Avino Silver & Gold Mines Ltd. Q1 2023 Earnings Call

Speaker 1: Thank you.

Speaker 2: Thank you for standing by. This is the conference operator.

Speaker 2: Welcome to the Avino Silver and Gold Mines Q1 2023 conference call and webcast.

Speaker 2: As a reminder, all participants are in listen-only mode and the conference is being recorded.

Speaker 2: After the presentation there will be an opportunity to ask questions.

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Speaker 2: I would now like to turn the conference over to Jennifer North, Head of Investor Relations. Please go ahead.

Speaker 2: Thank you, operator. Good morning, everyone, and welcome to the Avino Silver and Gold Line Summit 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.

Speaker 2: 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 Hart, our Chief Operating Officer Carlos Rodriguez, our VP Technical Services Peter Latta and a recorded intro from our President and CEO David Wolfen.

Speaker 2: 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.

Speaker 2: to this call or on our press release of yesterday's date.

Speaker 2: Please note that the full financial statements in 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 Avina's profile on CEDAR and on EDGAR.

Speaker 2: 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.

Speaker 2: And now we will hear from Avinos President and CEO David Wolfen. David?

Speaker 3: 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...

Speaker 3: thousand ounces compared to Q1 2022 showing consistent results that build on our successful 2022 production results.

Speaker 3: During the quarter we announced an updated mineral resource estimate which included La Preciosa, an inaugural mining resource estimate on Guadalupe and La Potosina deposits to boost our consolidated mineral resources to 368 million silver equivalent ounces.

Speaker 3: 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 in a pre-feasibility study on the project. You can find the full news release on our website under the News tab dated April 5th.

Speaker 3: 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.

Speaker 3: The dry stack facility is completed and operational and during the quarter the conveyor system was installed and is currently transporting the pressed 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.

Speaker 3: 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.

Speaker 3: We believe our five-year growth.

Speaker 3: takes us from production levels of 2.8 to 3 million ounces of silver equivalent to between 8 and 10 million ounces of silver equivalent by 2028.

Speaker 3: Our initiatives for growth are

Speaker 3: Development, production and optimization of La Preciosa, the tailings project, pre-feasibility study and eventual construction decision.

Speaker 3: further exploration drilling at the 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.

Speaker 4: And I would like to welcome everyone who has joined us and is doing our presentation today.

Speaker 4: 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.

Speaker 4: Here on slide 7 we show our Q1 production results. As David mentioned, the Aveeno mine continued to perform consistently in the first quarter of 2023, building on our strong 2022

Speaker 4: We announced these production results on April 18th and the full Q1 2023 production usually can be found on our website. The highlights are as follows and compared to production results of Q1 of 2022.

Speaker 4: Silver equivalent fraction increased 48% to 678,000 ounces.

Speaker 4: 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 tons.

Speaker 4: Moving to slide nine, and on April 5th, we announced the results of our comprehensive metallurgical program on the oxide tailings project. The results were favourable 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 shown 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.

Speaker 4: You can see here that MNI has grown by over 400%, providing us with a higher degree of confidence of the contained resource within the tailings deposit.

Speaker 4: Further information on the above-mentioned results can be viewed on our website under News Releases.

Speaker 4: As mentioned, during the quarter we announced an updated mineral resource estimate which included La Preciosa, an inaugural mineral resource estimate on the Guadalupe and La Potosina deposits, which has increased our consolidated mineral resources to 368 million silver equivalent ounces.

Speaker 4: 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 tons with a silver equivalent grade of 164 grams per tonne and metal contents of 274 million and solar equivalent ounces.

Speaker 4: In the total inferred categories, we see 23.7 million metric tons with a silver equivalent grade of 123 grams per ton and metal content of approximately 94 million silver equivalent ounces. The growth in consolidated mineral sources at Avino and Laprasiosa signals long-term growth for our shareholders and stakeholders and significant economic development for the local communities in the surrounding areas.

Speaker 2: At this time, I will ask Jennifer North, head of investor relations to run through the latest ESG initiatives. 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.

Speaker 2: A top priority for a Veno is to provide jobs to those in the surrounding communities with the goal of fostering generations of enthusiastic and dedicated ambassadors of a Veno.

Speaker 2: Currently, we have 456 direct jobs at the mine, which typically translates to three times a number of indirect jobs for services, consultants, and suppliers in the surrounding communities and the Drain-Gu-Area. After receiving the ESF, our award for the first time in August 2022, Navino continues to view its

Speaker 2: The list of initiatives carried out by the teams in Mexico include educational support to the Kinder Josepha Ortiz de Dominiga's School in the town of San Jose de Avino. We're members of the Avino Mining Team held educational talks with the students with which expanded on activities that teachers had developed relating to topics.

Speaker 2: Regularly maintain sports areas and facilities. Celebrated International Women's Day on March the 8th by sharing the personal stories of a few of the women who have roles at the 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.

Speaker 2: 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 fresh water and advocate for the sustainable management of fresh water 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.

Speaker 4: Bank lifted its benchmark overnight interest rate target to the 5 to 5.25% range.

Speaker 4: which is the 10th consecutive increase since March of 2022. Uncertaincy is persisted 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, a 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.

Speaker 4: and has continued to hold above the 2000 level, which is a strong sign for the precious metal moving forward.

Speaker 4: Silver has remained above the $25 range and is continuing to show signs of a breakout and following in gold's footsteps.

Speaker 4: 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.

Speaker 4: on financials.

Speaker 4: 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.

Speaker 4: from $11.1 in Q1 of 2022. The decrease is partially due to provisional pricing adjustments, with metal prices being weaker during January and February 2023.

Speaker 4: 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.

Speaker 4: A Veno-generated mine operating income of 1.9 million for the core, including non-cash depreciation and depletion. When compared to Q1 of 2022, it was 4.7 million.

Speaker 4: The decrease is a result of higher-minded milk tons during the current quarter, resulting in higher overhead, as well as being offset by lower revenues when compared to Q1 of 2022.

Speaker 4: I will provide more insight on cost during the discussion on cast cost per ounce and cost per ton later in the presentation.

Speaker 4: On a cash basis, mine operating income was $2.6 million for the first quarter and that represented a 26% operating margin.

Speaker 4: Avino reported a net loss after taxes of 400,000 or 0 cents per share for Q1 while EBITDA was 0.3 million for the quarter and adjusted earnings came in at 1.1 million or 1 set 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.

Speaker 4: 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.

Speaker 4: Aumtza sold for this quarter came in at a similar level as Q1 2022 with 570,000 ounces compared to 459 in Q1 2022, an increase of 10%. The increased overhead from larger production volumes with a lower level of Aumtza sold had a substantial impact on operating margins and our cost rounds. This was partially due to the timing of sales as previously noted, but also due to lower

Speaker 4: 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.

Speaker 4: When we compare Mill throughput and similar equivalent production, we see a comparative increase in the current quarter, and 44% and 48% respectively, when compared to Q1 2022. Our steady cost per time 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 costs remains a key priority for a Vino in order to not only protect the company in a dam market, but to also overform when the bull...

Speaker 4: We are also focused on our plans for the Gloria and Abendancia veins at La Preciosa, with the engagement ongoing as we ready ourselves to begin development.

Speaker 4: 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.

Speaker 4: We have 8,000 meters of drilling planned for this year, and we currently have drills turning exclusively on a Vino ET below level 17, and we promise 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 the Vino ET.

Speaker 4: equivalent mineral resource houses.

Speaker 4: On the same area, we have an operating mill complex which is currently producing from our Maravino mine, we have additional access to water, power and tailing 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.

Speaker 2: tone acknowledging your request.

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Speaker 2: We will pause for a moment as callers join the queue.

Speaker 2: The first question comes from Jake Sikelski with Alliance Global Partners. Please go ahead.

Speaker 5: Hi, David Nathan in team text, take my questions.

Speaker 5: Hi David, Nathan, and team thanks for taking my questions. Hey Jake, how are you?

Speaker 5: Just starting with cost, can you maybe touch on the impacts that you're seeing from the strengthening in the peso and in any steps, if any, that you're taking there?

Speaker 4: Yeah, pretty top of question obviously with kind of the swing over the last month. So yeah, 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 costs and pesos.

Speaker 4: Having said that, a lot of decent checkware costs are still in US dollars, so there is not quite as large of an impact as one might think, but...

Speaker 4: Yeah, 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.

Speaker 5: 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?

Speaker 4: Yeah sure, so the budget I think when we disclosed it back in early February was nine to twelve 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 a VINO but also we'll use some of this

Speaker 4: 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 four million on a quarterly basis moving forward. So that's helpful. That's all for me. Thanks again.

Speaker 4: lower down for the next two, three quarters and for the rest of the year. We don't expect to be close to four million on a quarterly basis moving forward. So that's helpful. That's all for me. Thanks again. Thanks, Jake.

Speaker 2: Once again, if you have a question, please press star and one.

Speaker 2: The next question comes from Heiko Elay with HC Wainwright. Please go ahead.

Speaker 3: Hey there, I assume you can hear me all right. The first one is probably 80% of common, only 20% of question. But I mean, it's someone who's been to site and has seen your ESG efforts there firsthand. The impact is quite visible.

Speaker 3: Now, the question part of all of this, can you quantify your budget for community support, maybe also how that compares to money spent on the same thing a couple, say, five years ago? Good question, Heiko. I think.

Speaker 4: 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, you know, local training programs and things like that, that, you know, more have so 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. Yes, we have a call later today anyway, but just out of curiosity. And then also, early on this call, you stated that results from drilling or your work starting to come in quicker. Can you quantify this and let us know how many meters of drilling are currently...

holes that are outstanding right now that we're you know very well are ready to release very soon that encompasses

That's it for me. Thank you. The next question comes from Matthew O'Keefe with Cantor Fitzgerald.

That's it for me. Thank you. The next question comes from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.

Thanks, good morning. So I may have missed this in your commentary, if so I apologize, but would you mind taking us through the plans this year for La Presiosa? 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...

obviously long term, the Martha vein but yeah the plan is to start development this year with the goal of fresh ore coming at the beginning of 2024. Okay and that's part of this budgeted nine to twelve million

Yeah that's correct. Yeah, a lot of the capital was allocated to Leper's Yost. Oh so can you break that out for me? I think we broke it out in the news release but if not I can write a bit more color. So there'll be obviously a couple million dollars in development later in the year but we've actually procured a lot of money.

once we get the engagement fully completed, we will be able to process that material on a test basis in one of our idle circuits, the 250 ton circuit 2 that I think you've seen first hand and we will be using that to ramp up and...

make sure that it's fine-tuned to accept the La Presios or get the highest possible recoveries. Okay, and we might look forward to that in the second half? Yeah, it'd be later in the second half. That's what we're planning as of right now.

Okay, looking forward to that. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Nathan Hart, CFO , for any closing remarks. Thank you everyone for joining us today. We appreciate your continued support as we look to grow into the next intermediate silver producer in the next session.

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