Q2 2022 Avino Silver & Gold Mines Ltd Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Avino Silver <unk> gold mines second quarter 2022 financial results Conference call.
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I would now like to turn the conference over to Jennifer North manager Investor Relations.
Please go ahead.
Thank you operator, good morning, everyone and welcome to the Avino Silver <unk> Gold Mines Limited 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 10th which can be found on our website under news <unk> 2022 as well you may find the link under the <unk>.
Just had 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 Wilson, 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.
We're 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 are on our press release of yesterday's date.
Would like to remind everyone that this conference call is being recorded and will be available for replay later today replay information and the presentation slides accompanying this conference call and webcast will be available on the website. Thank you I will now turn the call over to <unk>, President and CEO , David Wilson David.
Thanks, Jen good morning, everyone and welcome to <unk> Q2, 2022 financial results conference call and webcast. Thank you for joining us.
Before we begin please note that the full financial statements and the 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 to mine optimization work continued in Q2 for the underground mining processes.
They're 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 August from the oxide tailings project.
From the Avino mine area below the current level 17 mining area. The acquisition of <unk> closed during the first quarter and during the second quarter. We continued developing our internal plans for the property.
<unk>, who is 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 costs and lower all in sustaining costs were realized.
Nathan Harte Avino CFO will expand on our financial results later in the call.
The second quarter production March 3rd full quarter following the restart of operations in August 2021.
With production coming from the Avino mine only it as compared to Q1 2022 is that was the most recent quarter of consolidated production.
The production highlights are as follows.
Silver equivalent production increased 42% to 649569 ounces.
Silver production increased to 225537 ounces copper production increased by 35% to $1 6 million pounds.
Gold production increased by 16, 9% to 1300 50 ounces mill.
Throughput increased by 6% to 119224 tons there.
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 increases was 57% and for copper the grades increased by 23%.
During the quarter, our exploration and drilling program provided encouraging results across the oxide tailings project and the Avino E T area below level 17.
At the end of Q2 2020 to a total of 7000.
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 3600 45 meters of drilling.
This drilling follows up to 2015, Slash 2016 campaign from which the 26.
2016 Ni 43, one O one preliminary economic assessment is based on.
The results were encouraging and included 0.76 gold grams per tonne over 19, five meters 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 grades in the oxide portion of the recent holds continues to be encouraging and giving the distance of the step out holes. We feel this will provide meaningful resource expansion significantly beyond.
Was described in the previous P. A.
The positive results from the oxide tailings drilling supports our belief that this project will factor significantly into <unk> growth strategy.
Also during the quarter, we announced drill results from the Avino E T 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 in 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 contain significantly higher copper mineralization with grade of copper intercepts encountered at depth within our permit boundaries.
We encourage you to view the interactive three D model on our website, which is linked to the June 13th 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 <unk>, 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 Presse Yosef.
At La Presse you also 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 an 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 aimed 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 <unk> cornetto donating over 100 fruit trees.
Volleyball tournament held in the community of San Jose do Avino to promote sport and family coexistence as well as other support equipment delivered to the surrounding communities.
Mining training and education seminar held for secondary school students of San Jose to Avino, and the elementary school for Newco the Coronado.
Cleaning and maintenance campaigns of landfills in the communities of San Jose to Avino.
Good day, Coronado and zero Gaza.
Continued work to repair the Paducah roads to middle San Juan.
Classroom renovations at the San Jose the Avino community Elementary school.
Provided construction materials for Modernisation project, which is commencing at the San Jose de Avino Cemetery.
In collaboration with City Council of the municipality opinion.
Cornetto 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 <unk> 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.
E. S. R Award is obtained through a diagnostic process based on indicators reviewed and endorsed annually by a committee of experts in the various C. S are areas.
This is an extremely prestigious award in the Mexican business World granted each year to a select group of enterprises and recognition.
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 were 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 Lora Avino Superintendent of corporate social responsibility who's proactive approach to governance was.
The top priority since joining the company a little over a year ago.
<unk> 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 have seen a range and silver prices during the quarter from a high on April 19th of twenty-five 91 to a low on June 30th of $20.41.
This is an interesting time and we should probably brace for continued.
Continued volatility and higher interest rates.
We will take a measured approach to all operational activities. During this inflationary period, we continued to believe that the outlook for silver is positive and that the silver demand should see solid growth from 'twenty to 'twenty, two onwards, and will be driven by record silver industrial fabrication.
Increase in Green technology, and investment demand for physical zero silver.
I will now ask Nathan Harte, <unk>, Chief financial Officer to present, the financial results for Q2, 2022.
Vin.
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 2020 to 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 <unk> <unk> per share and 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 595000, silver equivalent payable ounces sold which resulted in mine operating income of $3 9 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 two cents 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 the diligent work and 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 <unk> <unk> per share.
Cash flow from operations before changes in working capital was $2 5 million or <unk> <unk> per share on a diluted basis.
Capital expenditures for Q2 were $3 4 million on the cost 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 SKU 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 <unk> 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 pre feasibility 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 cost per 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 and the 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. Thank you Nathan to recap we had a busy second quarter with strong operational performance. This quarter was highlighted by encouraging drill results from the oxide tailings project and the E T 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.
Continued production ramp up at the Avino mine with mine development work on E T to increase throughput.
<unk> tailings facility nearing completion with startup around the corner.
We currently have drills, turning at Avino E T below level 17, and at lab Potus Sina moving.
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 Inaba dancy of veins at La <unk>.
Production for the full year is on track between 2.2, 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.
Thank you we will now begin the question and answer session.
Join the question queue, you May Press Star then one on your telephone keypad.
Garrett tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any teeth.
To withdraw your question. Please press Star then two we will pause for a moment at callers join the queue.
Yes.
The first question comes from Jake Zukowski with Alliance Global partners.
Please go ahead.
Hey, David Nathan and team thanks for taking the questions.
Hi, Jay.
So it seems like the exploration potential at the Avino property has really come to the forefront here can you just provide any color on on follow up drill plan.
Particularly at E E on the back of the success you had down debt in the first half.
Yeah, We've got a we moved the second drill over there because we've 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 drug in over 50 years, So a very.
Open at depth. So we're very very excited about what the future holds for the company and it looks like you know we're following it down and it's pretty obvious and look how big it is up near the surface as it goes down so expect to see some more results in the near future.
Got it okay looking forward to that and then and just on La Presse you also.
Obviously, you're working through and grading 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 or do you think we'll see something on that in early 'twenty one correct.
No no we're working on it we're hoping to be able to present to the Denver Gold Forum.
Coming up in September .
If it all comes together, but it's a five year plan and that looks very very good we're excited to roll that out.
Got it Okay. That's all from me Congrats again on a strong quarter. It was a it was good to see costs lower in copper.
Inflationary environment.
Thank you. Thank you.
The next question comes from Heiko with H C Wainwright.
Please go ahead.
Hey, there thanks, David for taking my questions Hope everybody is doing well.
Thank you, let's talk about the advancement of the oxide tailings projects I mean, you've obviously drill off their hunter 27 holes all brands metallurgical test work et cetera et cetera.
Now, you're saying that to advance this.
Shun 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 an eight question I'll now an idea if the spend for the remainder of the year.
Yeah I'll take this one so you're talking specifically the spend on the oxide tailings project.
Great.
Correct no oxide tailings.
Fairly minimal drilling was not very expensive because it's just you know we're just drilling down a few meters and it's all on the surface.
I think for the year, we've really only probably spend about $5 million on it.
Probably that's actually going back to last year as well to you on the whole.
And then moving forward, we don't have any more drilling to do so it's a metallurgy program.
Then there's a number of studies and eventually the plan is in PFS next year. So for the rest of the year you talking again still 5 million total and then next year, obviously the <unk>.
Cost of PFS is still being finalized right now, but that's about it.
Fair enough.
Thank you, bringing on a whole E. T. You know what I mean, you're obviously focusing on depth Oh.
Great.
It just might be a dumb question, but but how deep can you realistically and logistically the site.
At what point in time does the decline.
The decline side become a bit of a bottleneck I mean, David you and I went down there a couple of months ago and it took a took a while.
To get down to get up any any idea or how deep realistically you can go.
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 and trying to keep it dry. So then it'll 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.
Of course, yes.
Cool.
At the moment really that we have.
Yes.
300 meters below.
Theme.
But in this case proving all of this mineralization.
We are planning.
Uh huh.
Kind of different and.
Our mining methods or.
Yes, she shops or something something different and you know because you know.
We'll be a long long way.
300 meters to 11 17, and then two sources so.
At the moment.
We haven't.
A final plan for that but we are planning to put touch off.
So the mining lease.
<unk>.
Yeah, I can elaborate on that so we have a service shaft right now to level nine so we have considered putting in more raises and shifting services too.
To those raises and possibly.
To expand the current shaft and then maybe you know we could consider hoisting from level nine are crushing down below there and hoisting from there and this is this is all good news because that would mean, we found a lot more ore to justify that.
Okay.
Sure.
Perfect. That's it for me. Thank you so much.
Thanks, Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Joseph Reagor with Roth Capital Partners.
Please go ahead.
Hey, David and team congrats on the strong quarter and the ESG accomplishments.
Thank you thanks, Joe.
So.
The hot topic this quarter's been inflationary pressures on our on cost it seems like you guys mitigated it pretty well but.
You know can you guys quantify what the impact of inflation has been this year versus next I realize its a tougher question given the mine was shut down most of last year.
Yeah sure. So obviously very pertinent question and unique in the industry right now.
Yes.
I think we've seen some inflationary pressures across the board.
Supplies, all malls are in Mexico diesel and things like that have been mitigated a little bit, but 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 are just starting back up operations, but.
Theres been an increase overall.
I can't give you an exact percentage, but we.
We think from what we're seeing it's not 50.
50% is not 40%, it's still close down to the 10% range and I think we've done a pretty good job of keeping it either at 10% or below and obviously, we had some great help throughout Q2, and we saw this coming so we loaded up on inventory. So hopefully all of that equipment lasts until inflation goes back down but on <unk>.
<unk> Yeah were seeing are the inflation creeping in as we go through our stockpile of consumables.
Okay Fair enough and then it looks like you guys had about almost $2 million build in AR and inventory during the quarter and I think that's held back the revenue would touch.
Is that intentional in 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. You know I was just wondering if that's a conscious decision or if it just simply timing.
Probably a bit of both but not not forward. Fortunately cognate decision I think it was just the timing of the kind of the production and the strong ramp up we saw in June it really accelerated how much concentrate we produce for the month and how many ounces produced.
Honestly the grade help produce more concentrate exactly.
Good grades across the board, especially with copper.
Subsequently sold that in July .
At slightly better prices than we saw at the end of at the end of June we saw obviously, some provisional pricing adjustments and the negative for US we said to see that coming the other way a little bit. So it was not fully a conscious decision, but we're I guess, we're glad a little bit that will recover a bit of that in Q3.
Okay fair enough I'll turn it over thanks guys.
Thank you Joe.
This concludes our question and answer session I would now.
Like to turn the conference back over to David Wilson, President and CEO for any closing remarks.
Thank you operator, and thank you to everyone for their time today as I said earlier, we have many positive positive to talk about in Q2.
We look forward to the second half of the year growth is Paramount for success in Novato is been laying out the groundwork for future growth. We are developing a five year strategy, which we're gonna disclosed to everyone coming up in the next quarter, we'd been given priority to the most important projects initiatives too.
Cheap that growth unlocking the value of the avino property and region has been a priority and we're looking forward to the next steps of our growth strategy in turn maximizing value for shareholders and stakeholders have a great day. Thank you.
Okay.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Okay.
Yeah.
Okay.
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