Q3 2021 Avino Silver & Gold Mines Ltd Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Avino silver and gold mines Q3, 2021 financial results conference call.
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I would now like to turn the conference over to Jennifer North manager of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to the Avino Silver <unk> Gold mines Limited Q3, 2021 financial results conference call and webcast on the call today, we have the company's president and CEO, David Wilson, Our Chief Financial Officer, Nathan Harte, Our Chief operating Officer, Carlos Rodriguez, and our VP of technical services Peter.
Before we get started please note that certain statements made today on this call to 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 actual results to be materially different from 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 against your state 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.
On the website. Thank you I will now turn the call over to <unk>, President and CEO, David Hult David.
Thanks, Jan Good morning, everyone and welcome to <unk> Q3, 2021 financial results conference call and webcast. Thank you for joining us before we begin. Please note that the full financial statements M. DNA are now available on our website on.
On today's call, we will cover the highlights of our third quarter 2021 financial and operating performance our plans for the fourth quarter as well as recent announcement on the acquisition of lab <unk> project and.
And what that means for Avino and then we will go open it up for questions. Please note that all figures are stated in U S dollars unless otherwise noted during the third quarter, we focused on finalizing work and activities at the mine site leading up to.
Recommencement of operations, which was announced on August 3rd.
We were extremely pleased to restart operations and it is because of the hard work of the team in Mexico that it came to fruition. The work included hiring mine personnel and reestablishing the mill circuits.
In addition in early July we announced initial drill results from phase one of the campaign.
Okay.
There were significant grades received at each location, we had results from El Trumbull, Santiago and La Mer Lynch of veins at the end of September 12179 meters of drilling was completed and as of today, we've drilled 13427 meters for the quarter there was four.
<unk> thousand 931 meters drilled the main areas.
For the third quarter of exploration included <unk> with 601 meters the oxide tailings with 1900, and 31 meters and the avino vein with 20 399 meters assay.
<unk>, our pending due to the long it turnaround times at the laboratories and will be released once received and interpreted.
Based on historical mapping of the oxide tailings, we've completed the drilling of the required spacing to move the project to the first steps of commencing a pre feasibility study.
During the third quarter reported and an increase in production compared to Q2, 2020, which was the most recent quarter of production.
Production came primarily from the Avino mine.
We are currently mining and milling from the Avino mine only as part of the ramp up of operations. We did also processed just over 10000 tons of historic above ground stockpile material.
Production from this material totaled 15784, silver equivalent ounces, consisting of just over 9300 ounces of silver 50, 58 ounces of gold and 12500 pounds of copper.
There are no other comparable production from Q2 2020 from historic Aboveground stockpiles.
The Avino mine production highlights are as follows compared to Q2 2020 silver equivalent production increased 70% to just under 270000 ounces copper production by 46% to 673000 pounds silver production increased by <unk> <unk>.
36% to 68000.
600 ounces gold production increased by 179% to 1125 ounces.
The consolidated production was as follows.
285000, silver equivalent ounces, consisting of 78000 ounces of silver almost 1200 ounces of gold and 686000 pounds of copper.
Also in the quarter, we continued progress in the dry stack tailings storage facility T. S. F number two.
With expected completion in the first half of 2022 we've been working on the mill recovery upgrade to circuit Board and mill automation project to increase productivity and recoveries.
In addition, the company has been training our local workforce at the mine.
As it endeavors to support nearby towns and strengthen the collaboration between the surrounding communities in the company.
As a major employer in the area. It is important that there is a steady group of trained mind workers available as we ramp up production there.
Training programs are aimed at increasing inclusion and diversity as well as fostering opportunities for both women and men with this objective.
In mind. The company is pleased to have trained its first female scoop trailing operator. The company is currently debt free having made the final payment on the it's $10 million term facility with Samsung during the quarter I will let Nathan touch on that shortly.
On October 27th we we were extremely excited to announce the acquisition of La Presse Yosef to the market.
I've always believed that avino and la Presse Joseph belong under common ownership, given the clear synergies and common infrastructure La Presse yours is an excellent strategic fit within avino, its 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 mineralized exploration concessions by more than seven fold to over 7000 hector's.
Work is already underway to determine how to best integrate <unk> into avino production operations, given the proximity to the current processing facility and infrastructure.
We expect a large portion of the existing la Presse, Yossi resource could be mined via underground operations to potentially improve the venose production and our organic growth profile.
This is important a transformational transaction for avino, the strategic financial and operational advantages are.
As follows elevate.
Elevates avino has potential as a silver producer and developer.
Unique operational synergies due to lab pretzels to a strategic location with our boundaries.
Within two kilometers of each other positive results from initial metallurgical test work reduces development timeline and risk reduces environmental footprint substantially increases avino, silver and silver equivalent mineral resources by increasing <unk> consolidated Ni 40 311.
Mineral resources to over 235 million ounces of silver equivalent.
Enhances avino has already robust land position in Durango pre.
Presents exploration upside potential at La <unk>.
Looking at other junior comparable company this acquisition should elevate avino within the silver sector. The transaction Repositions avino as a silver producer posting one of the largest endowments of measured and indicated silver resources.
We believe our shares are well positioned for a valuation re rating.
There are going to be exciting times ahead, as we continue to create growth in Mexico.
Yeah.
R E. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility during the third quarter as I mentioned earlier the company has been training our local workforce at the mine.
Other ESG initiatives completed during the quarter include.
School supplies were delivered to the schools and the local communities for all children from kindergarten to Middle school supplied cleaning kits for the schools in our three main communities helped maintain a clean and self environment for students assisted the community of Prenuclear did Coronado community to fixed road.
<unk> that were damaged due to the rainy season.
<unk> has been invited for the first time to participate in the Francisco Madera Parade. This is a local town fare.
Supported Pinocchios Middle school to reestablish electricity after technical issues supporting the community of <unk> and avino local waste dump cleanup provides.
<unk> ongoing yearly road maintenance within the town streets of our communities.
Frequent communications with the mayor of Francisco, Modesto, and the Ajito representatives to maintain good relationships.
We are committed to growing in a sustainable way that supports the wellbeing of our communities and the environment in which we operate.
We also continue to believe that the outlook for silver is positive the Green Energy Revolution is building steam and is showing an increased demand for silver.
As Canada, the U S and many other countries of all set net zero pledge is for 2015. This will in turn create huge demand for silver industry experts expect demand to reach 1 billion ounces by 2025 as silver is one of the industrial metals that will be needed in manufacturing's.
Electric vehicles solar panels electronics and medicine, just to name a few.
To achieve these ambitions, we need more metals and this is where mining comes in.
To meet this demand more minds needs to be discovered permanent financed and developed.
What do we think this means for silver miners, we will see a rise in stock prices as demand for metal grows.
In several green energy applications, the best leverage to metal is owning producers.
At Avino were targeting 2022 production between two five to 3 million ounces of silver equivalent and estimating all in sustaining cash costs at pre COVID-19 levels.
We expect to generate significant operating cash flow next year, which we plan to reinvest in exploration and further mine development.
Current producers will become much larger companies as profits grow from higher price pressure with.
With the recent acquisition of <unk>, we will be able to supply the silver for many years to come I will now as Nathan Harte <unk> Chief Financial Officer to present, the financial results for Q3, 2021.
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.
We are extremely pleased with the successful restart of mining operations at the Avino mine as well as the subsequent announcement of the strategic leprosy, how is the acquisition from core mining.
The company remains well funded with $22 3 million in cash and $28 9 million and working capital available at the end of the quarter, which represents a significant increase to the 12% and $15 million available at the beginning of the year.
Further we are excited to announce that concentrate sales resumed during the third quarter, which represents our first sales in 2021.
We are also happy to report that Avino is now debt free having made the final scheduled repayment to the $10 million term facility, which was advanced by our partners at Samsung Z N T.
This step allows avino to maintain significant financial flexibility and our next stage of growth as we look forward to move our new and existing projects forward.
During Q3, we reported net revenues of $1 9 million with 107000 silver equivalent ounces sold.
Avino reported mine operating income of <unk> 8 million for the third quarter, which includes 300000 in depreciation and depletion.
Earnings before interest taxes, depreciation and amortization or EBITDA was point 2 million compared to a loss of $4 6 million in Q3 2020.
Adjusted losses for Q3, 2021 with a 700000 with no significant changes from Q3 of 2020.
We reported net losses after taxes from continuing operations of 200000 or nil cents per share for the third quarter compared to a loss of $4 6 million or five cents per share in Q3 2020.
Capital expenditures for the first nine months of 2021 were $2 1 million with the majority coming in the third quarter.
Capital expenditures for this quarter related to exploration and resource drilling at Avino and included the recommended drilling on our oxide tailings resource as we look to move that project forward to <unk> ability level.
We do expect that capital and exploration expenditures will continue over the coming quarters as we continue with exploration and move forward with the dry stack tailings upgrades.
Cash cost per silver equivalent payable ounce for the third quarter was $6 75, a decrease of 46% compared to $12 56 in Q3 2020.
All in sustaining cash cost for the quarter was $25 60, a decrease of 19% compared to $31 61 during Q3.
As we move forward with consistent production and sales. We expect these figures to normalized expectations for Q4 or for lower all in sustaining costs as acuity represented less than a month's worth of ounces sold and a full quarter of administration and sustaining capital expenditures.
Finally, I want to reiterate the strength of IV knows financial position, we successfully executed on our plans to reduce debt and at the end of the quarter, we maintained working capital of almost $29 million.
This financial strength allows us to ensure that the acquisition of <unk> is fully funded and aligns with our plans to add value for our shareholders and stakeholders throughout the rest of 2021 and into 2022.
I will now hand, it back over to David for a discussion on what Avino is planning for the rest of the year.
Thank you Nathan Q3 was very busy with all the projects ongoing and Recommencing operations at the Avino mine. There is a lot to look forward to during the final quarter of this year production continues to ramp up at Avino.
Training is ongoing waiting for additional assays to be received work is already underway to determine how best to integrate <unk> into avino production operations, given the proximity to the current processing facilities and infrastructure.
We expect a large portion of existing law prescious of resorts could be mined via underground operations to potentially improve avino production and organic growth profile.
The dry stack tailings project is ongoing well and with long lead items on site now prefab building to be erected soon with the concrete having already been poured.
Improvements to circuit for ongoing that will improve gold and silver recovery through the use of new equipment.
Avino is main focus for the next quarters to ramp up the production levels and operating activities at the mine keep.
Keeping moving forward with the exploration program as well as plans for integration with <unk>.
The closing of the transaction is expected to occur during the first quarter of 2022.
We were very pleased with the progress made in Q3 and look forward to a busy Q4.
I would now like to move the call to the question and answer portion operator.
Thank you.
We will now begin the question and answer session.
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The first question comes from Heiko with H C Wainwright.
Please go ahead.
Hey, Thanks for taking my questions can you hear me all right.
Yeah sure thing one.
Hey in Europe. These human on this part the coal mining activities continue to ramp up and management expects to reach previous production levels. During Q4, 'twenty, one or Q1 'twenty two.
I'm just thinking out loud here were essentially halfway through Q4, and especially so one concern over the holiday seasons coming up in less than a month on the app.
So my question is what are the bottlenecks and other what exactly are the bottlenecks at the other capacity constraints that you're currently dealing with.
During this ramp up what are what are you seeing what's you know new from the ground.
Yeah. Thanks, Tycho. Thanks for the question. This is Peter Latta here.
Just to address that I mean, the main bottleneck as David mentioned on the call is our is just training up the locals and that's kind of a strategic move for us to.
Really our strength in the local community what we're seeing on the ground, though is kind of an increased rate of production that kind of a steady increase as we continue to ramp up from.
From from Q3 into Q4.
And you know what we're seeing on the ground is that the local community is really excited to be back at work.
They're a big stack.
Of resumes that we have in the HR office, there and we're just being very strategic with with how we hire and train. So that we can have a you know a labor force long into the future. That's a wants to collaborate with us.
Fair enough.
A slightly different question you drilled about 5000 meters in Q3 as reported as per your prepared remarks and also the press release.
Given the low pressure was the acquisition of the fact that you mentioned the exploration upside at that site in your prepared remarks as well.
Should we expect to see a meaningful impact on Q Q1 drilling expenses after the transaction actually closes.
On that same token is there an assay bottleneck that you might.
Even with those drilling results and could that become a little step back or rather an opportunity once these things non crude properly.
Hi, Heiko, David here are the budgets for next year haven't been finalized yet. So we'll let you know when that is ready so I'm not sure. If we will see meaningful exploration in Q1, just yet.
What was the other question.
Well.
Well I guess the other question was building on it with the Apple.
Yeah absolutely.
We're seeing.
Well the last time, we put out an exploration news release was in July. So just so you know how long it's taken to get more.
So we're not sitting on them, we're waiting so theyre trickling in and so yeah, they're really busy.
Okay.
Life in advance because I'm going to take a third question on this call.
Okay No no no.
You are saying is <unk>.
The assay is really have come back it's such a slow rate.
It hasn't made sense to put out a press release with results.
Did I understand that correctly.
Yes.
Heiko Peter here again.
These have the art trickling in but we keep in mind, we need to add interpretation to that as well. So you know, we'll we'll drill a few holes and we'll get an assay result for let's say half the amount of holes, but that doesn't tell the story so we need essentially.
All of the assays in and we've been drilling kind of consistently as well and then we have to apply interpretation with our geologist into that as well before we before we released just just the raw numbers and they passed around the property the three or four different veins.
That's crazy.
I'll get back in queue. Thank you.
Thank you.
The next question comes from Joseph Reagor with Roth Capital Partners.
Please go ahead.
Hey, David and team Thanks for taking my questions.
Hey, Joe.
Okay. So I guess first thing press yourself, obviously, you haven't even closed the deal yet so I realize it might not be a <unk>.
Specific answer to this but once you do close the transaction.
What would be the timeline until.
You guys were able to provide a.
Construction decision or a construction plan.
To the market I realize you you're going to have to do some work when you get it first but you know what does that look like.
Yet when we close we wanted to consider some infill drilling on Gloria and up a dance here because the.
Majority of drilling in the past has been a Martha and ER.
Our goal is to bring Gloria in Abadan Sia into production first because it's near surface. So Carlos is putting together a drill plan for that he said in order to permit it's probably eight to 10 months. There are underground workings on site. So we'll save a lot of money on development.
We will have to flash it out, but more a bigger equipment in there and and put preparer copper mine plan we've.
We've modeled 500 tonnes per day to start.
But it's hard to say exactly when that will start.
But yeah I mean, that's about it.
Yeah.
Okay. So so little infill drilling and then eight to 10 months for permitting.
Okay Fair.
Fair enough.
And then Tom.
Just out of that Joe sorry, sorry to cut you off there, but just to add on that there is a bunch of optimization work that we're doing in the meantime, as well so David mentioned that the 500 ton per day scenario that we're looking at but.
In the interim we're looking at a variety of different scenarios to do that optimization, depending on circuit configuration or how many tons. We think we can hold out based on the mine plan that we're coming up with.
Okay fair enough.
And then kind of a question on the on Q3, you guys produced just shy of 300000 silver equivalent ounces and only sold a little over 100000, so call it 35% to 40%.
Our production is.
I'm, assuming that was just inventory buildup as you ramp up but should we expect further inventory ramp up.
Increases in Q4 or do you guys think that now you've got enough like finished goods concentrate supply on hand that you know production and sales should match up pretty closely.
Hey, Joe Nathan here, Yeah, I mean, you've kind of nailed the nail right on the head we're kind of we've kind of built a decent.
Decent amount of inventory.
And so you can expect more sales obviously for October November and December and we're going through that process right now.
Again it.
It should be it should be fairly even probably for Q4 as far as production versus sales.
Okay.
Alright that helps and then.
One final thing.
Post.
Acquisition, Yeah, obviously, the balance sheet will be a little lighter.
Do you think you'll be comfortable with the amount of cash you have on hand at that point or do you think there's going to be some form of additional capital need to develop a lot of press Yolasa you know at the end of that that drilling and permitting cycle.
Yeah, Joe Nathan again, it's a good question I think.
Where we're generating cash flow as you can see just from the one side. We did have in September and that's continuing into Q4, especially at these elevated prices from pre Covid production.
At this time, where we're considering all options, but there's no there's not a an internal requirement to go raise any capital, especially in the equity markets, we're going to.
Consider all options as far as funding the development of our <unk> plus we have obviously the development potentially of the oxide tailings resource too.
So we're kind of what kind of looking at those two big projects as our next our next stage of growth for us.
And we have not concluded on how best to fund those but as far as right now we're generating cash flow and that that's something we're comfortable with for the next couple of quarters.
Okay, and one final thing if I can't what's the.
Comfortably with your long term tailings options, you know with adding left for COC added a lot of potential production tons sold.
So therefore, you're going to add a lot of tailings tons as well.
Yeah, I mean, what are your thoughts there do you guys feel comfortable with with the current plan are you going to need to build another tailing facility eventually.
If you were would it be built over on the left presedo cylinder on the Avino land.
We've been considering this so we're going to have eight to 10 years of capacity in T. S. F number two using dry stack, we still have the open pit and various other pits to backfill, which will add another few million tons of capacity and now with the acquisition of <unk>. So we'll have more.
Land. So we can consider moving T. S up number one if we're gonna do agglomeration heap leaching Merrill Crowe, we might do it over on their land in that area would become available again T. S. F number one and that would be you know.
A decade or so as well. So you know we'll have lots of tailings capacity. We've got lots of water will be reclaiming the water, we've got a million cubic meter dam and a well.
And excess electricity capacity so.
Looking further several years down the road, where we're gonna do an optimization study on how we can.
Boost production, even further to what we have now.
Great I'll turn it over thanks.
Thank you.
The next question comes from Jake Zukowski with Alliance Global partners.
Please go ahead.
Hey, guys. Thanks for taking my questions.
Good morning, Jay.
So just just looking at Capex of just over $2 million year to date, obviously that that may have been affected by the shutdown in the first half of the are you able to provide any color on what we should expect for next year, you would just ballpark figures.
Hey, Jay Hagan here hard to give you kind of an accurate number as David mentioned, we're going through the budgeting process and then our entire management team is going down the site actually over the next coming weeks to finalize that.
We do plan to continue the exploration program, obviously, we're about halfway through kind of that 30000 meters that we were we had announced and we're hoping to do we're happy that most of the most if not all of the oxide tailings drilling are done so we know that expense.
Minimal expenses, there moving forward a lot of a lot of the payments on the dry stack.
Starting to trickle in for Q4 and will continue into Q1 and two as we look to finalize that in the first half of next year and then additional upgrades in there.
We're going to upgrade our fleet a little bit more for the guys at site. The automation, yes, we're working on the automation project. Some of that has been paid some of that is going to be.
<unk>.
So you know rounding all that out I can't give you an exact number but I would expect.
So with the 1 million we spent in Q3 and then we're expecting you know between 1 million and 2 million next quarter.
That kind of that that trend kind of continues I think that gives you a bit of a range for what you expect for 2022 other than you know the tailings project, we don't have any huge capital expenditures coming up or any giant sustaining capital expenditures, obviously, I'll caveat that with our plans on la <unk>.
But.
I don't know if that gives you a little bit of a picture without saying a number is that helpful.
Yeah, no that's a that's helpful.
And then at loft currency also I know you've kind of talked about some of the low hanging fruit and you know our initial targets.
Targets that you guys have there once the acquisition closes and I'm just kind of curious you know I'm, assuming there are active drill permits in place right now and then how quickly.
Do you think we could see drills turning once the acquisition closes I mean is it is it if the acquisition closes in Q1 can you get personnel on site and get drills. Turning you know by Q2 or is it more of a mid year type event.
Hey, Matt.
In the first half some time.
Shouldn't a estimate at this particular moment.
But it shouldn't take long.
Got it okay.
And then just lastly, with base metal prices, where they are and obviously you have some some copper rich areas at the Avino mine that you're mining or have there been any thoughts into you know maybe hedging out some copper exposure just to lock in margin, while remaining fully exposed to the silver prices.
Yeah, Jack Nathan here, that's obviously, a topical question and something we've been toying around with.
Because copper copper did make up a meaningful amount of production at avino.
And we do like having a bit of that exposure, but having said that you know obviously we.
We don't want to risk at all.
So we're a little we're looking at options on that and we know kind of where we're looking out to 2022 and kind of looking at what the forecasts are for copper and its very mixed right now, but there is some sentiment to a downward trend so I think.
We're kind of exploring that avenue at least on a portion of our copper sales.
There are no. Okay. That's all for me thanks, guys.
Once again, if you have a question. Please press Star then one.
The next question comes from Matthew O'keefe with Cantor Fitzgerald.
Please go ahead. Thanks.
Good morning, most of my questions have been answered just a couple of quick.
Housekeeping things here just David did you say did you provide guidance for 2022 production did I Miss that.
We're anticipating between two and a half to 3 million ounces of silver equivalent okay.
Okay. That's good and then just another thing on the.
Hang back Samsung, So you're basically debt free now.
Hum.
Revolver or anything in place or do you need that.
Are you finding that way.
Hey, Matt Nathan here again.
Again, something we're exploring.
Obviously, it's nice to have something on standby and that's something we're going to look out into 2022.
I think we're in a great position as far as being debt free.
And just our general payables so.
I you know, we're not looking to run out to the markets and take something on but I think we're going to we're looking at the flexibility options, especially as we have these the oxide tailings in my press says long term development projects.
Okay, no that makes sense.
And then I think this might have been asked but on the exploration side.
Did we anticipate some some more information on our results before the end of the era, we still at the.
Yeah.
Waiting for assays.
Hi, Matt Yeah. Peter here, Yes, we are still waiting for the full assays. So that we can provide some interpretation with that as well.
But you'll see something before the end of the year, Okay. Great. That's it for me. Thanks.
Okay.
Yeah.
This concludes the question answer session I would now like to turn the conference back over to David Wilson, President and CEO for any closing remarks.
Thank you I would just like to say that things.
Things are looking busy for Q4 and beyond we are excited about the acquisition of La Presse, Yosef and where.
Going to be busy marketing and getting the word out about the growth of avino.
And that's it we wish you all a great day, thanks for calling in.
Okay.
Today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Yeah.
Hum.