes, continued construction of the dry-stack tailings and training programs at site. Activities at the mine site during the third quarter will include: continued production ramp-up at the Avino mine with mine development work on ET to increase throughput; dry-stack tailings facility nearing completion with start-up around the corner; we currently have drills turning at Avino ET below Level 17 and at La Potosina; moving forward with a comprehensive metallurgical test work program on the Oxide Tailings project to move it to the development stage; internal mine plans focused on Gloria and Abundancia veins at La Preciosa. Production for the full year is on track between 2.2 million and 2.4 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. We are well into the third quarter and excited about all our ongoing projects, as well as we continue to advance our growth plans. We would now like to move the call to the question-and-answer portion. Operator?
Operator: Thank you. We will now begin the question-and-answers session. The first question comes from Jake Sekelsky with Alliance Global Partners. Please go ahead.
Jacob Sekelsky: Hi, David, Nathan and team. Thanks for taking the question.
David Wolfin: Good morning, Jacob.
Jacob Sekelsky: So it seems like the exploration potential at the Avino property is really coming to the forefront here. Can you just provide any color on follow-up drill plans, particularly at ET, on the back of the success that you had down-dip in the first half?
David Wolfin: Yes. We've got -- we moved the second drill over there because we have got three drills turning on surface. It's never been drilled at depth. So this is all brand new, and this is very exciting for us. Never been drilled in over 50 years. So very -- it's open at depth. So we're very, very excited about what the future holds for the company. And it looks like we're following it down and it's pretty obvious. And look how big it is up near the surface and as it goes down. So expect to see some more results in the near future.
Jacob Sekelsky: Got it. Okay. Looking forward to that. And then just on La Preciosa. Obviously, you're working through integrating the asset now. I mean, when do you think you'll be in a position to announce some formal plans going forward there? Is that a second half-type event? Do you think we'll see something on that in early 2023?
David Wolfin: No. No, we're working on it. We're hoping to be able to present at the Denver Gold Forum coming up in September, if it all comes together. But it's a five year plan, and it looks very, very good. We're excited to roll that out.
Jacob Sekelsky: Got it. Okay. That's all for me. Congrats again on a strong quarter. It was good to see costs lower in a tough inflationary environment.
David Wolfin: Thank you.
Nathan Harte: Thanks, Jake.
Operator: The next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.
Heiko Ihle: Hi, there. Thanks David for taking my questions. Hope everybody is doing well.
David Wolfin: Thank you.
Heiko Ihle: Let's talk about the advancement of the Oxide Tailings project. I mean you've obviously drilled a lot there, 127 holes, comprehensive metallurgical test work, et cetera, et cetera. Now you're saying that to advance this soon, can you maybe provide a little bit of color on your total spend this year? I don't know if there's an intelligent way to break it out. And also maybe that might be a Nate question, I don't know, an idea of the spend for the remainder of the year?
Nathan Harte: Yes. I'll take this one. So you're talking specifically the spend on the Oxide Tailings project or on all --
Heiko Ihle: Correct. No, oxide tailings.
Nathan Harte: Okay. Fairly minimal. The drilling is not very expensive because it's just -- we're just only drilling down a few meters, and it's all on the surface. But I think for the year, we really probably spent about $0.5 million on it. And that's probably -- that's actually going back to last year as well, too, on the whole. And then moving forward, we don't have any more drilling to do. So it's a metallurgy program and then a number of studies. And eventually, the plan is a PFS next year. So for the rest of the year, you're talking, again, still $0.5 million in total. And then next year, obviously, the cost of PFS is still being finalized right now. But that's about it.
Heiko Ihle: Fair enough. And then I keep reading on how ET -- I mean you're obviously focusing on depth grade. This might be a dumb question. But how deep can you realistically and logistically take the site? I mean at what point in time does the decline at site become a bit of a bottleneck? I mean, David, you and I went down there a couple of months ago, and it took a while to get down, to get up. Any idea or how deep realistically you can go?
David Wolfin: That would probably be a Carlos question. But the decline is actually improving now that we've linked it up and we are developing one-way traffic. We're smoothing it out and maintaining -- trying to keep it dry. So then it will be much quicker to get down there. But Carlos, do you have any thoughts on how deep the ramp could go? Are you there, Carlos?
Carlos Rodriguez: Yes, David. Of course. Yes, Heiko, at the moment the drilling that we have is about 300 meters below Level 17. But in this case, proving all this mineralization, we are planning to do a kind of a different mining method or just sink a shaft or something different because it will be a long, long way from 300 meters to Level 17 and then to surface. So we are -- at the moment, we have a final plan for that, but we are planning to put a shaft to mine this future ore.
David Wolfin: Yes. I can elaborate on that. So we have a service shaft right now to Level 9. So we have considered putting in more raises and shifting services to those raises and possibly expand the current shaft. And then maybe we could consider hoisting from Level 9 or crushing down below there and hoisting from there. And this is all good news, because that would mean we found a lot more ore to justify that.
Heiko Ihle: Perfect. Thatâs it from me. Thank you so much.
David Wolfin: Thanks, Heiko.
Nathan Harte: Thank you.
Operator: The next question comes from Joseph Reagor with ROTH Capital Partners. Please go ahead.
Joseph Reagor: Hi, David and team, congrats on the strong quarter and the ESG accomplishments.
David Wolfin: Thank you.
Nathan Harte: Thanks, Joe.
Joseph Reagor: So the hot topic this quarter has been inflationary pressures on cost. It seems like you guys mitigated it pretty well. But can you guys quantify what the impact of inflation has been this year versus next? And I realize that's a tougher question given the mine was shut down most of last year.
Nathan Harte: Yes. Sure. Joe, it's obviously a very pertinent question in the industry right now. I think we've seen some inflationary pressures across the board, supplies of consumables in Mexico, diesel and things like that have been mitigated a little bit. But yes, obviously, there's been an increase. As you mentioned, it's hard to compare where we were a year ago right as of today. We were just starting back up operations. But I think there's been an increase overall. I can't give you an exact percentage, but we think from what we're seeing, it's not 50%, it's not 40%, it's still close down to the 10% range. And I think we've done a pretty good job at keeping it either at 10% or below. And obviously, we had some great help throughout Q2.
David Wolfin: And we saw this coming. So we loaded up on inventory. So hopefully, all that equipment lasts until inflation goes back down. But on consumables, yes, we're seeing the inflation creeping in as we go through our stockpile of consumables.
Joseph Reagor: Okay. Fair enough. And then it looks like you guys had about almost $2 million build in inventory during the quarter, and I think that held back the revenue a touch. Is that intentional? I know some of your peer group has been holding back sales towards the end of Q2, in particular, because of the drop in precious metals prices. I was just wondering if that's a conscious decision or if it's just simply timing?
Nathan Harte: It was probably a bit of both, but not for fulsomely conscious decision. I think it was just the timing of kind of the production. And the strong ramp-up we saw in June really accelerated how much concentrate we produced for the month and how many ounces we produced. Obviously --
David Wolfin: The grade helped produce more concentrate.
Nathan Harte: Exactly. We had good grades across the board, especially with copper. So we've subsequently sold that in July at slightly better prices than we saw at the end of June. We saw obviously some provisional pricing adjustments in the negative for us. We see that coming back the other way a little bit. So it was not fully a conscious decision, but I guess we're glad a little bit that we'll recover a bit of that in Q3.
Joseph Reagor: Okay. Fair enough. Iâll turn it over. Thanks guys.
David Wolfin: Thank you.
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: Thank you, operator, and thank you to everyone for their time today. As I said earlier, we have many positives to talk about in Q2. We look forward to the second half of the year. Growth is paramount for our success and Avino has been laying out the groundwork for future growth. We're developing a five year strategy, which we're going to disclose to everyone coming up in the next quarter. We've been given priority to the most important projects, initiatives to achieve that growth. Unlocking the value of Avino property and region has been a priority, and we are looking forward to the next steps of our growth strategy, in turn, maximizing value for shareholders and stakeholders. Have a great day. Thank you.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
