Avino Silver & Gold Mines Ltd. (AMEX:ASM) Q1 2023 Earnings Call Transcript May 11, 2023

Operator: Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Q1 2023 Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. The conference is being recorded. I would now like to turn the conference over to Jennifer North Head of Investor Relations. Please go ahead.

Jennifer North: Thank you, operator. Good morning, everyone and welcome to the Avino Silver & Gold Mines Limited Q1 2023 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated May 3, 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 that page. On the call today, we have the company’s Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; our VP Technical Services, Peter Latta; and a recorded intro from our President and CEO, David Wolfin. 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 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.

Also please note, that all figures are stated in US dollars unless otherwise noted. I would like to remind everyone that this conference call is being recorded and will be available for replay today – later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on the website. Thank you. And now we will hear from Avino’s, President and CEO, David Wolfin. David?

David Wolfin: Thanks, Jen. Good morning, everyone and welcome to Avino’s Q1 2023 Financial Results Conference Call and Webcast. I’m currently marketing in Asia and have recorded this intro for the call today. I would like to make a few remarks about the first quarter and begin the presentation with the operational highlights and then I will turn it over to Nathan Harte, Avino’s CFO to take you through the presentation including financial performance for Q1 and any additional operational information. The first quarter highlights include the following: Avino Silver equivalent production increased 48% to 678,000 ounces compared to Q1 2022, showing consistent results that build on our successful 2022 production results. During the quarter we announced an updated mineral resource estimate, which included La Preciosa and an inaugural mining resource estimate on Guadalupe and La Potosina deposit to boost our consolidated mineral resources to 368 million silver equivalent ounces.

The full report is available on our website. Also during the quarter, the metallurgical testing was completed on the Oxide Tailings Project and will form the basis of the metallurgical analysis and a pre-feasibility study on the project. You can find the full news release on our website under the News tab dated April 5. The project has been in our portfolio for many years and factors prominently in our five-year growth plan to become an intermediate producer in Mexico. The dry-stack facility is completed and operational. And during the quarter, the conveyor system was installed and is currently transporting the press dry tailings to Avino’s open pit area. At La Preciosa, the company continues with its community engagement in the nearby towns adjacent to the property.

We are fully committed to moving the project forward as it factors prominently into our five-year growth plan Lastly, I wanted to briefly touch on the Mexican mining laws that have been prevalent in the news in the last few weeks. In our view, we expect little economic impact to Avino in the short-term. Our concessions are good for the long-term and we are watching how this unfolds over the coming months and years. I will say that we are looking forward to a successful second quarter as we continue our clear path to transformational growth. We believe, our five-year growth 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. Our initiatives for growth are development, production and optimization of La Preciosa, the tailings project, pre-feasibility study and eventual construction decision, further exploration drilling at Avino ET mine, other exploration and evaluating regional areas on the Avino properties.

We have laid out how each year looks with the addition of production from various areas during each year to provide growth. For further information of our clear path for growth, please visit our website and view our corporate presentation. I will now hand it over to Nathan Harte to continue with today’s call and presentation of Avino’s Q1 financial and operating results. I thank you all for your time today. 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. As David and Jennifer mentioned, we will cover highlights of our first quarter financial and operating performance, the work we are currently performing and have planned for 2023 and then we will open it up for questions. Here on Slide 7, we show our Q1 production results. As David mentioned, the Avino mine continued to perform consistently in the first quarter of 2023 building on our strong 2022 production results. We announced these production results on April 18 and the full Q1 2023 production news release can be found on our website. The highlights are as follows and compared to production results in Q1 of 2022.

Silver equivalent production increased 48% to 678,000 ounces. Silver production increased by 43% to 234,000 ounces. Copper production increased by 15% to 1.4 million pounds. Gold production increased by 185% to 2,286 ounces. And finally mill throughput increased by 44% to just under 160,000 tonnes. Turning to Slide 8, I will touch on our exploration program. We budgeted exploration and evaluation expenditures for 2023 to be focused on further drilling below Level 17 at the ET area of the Avino mine. 8,000 meters of drilling are planned for the year and at the end of the first quarter, a total of 3,125 meters have been drilled. Results have started to come in much quicker and we expect to share results from a number of holes in the coming weeks.

Moving to Slide 9 and on April 5, we announced the results of our comprehensive metallurgical program on the Oxide Tailings project. 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 oxides make up almost all of the mineral resource owned in the table here. This table also highlights the mineral resource growth from the approximately 150 holes that were drilled during the mine closure which has allowed us to move this project further forward. You can see here that M&I has grown by over 400%, providing us with a higher degree of confidence of the contained resource within the tailings deposit.

Further information on the above-mentioned results can be viewed on our website under News Releases. As mentioned, during the quarter we announced an updated mineral resource estimate which included La Preciosa, an inaugural mineral resource estimates on the Guadalupe and La Potosina deposits which has increased our consolidated mineral resources to 368 million silver equivalent ounces. On this slide, you will see the table showing the consolidated mineral resources. In the total measured and indicated category for all deposits, we see 52 million metric tonnes with a silver equivalent grade of 164 grams per tonne and metal contents of 274 million silver equivalent ounces. In the total inferred category, we see 23.7 million metric tonnes with a silver equivalent grade of 123 grams per tonne and metal contents of approximately 94 million silver equivalent ounces.

The growth in consolidated mineral resources at Avino and La Preciosa signals long-term growth for our shareholders and stakeholders and significant economic development for the local communities in the surrounding areas. At this time, I will ask Jennifer North, Head of Investor Relations to run through the latest ESG initiatives.

Jennifer North: Thank you, Nathan. Moving to Slide 11, we have listed our recent ESG initiatives for the first quarter of the year which continue to build on our efforts to incorporate daily, the principles of sustainability and social responsibility. A top priority 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 456 direct jobs at the mine which typically translates to 3x the number of indirect jobs for services, consultants and suppliers in the surrounding communities and the Durango area. After receiving the ESR award for the first time in August 2022, Avino continues to view its social responsibility with importance and care of our communities and is committed to performing the CSR diagnostic processes with diligence each year to show our support and commitment to the local communities and the environment.

During the first quarter, the list of initiatives carried out by the teams in Mexico include educational support to the Kinder Josefa Ortiz de Domínguez School in the town of San Jose de Avino where members of the Avino mining team held educational talks with the students which expanded on activities that teachers had developed relating to topics in health and safety. Continued support given for the maintenance of schools and the communities including delivery of supplies for general upkeep to the school structures, assistance in maintaining the community landfills to ensure satisfactory sanitary conditions, regularly maintain sports areas and facilities, celebrated International Women’s Day on March 8th by sharing the personal stories of a few of the women who have roles at mine, which have typically been held by their male counterparts, provided waste collection drums for the schools, public areas, and health centers in the community.

The second Annual Environmental and Reforestation Campaign was completed to care for green areas in parks and squares in the community. Continue to raise awareness in the communities and within our workforces about the following subjects; the World Day to Combat Depression giving it visibility and allowing the space for conversations to take place; and World Water Day, a day to observe the importance of freshwater and advocate for the sustainable management of freshwater resources. The CSR teams continue their efforts and commitments to the communities to show support to provide knowledge and awareness and to respect the company’s corporate values as it relates to the community, culture, and the environment. I will now hand it back over to Nathan Harte to continue with the presentation.

Nathan Harte: Thank you, Jennifer. Turning to slide 12 for our metals and mining outlook. We continue to see volatility in markets with rising interest rates another one implemented just last week where the US Central Bank lifted its benchmark overnight interest rate target to the 5% to 5.25% range, which is the 10th consecutive increase since March of 2022. Uncertainties persist on how fast the metals hungry energy transition may develop in this current economic climate. However, precious metals are expected to increase by 6% in 2023 as safe haven demand rises amid elevated uncertainty with respect to future growth prospects, ongoing concerns of inflation, and the financial stress seen in the first quarter. In the first quarter, the silver price range from $20.09 in early March to a high of $24.43 in the beginning of February.

And the London fix for the price of gold in Q1 ranged all the way from $18.10 at the end of February to a high of $19.93 in late March. On May 4th, gold hit $20.45 an ounce and has continued to hold above the 2000 level, which is a strong sign for the precious metal moving forward. Silver has remained above the $25 range and is continuing to show signs of a breakout and following in gold footsteps. For gold, the near-term key drivers will be the debt ceiling, banking concerns, and recession risks all around the world. These uncertainties also point to a positive outlook for silver and we continue to believe that the outlook for silver remains strong and that silver demand will grow in 2023. There is record demand for silver in industrial fabrication, green technology, and a surge in investment demand for physical silver.

All of these factors point towards the tightening of the silver to gold ratio, which historically has been much lower than the current ratio of 80:1. Turning to slide 13 now for a review of our Q1 financials. The first quarter of 2023 was mixed from a financial results perspective. With revenues and mine operating income decreasing compared to Q1 2022, we remain laser-focused on cost management and generating strong Q2 results. In Q1 cash flow generated from operations before working capital adjustments was $1.2 million. At Avino, we reinvested into the mobile equipment fleet with the acquisition of several pieces of underground and surface equipment that will be used for years to come both at Avino and eventually at La Preciosa. Turning over to slide 14, I’ll walk you through some key financial results on top of the ones discussed previously.

As noted on the previous slide, net revenues came in at $9.8 million, a decrease from $11.1 million in Q1 of 2022. The decrease is partly due to provisional pricing adjustments with metal prices being weaker during January and February 2023. Further, a schedule of concentrate shipment did not make the March 31 cutoff and as such will be included in our Q2 revenues. Both the strong performance of both gold and silver subsequent to March 31st and the timing of sales, should have a positive impact on our Q2 revenues and earnings. Avino generated mine operating income of $1.9 million for the quarter including noncash depreciation and depletion when compared to Q1 of 2022 it was $4.7 million. The decrease is a result of higher mined and milled tonnes during the current quarter, resulting in higher overhead as well as being offset by lower revenues when compared to Q1 of 2022.

I will provide more insight on costs during the discussion on cash cost per ounce and cost per tonne later in the presentation. On a cash basis, mine operating income was $2.6 million for the first quarter and that represented a 26% operating margin. Avino reported a net loss after taxes of $400,000 or $0.00 per share for Q1, while EBITDA was $0.3 million for the quarter and adjusted earnings came in at $1.1 million or $0.01 per share for the quarter. Cash flow from operations for Q1 was $400,000 after working capital adjustments with the company spending $3.8 million in capital investment, primarily relating to new equipment acquisitions for Avino and eventually La Preciosa and the finalization of the conveyor system from the dry-stack facility to the open pit where we are currently depositing our pressed tailings.

Here on slide 15, you can see our cash cost for silver equivalent payable ounce for the first quarter came in a bit higher than the 2022 average as well as Q1 2022 at $14.22 for the current quarter. All-in sustaining cash costs for the first quarter were up from the 2022 average at 2017, but similar to Q1 2022, where we saw just under $20 per ounce. Ounces sold for this quarter came in at a similar level as Q1 2022 with 507,000 ounces compared to 459,000 in Q1 2022 an increase of 10%. The increased overhead from larger production volumes with a lower level of ounces sold had a substantial impact on operating margins and our cost per ounce. This was partially due to the timing of sales, as previously noted, but also due to lower grade and recoveries in our copper concentrate when compared to previous quarters and we expect that to improve in Q2 and for the rest of the year.

Coming to slide 16, you can see our cash cost per tonne processed for the first quarter came in lower than our 2022 average as well as for Q1 2022 at $45.12 per tonne. All-in sustaining cash cost per tonne for the first quarter were also lower than 2022 by a decent margin as the mill continues to process more material. When we compare mill throughput and silver equivalent production, we see a comparative increase in the current quarter of 44% and 48% respectively, when compared to Q1 2022. Our steady cost per tonne reflects the resilience of our operational team in Mexico during times of inflationary pressure all around the world as the team continues to deliver. Controlling cost remains a key priority for Avino in order to not only protect the company in a down market, but to also outperform when the bull market for metal prices comes to fruition.

Turning to slide 17, you can see our plans for 2023. We are now well into the second quarter and with the metallurgical test work now completed on the Oxide Tailings project, we have officially kicked off the prefeasibility study. We expect to present the results to the market in either Q4 of this year or in Q1 of 2024. 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. In the quarter, we released the integrated Avino and La Preciosa technical report, with a combined mineral resources totaling 368 million silver equivalent ounces, which represents a significant endowment of metals primarily silver but also copper and gold. We have 8,000 meters of drilling planned for this year and we currently have drills turning exclusively on Avino ET below Level 17 and we promised to report assays shortly.

We had an active first quarter of 2023 with the corporate teams attending various conferences across Canada US and abroad. And as David mentioned at the beginning of today’s presentation, he is currently marketing throughout Asia. We continue our efforts on this front as we endeavor to update our shareholders across the globe on Avino’s growth plan. And finally, I want to reemphasize the company’s plans for growth. We have three assets within a 20-kilometer footprint totaling hundreds of millions of silver equivalent mineral resource ounces. On the same area, we have an operating mill complex, which is currently producing from our Avino mine. We have additional access to water power and tailings storage all the ingredients to grow organically without the major capital investment required that one 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. I would now like to move the call to the question-and-answer portion. Operator?

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. The first question comes from Jake Sekelsky with Alliance Global Partners.

Jake Sekelsky: Hi, Dave and Nathan, and team, thanks for taking my questions.

David Wolfin: Hi, Jake

Nathan Harte: Hi, Jake

Jake Sekelsky: Just starting with cost. Can you maybe touch on the impact that you’re seeing from the strengthening in the peso and any steps if any that you’re taking there?

Nathan Harte: Yeah, pretty top of question obviously with kind of the swing over the last month. So yes we’ve been monitoring pretty closely and kind of implementing some policies in place especially in Durango, because like many foreign miners we get paid in US dollars, but we do have some cost in pesos. Having said that, a lot of decent check of our costs are still in US dollars so there is not quite as large of an impact as one might, I think, yes obviously at the mine level we put in some procedures as far as monitoring and making sure that we are protected from any further movements.

Jake Sekelsky: Got it. Okay. And then just on CapEx you spent just under $4 million in the first quarter. Can you just remind us what the budget is for the remainder of the year? And maybe some color on the spend on a quarterly basis?

Nathan Harte: Yeah. Sure. So the budget, I think when we disclosed it back in early February, it was $9 million to $12 million. So obviously a lot of that was planned to be front-loaded as we’re trying to acquire some equipment fairly ahead of schedule for Avino, but also we use some of this equipment for La Preciosa as well too. So I would guide, obviously, lower down for the next two, three quarters and for the rest of the year. We don’t expect to be close to $4 million on a quarterly basis moving forward.

Jake Sekelsky: Okay. That’s helpful. That’s all for me. Thank you, Nathan

Nathan Harte: Thanks, Jacob

Operator: The next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle: Hi, there. David, I assume you can hear me all right. The first one is probably 80% of common and only 20% of question. But I mean if someone who’s been to site, and has seen your ESG efforts there firsthand, the impact is quite visible. Now the question part of all of this, can you quantify your budget for community support and maybe also how that compares to money spend on the same thing couple of say, five years ago?

Nathan Harte: Good question, Heiko. I think to quantify it, is tough. But if you want to compare it to five years ago, it’s grown substantially by numerous multiples because a lot of what we do is, reinvestment in the community local training programs and things like that, that more have an indirect impact on the communities. But if you’re looking for direct spend, I mean I can go back and check some figures for you, but I might have to add to that question later.

Heiko Ihle: Yes. We have a call later today anyways, would be just out of curiosity. And then also, early on this call you stated that results from drilling or your words starting to come in quicker. Can you quantify this and let us know, how many meters of drilling are currently still in the queue to get back? And maybe also a little bit costs what you’re seeing with cost impacts for diesel fuel and other input costs for drilling?

Peter Latta: Yes. Sure. Heiko, Peter here. I can answer that, first part of that question. So we have 10 holes that are outstanding right now, that were very — are ready to release very soon. That encompass about just over 3,100 meters drilling.

Heiko Ihle: Perfect. That’s it for me. Thank you.

Operator: The next question comes from Matthew O’Keefe with Cantor Fitzgerald. Please go ahead.

Matthew O’Keefe: Thanks and good morning. So I may have missed this in your commentary, so I apologize. But would you mind taking us through the plans this year for La Preciosa?

Nathan Harte: Sure. So obviously, we’re still involved in the community engagement side, which is kind of the first step and we want to make sure we have that set up for the long term for the benefit for the company. But then after that obviously, we’ll be looking to develop and start mining out the Gloria vein, which is quite high-grade vein. And then moving over to Abundancia, and the more medium term and then obviously long term the Martha vein. But yes, the plan is to start development this year, with the goal of fresh ore coming at the beginning of 2024.

Matthew O’Keefe: Okay. And that’s part of this budgeted $9 million to $12 million capital?

Nathan Harte: Yes, that’s correct. Yes, that’s — a lot of the capital was allocated to La Preciosa.

Matthew O’Keefe: So, can you break that out for me?

Nathan Harte: I think we broke out in the news release. But if not I can provide a bit more color. Those will be – yes, there will be obviously a couple of million dollars in development later in the year, but we’ve actually procured a lot of the long lead equipment ahead of time and that was part of the Q1 CapEx.

Matthew O’Keefe: Right. And there was some — already some broken ore on surface is that correct? And is that — will that be coming through the mill at some point soon?

Nathan Harte: Yes. The idea is that once we got the engagement fully completed that, we will be able to process that material kind of on a test basis in one of our idle circuits the 250 tonne Circuit two that I think you’ve seen firsthand and we’d be using that kind of to ramp up and make sure that it’s fine-tuned to accept La Preciosa ore, to get the highest possible recovery.

Matthew O’Keefe: Okay. And we might look forward to that in the second half?

Nathan Harte: Yes, it’d be later in the second half. That’s what we’re planning as of right now.

Matthew O’Keefe: Okay. Looking forward to that. Thank you.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Nathan Harte, CFO for any closing remarks.

Nathan Harte: Thank you everyone, for joining us today. We appreciate your continued support as we look to grow into the next intermediate silver producer in Mexico. Have a great day, everyone.

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