Q1 2022 Avino Silver & Gold Mines Ltd Earnings Call
You for standing by this is the conference operator, welcome to the Avino Silver and 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'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
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 and Gold Mines Limited Q1, 2022 financial results conference call and webcast.
This webcast and conference call. There is a link in our news release dated May four which can be found on our website under news 2022, as well you may find the link under the investors tab and click on events and you will see the link at the top of that page on.
On the call today, we have the Companys, President and CEO , David Wilson, 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 iron.
Hi 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 <unk>.
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 <unk>, President and CEO , David Wilson David.
Thanks, Jen good morning, everyone and welcome to <unk> 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.
Today's call will 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 mine 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 mine operating income.
Nathan Harte <unk> 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 <unk> acquisition La <unk> also hosted one of the largest undeveloped primary silver resources in Mexico and is 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, including Brexit the Baja vein below level 17, and west of the current E. T mine workings la malecha newest of Sonora Santiago L Trumbo answer.
And Jorge beans, as well as encouraging results from our lap hotel casino 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 as compared to Q4 2021 as that was the most recent quarter of consolidated production.
Highlights are as follows silver equivalent production decreased by 15% to 458000.
Ounces silver production remained steady at 164000 ounces and copper production increased by 8% to $1 2 million pounds gold production decreased by 66% to 801 ounces mill throughput increased by 7% to 111100.
38 tonnes.
The recoveries for both silver and gold increased by 3% to 92% and 77% respectively with the copper recovery is decreasing slightly by 1% to 89%.
We continue moving forward on the capital projects that we outlined for the year, we are making great progress with the dry stack tailings facility in.
And completion is expected near the end of Q2.
To reiterate we chose dry stack for its environmental safety and economic advantages with the high solid content.
This significantly improves safety and stability and reduces the need to extract water from local sources by recycling the water removed from the tailings, we aimed 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 have completed over 15500 meters of drilling are focusing on several targets.
In addition, the initial results from that but as you know were announced in early March and included 2400 meters of drilling.
This area of the Avino property has been known to host a high grade low sulfur <unk> style mineralization similar to what we saw at our San Gonzalo mine lateral it has seen a area is only three kilometers from San Gonzalo and just five kilometers from the mill facility at the Avino mine.
We are excited to continue exploring left foot is seen as it factors in prominently as one of our high grade near surface targets. We believe let's put it 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 hole drill program on the oxide tailings project.
Which included 3006 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 are thrilled to be able to advance another avino asset the results from the program showed the great gold grades are better than anticipated and we are excited to understand the implications for the total resource.
To date the company has completed 5075 meters of drilling in 2022.
With the dry stack tailings facility nearing completion. This means we are closer than ever to decommissioning. The current tailings pond TSS 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 time lapse 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 <unk> project from core mining.
I've always believed that the avino and la <unk>.
<unk> belonged under one common ownership given the clear synergies and common infrastructure <unk> is an excellent strategic fit within <unk> 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 7000 hectares.
We are moving ahead with our internal mine plans focusing on Gloria in Abadan Sia veins. Our goal is to be producing from Gloria vein by late 2023 early 2024.
Which would add three to 500 tons per day with the longer term outlook being to add 1500 tonnes per day from Gloria Valencia 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 work.
And the company.
<unk>, some lighting and its sports complex in San Jose, Dave you know as well as donating volleyball's to support them in their local tournament.
Vino hosted a mining in my community conference at the high School and <unk> 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.
<unk> has added uncertainty to the global economy, just as the world was emerging slowly from the two year pandemic.
We've seen a range in silver prices since the beginning of the year from 22 to $25 and the beginning of March.
It has since tapered down and sits between 'twenty one to 'twenty two.
According to the World Silver Institute with no clear end to the Russian and Ukraine War, the near term outlook remains uncertain with the jump in energy prices ongoing supply chain disruptions and the reemergence of Covid cases in China.
All of this points to downward risk to the global economy with.
With the fed rate hikes 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 the 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 of this bodes.
Well for the silver miners and their shareholders.
Best leveraged to metals zoning producers such as avino.
I will now ask Nathan our CFO to present, the financial results Nathan.
Thank you David it's my pleasure to be on the call and I would like to welcome everyone, who has joined US 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 generated a mine operating margin of 47%.
The company also generated $3 7 million in operating cash flows before working capital changes and <unk> <unk> per share and adjusted earnings.
On top of our strong results and as David previously mentioned, we are thrilled to announce that we've closed the strategic acquisition of the neighboring <unk> project from core mining.
This project adds over 135 million silver equivalent resource ounces on a property within 20 kilometers of the current <unk> mining and milling operation.
In total Avino now holds over 290 million silver equivalent resource ounces with $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 495000, silver equivalent payable ounces sold which resulted in mine operating income of $4 7 million for the quarter.
This includes noncash depreciation and depletion and on a cash basis mine operating income was $5 2 million for the first quarter.
Avino reported net income after taxes of <unk> 6 million or one cent 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 <unk> <unk> per share.
Cash flow from operations before changes in working capital was $3 7 million or <unk> <unk> per share on a diluted basis.
Capital expenditures for Q1, 2022, with <unk> 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 scoop to assist with the ramp up of mining operations as well as exploration expenditures are lapoma Sienna and below the current mining operations at ETE.
Also included was additional drilling on our oxide tailings resource as we completed another 17 step out holes to increase the footprint of 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.
Yeah.
Cash cost per silver equivalent payable ounce for the first quarter were $11 81, an all in sustaining cash costs were 1990.
As we continue to ramp up we expect the all in sustaining cash cost figures to continue to decline due to increased ounces sold and lower per unit variable costs.
With Q1, marking the second quarter of uninterrupted mining operations since 2019, I am 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 when it would be no has planned for the rest of the year.
Thank you Nathan to recap the first quarter was busy with the completion of the <unk> acquisition drove results from several areas on the avino property and the ongoing construction of the dry stack tailings <unk>.
Activity 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 Laboda Sina at E T below level 17, and Bradshaw Bajo veins.
Moving forward with a comprehensive metallurgical test work program on the oxide tailings project to move it to development stage.
Internal mine plan focused on Gloria and upper dancy of veins at La <unk> production for the full year is on track between two two 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.
So in keeping with our strategy of divesting of noncore assets, we announced last week that we had granted an option to endurance goal to acquire the Olympic claims, which are located on the south side of Carpenter Lake in the little bit mining Division near Braylon in British Columbia.
The closing of the acquisition of <unk> also sets us on a pathway to expand their current mining complex through regional growth.
And the goal of achieving intermediate producer status together with exciting drill results from Lockwood, Athena and the oxide tailings.
The events of the quarter are just the beginning of an important time in <unk> history, and we are looking forward to the remainder of the year and beyond the first quarters behind us and we are well into the second quarter and we are excited as we look forward to keeping the momentum going.
We would now like to move the call to question and answer portion operator.
Thank you.
We'll now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear atone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then two we will pause for a moment of callers join the queue.
<unk>.
Our first question comes from Jay.
Sakowski of Alliance Global Partners. Please go ahead.
Hey, David Nathan and team Thanks for taking my questions.
Hey, Jay Good morning, Greg.
Just starting with with costs I mean, Nathan you mentioned Thats, obviously, we've seen industry wide cost inflation across the board.
Keeping all sustaining costs below $20 an ounce in the first quarter was was quite impressive I mean can you maybe just touch on some of the things you're doing in some proactive steps that you're taking to manage cost inflation going forward, whether it's labor energy consumables or anything like that.
Sure. It's a good question, Jake, especially given where the world is right now.
Some of the things that <unk> 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 margin just to deal with any supply chain disruptions not just the cost side of things.
So we're just containment continuing to maintain what we've always done and making sure that we're ready for any interruptions moving forward.
And during the Covid shutdown.
We increased our.
On inventory pirates, and reagents and consumables. So we're sitting in a good position.
Got it got it Okay, and then just on La Presse steel. So I mean, the acquisition is closed now.
When do you think we might see some type of formal work or exploration program.
Program announced there is that a mid year type event.
Currently were working on the social aspects getting.
In agreement with the he knows.
There are three different groups and there is there is.
Agreements pending so we think probably within six or seven months, we'll have those in place.
And then we will rollout our plants are following that.
Okay.
Okay. So it sounds like we may see some activity there.
In the first half of next year.
Towards the end of the year, Yeah, I mean based upon internal.
<unk> mine plan planning.
We expect to start surface works early next year.
We also have the.
Dedicated power line, the 20 kilometer dedicated power line cable five megawatts only utilizing three we're planning to extend that over to <unk> to the portal, where we're planning a new portal.
We're planning to put in a decline in six or seven levels and so.
That.
Development work.
We'll be underway early next year and possibly be.
Generating or buy by late.
Late next year.
Also there's 50000 tonnes of ore sitting on surface from when Lewis <unk> had it in the 80% to 90% and that was never a process. So that's a little gift there thats worth about five or 6 million Bucks.
Probably going to pay for the portal in the surface works. So we're we're in discussions with the with the locals or to remove that so that that could happen this year.
The next time.
Okay that was all on my end congrats again on a strong quarter.
Thank you.
Our next question comes from Michael <unk> of H C. Wainwright. Please go ahead.
Peter.
Building or Jay just would you be willing conventionally guests on how much you spend a lot of pressure we saw in the last two months.
Sure Nathan here, so far not a whole lot.
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 from there and then our focus will shift once we have the proper agreements in place and we can start on this works and some more exploration.
Okay.
And I mean.
<unk>.
Zero figured that you'd be willing to say that we should expect in spend for the rest of 2002 were for all of 'twenty two.
Is that specific to a prestigious air companywide on copper.
Yeah of course Joseph.
I'll now pass the asset.
It really depends again on the timing getting all the proper social licenses and agreements in place.
So I can't say for sure.
It depends on that timing.
I'd 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 will likely start in 2023.
And then finally, David you mentioned earlier on this call that you always small, but Chris you also should be under the same umbrella.
Yes.
Any quantifiable advantages that you can already take advantage of an email or access to different drilling side or <unk> or anything like that that you didn't have before since closing.
Mhm.
Yeah, I mean, heiko I can probably take that one back I think the most important thing is going to be low having one giant.
And Matt one management operation operating asset really in one location and I think the synergies there and the cost structure, there will be extremely beneficial and will save us on infrastructure and developing and I think thats why I was able to be so competitive in acquiring them, but also the oxide tailings project if we need.
To.
Build the leach pads out in the valley.
Got more ground now available so we could be trucking oxide tailings material in one direction and bringing ore back in another direction. So.
Yeah.
Pretty good synergies there.
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 Matthew Yeah, and there is no competition for labor I mean, I was after Mitch for for years, telling them then.
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 horns, but apparently they they turned over the reins to us so it makes sense.
What we're doing because we have the expertise in the area with Carlos and his team.
Okay. Yeah. Thank you for the wonderful.
Transaction I'm glad you did it.
That's all for me I'll get back in queue.
Thank you thanks Heiko.
Our next question comes from Matthew O'keefe of Cantor Fitzgerald. Please go ahead.
Thanks, Good morning.
A quick question for me on the on Avino.
Your throughput what's your throughput now.
I guess, just because youre 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.
Right, Matt Yes. 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 from a physical standpoint, just.
Just smooth that out to increase the speed for trucks, and and reduce kind of maintenance there.
In addition to some operator training.
So that's kind of the key focus for US is getting qualified trained underground miners to help us wrap up production because were currently mined limited at this point.
So that's that's our focus.
Okay.
You can you tell us what your throughput is right now or.
Oh, yes.
Daily basis or a.
Basis, we're looking to transition some time into into Q3 to get us up to that that nameplate.
Production up to 2500 or 22% at 500 tonnes per day.
Right now we're operating about 40 502 to 1900 tonnes per day.
Okay, so pretty much on track I think from from what we talked about last time.
Yes, yes, we're hoping to.
Yes.
Okay and then just one other question on on Capex I know <unk> touched on this but.
What is the sort of estimate for the balance of the year companywide on Capex spend.
Yes, I think at the beginning of the year, we put out our guidance around.
But the $8 million range and that was including all exploration we've.
We think it might be a bit less.
On a cash basis, just because of some of the larger pieces, we are leasing and so that those costs will be spread out over a few years.
But I still think we are probably in the range.
About $4 million to $5 million left included in Q2 and that includes exploration as well.
A fairly low cost.
And again I emphasize that not.
Not including <unk>, which will start in 'twenty three.
Right So no real.
Inflationary hits to there.
No we've got 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're still going to be well well within our under our guidance of I think it was $7 million to $9 million.
Okay. Okay, great. That's it for me thank you.
Thank you thanks, Matt.
Once again, if you have a question. Please press Star then one.
Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking the questions.
Hey, Joe.
So most of the things I want to touch on we're already.
I 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 you know as you make decisions on capital spending over the rest of the year.
To maintain your strong balance sheet.
Yes, Joe Good question Nathan here.
<unk> <unk>.
Continuing to monitor everything as far as what's going on with the 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.
Definitely do not need to raise money to continue funding our.
<unk> operating and capital activities.
Really any pressure there so some of the things we're doing is to preserve that again.
Checking in daily monthly weekly on the progress of our projects.
Or finance as it stands now so we're not overly concerned but again just.
Ensuring that we're maintaining the cost structure that I touched on earlier in the call.
And filling the mill is our number one priority.
Yes, and bringing our per unit costs down David.
David mentioned I don't know.
Okay.
And then I noticed during the quarter. There was it looked like there was a bit of an inventory sale.
Your silver equivalent sold was greater than the production.
Was that intentional or just a timing thing.
I would say a bit of both.
We obviously were building inventory in Q4.
Production was well over 500 close to 520000 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 <unk>.
January February .
It wasn't really intentional per se to to hold it back but we.
We were we did receive embedded some benefits as far as pricing goes on that at that point. So we're happy with how that turned out and yes, our inventory did decline a bit at the end of Q1 compared to the end of the year.
Okay. Thanks.
Yeah.
Okay.
Okay.
This concludes the question and answer session I would like to turn the conference back over to David Wilson, President and CEO for any closing remarks.
Thanks, operator, and thanks, everyone. We're thrilled about our Q1 financial performance with record revenue and closing of the <unk> was a major milestone for us puts us on a path to achieving intermediate producer status.
Which we'll share with everyone as we develop those plans. So thank you very much and have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Okay.
Yeah.
Okay.
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Yes.