Q2 2023 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 second quarter 2023 conference call and webcast. 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 too.
And 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 Zero I would now like to turn the conference over to Jennifer North head of Investor Relations. Please go ahead. Thank you operator, good morning, everyone and welcome to the Avino.
Silver and gold Mines Ltd, second quarter 2023 financial results conference call and webcast to join this webcast and call. There is a link in our news release dated August 3rd and Arnie and in our news release of yesterday's date, which can be found on our website under news 2023 as well you may find the link under the investors tab.
Then click on events and you will see the link at the top of the page.
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 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 by or implied by such forward looking statements.
The company does not intend to and does not assume any obligation to update such forward looking statements or information.
Other than as required by applicable law.
For more information, we refer you to our detailed cautionary note in the presentation related to this call or on our press release of yesterday's date.
Please note that the full financial statements and MD&A are now available on our website under the investors tab and click on financial statements as well the full statements are available on <unk> profile on SEDAR and on that topic.
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 will be available on the website. Thank you I will now hand over the call to if he knows president and CEO , David Wilson David.
Thanks, Jen good morning, everyone and welcome to <unk> Q2, 2023 financial results Conference call and webcast. Please note that the full financial statements and MD&A are now available on our website.
Also note that all figures are stated in U S dollars unless otherwise noted.
Today's call will cover the highlights of the second quarter financial and operating performance and in addition, we will go over the work.
We are currently performing and then we will open it up for questions well begin with the.
Discussion on operations for Q2, and then I will turn it over to Nathan Harte <unk> CFO to discuss the financial performance for the second quarter.
And Jennifer North our head of Investor Relations for an overview of Q2 ESG initiatives.
Turning to slide five I will go over the second quarter highlights which include the following.
Okay.
<unk> achieved production results of just over 587000 silver equivalent ounces.
Which was a slight decrease of 10% when compared to Q2 2022.
The Avino mine continues to provide stable production results, although it was impacted by mining in lower grade areas and equipment delivery delays.
Which are now behind us.
We use the time to implement upgrades to the haulage ramp that have since allowed us to increase college rates.
Just subsequent to the quarter, we announced the best drill intercepts in company history. We released results of three drill holes from below level 17, the deepest workings of the Avino mine drill hole E. T. 20, 309 shows 57 meters true width of mineral.
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The mineralized intercepts physics.
Only wide and is very high silver gold and copper grades.
Thrilled by these results and the Q2 drill results from May of this year, which included 10 holes from below level 2017.
The drilling demonstrated that the avino mine continues to get better as we explore at depth.
Will expand further on the exploration program later in the call.
Also during the quarter. The metallurgical testing was completed on the oxide tailings project and the pre feasibility study is now underway I will go over this information a bit later in the presentation.
The dry stack tailings facility is completed and operational and during the quarter. The conveyor system is currently transporting the press dry tailings to the Avino open pit area.
At <unk> the company continues with its community engagement and nearby towns adjacent to the property.
We are fully committed to moving this project forward as it factors in prominently into our five year growth plan.
Here on slide six we show our Q2 production results as mentioned earlier the production results from the Avino mine were stable. The production results were announced on July 20th in the news release can be found on our website.
Lights are as follows and are compared to production results from Q1 2022.
Silver equivalent production decreased 10% to 587000 ounces.
Silver production increased by 3% to 232000 ounces copper production decreased by 12% to 154 5 million pounds.
Gold production increased by 13% to 1000.
520 ounces.
Mill throughput increased by 33% to just over 157000 tons.
We expect production to catch up to our internal guidance in the second half of the year as we continue our clear path to transformational growth.
Our five year growth plan takes us from production levels up to 823 million ounces of silver equivalent to between eight and 10 million ounces of silver equivalent by 2028.
Turning to slide seven I will now touch on the exploration results and ongoing program during the quarter. We focused on further drilling below level 17 S. E T area of the Avino mine.
8000 meters of drilling is planned for the full year and during the second quarter 3075 meters were drilled bringing the total.
And the first half of 2023% to 7100 meters. We released results on May 23rd that included 10 drill holes from below level 2017, and on July 5th which was just subsequent to the end of the quarter. We released a further three holes.
The results from May indicate that the avino vein was extended a further 500 meters and that the extent of the vein.
It has been established to be at least 1100 meters down to down dip from surface outcrop.
In addition, our previously undiscovered breccia vein was intersected approximately 15 to 30 meters in the footwall intrusive rocks, which was very high grade.
The full intercept and drill data can be viewed in the news release, which is on our website.
Moving on to slide eight the title says it all avino drills, the best intercept in company history.
On July 5th we released a further three holes and one of the intercepts drill hole E. T 23, or nine showed 57 meters true width mineralization and is a step out of 50 meters to the west of Avino is most westerly drill hole 200 meters down dip below led.
<unk> 17, the whole assayed 296, silver equivalent grams over 57 meters of true width, including 407.
Silver equivalent grams over 37 meters of true width.
In 2866, silver equivalent grams over 343 meters of true width.
There are two images on the slide the the one at the top is along due to little view of the avino vein showing the drill hole locations and the projection of the mineralization in red.
In the lower images, a cross section of the above mentioned a whole E T 23.
And the down dip extension from the current mine workings.
The exceptionally wide and very high grade silver gold and copper grades are extremely encouraging for continued exploration of the avino vein and associated stock work in Bradshaw add depth and suggests a much more complex mineralization system, we are still.
Open along strike and at depth.
Yeah.
Avino has enlisted several world renowned structural geologists to contribute to the geological theory to help understand the structural controls of the avino vein.
Turning to slide nine now.
On April 5th we announced the results of our comprehensive metallurgical program on the oxide tailings project.
I know that we went over this on our Q1 call. However, the oxide tailings project for as part of our growth story. So I feel it's important to briefly touch on the results again, the results were favorable with up to 90% recovery.
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 in recent oxide materials.
Makeup all the mineralized resource shown on the table here.
This table also highlights the mineral resource growth from approximately 150 holes that were drilled during the mine closure, which also allowed us to move the project forward you can see here the measured and indicated has grown by over 400%, providing us with a higher <unk>.
Agree of confidence of the contained resource within the tailings deposit.
At this time I will now hand, it over to Nathan Harte <unk> CFO to continue with Avino Q2 financial results Nathan.
Okay.
Thank you David and 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.
Turning to slide 10, now for a review of the Q2 2023 financial highlights.
Our results for the second quarter were mixed from a financial results perspective with positive net income and cash flow generation from operations.
Even after 55 years, the Avino mine continues to generate cash flows, which we are seeing as being an elusive feed and the challenging inflationary landscape, both in Mexico and around the world.
In the second quarter cash flow generated from operations before working capital adjustments was $1 million, bringing the total for 2023 up to $2 2 million.
On the flip side revenues and mine operating income decrease compared to Q2, 2022 and Q1 of 2023.
We are optimistic of increased financial performance in the second half of the year. Following some operational challenges in the second quarter with delays to replacement parts in the plant and some upgrades targeting copper recoveries, which have also struggled in 2023.
In June we added a new scoop to our existing underground mining fleet. This addition is already paying dividends with noticeable increases in haulage rates to the plant from underground throughout July .
Coming to slide 11, I'll walk you through some key financial results on top of the ones discussed on the previous slide.
As noted already net revenues came in lower than expected at $9 2 million a slight decrease from $9 three in the quarter previously year over year.
While we started Q2 strongly with additional sales the decrease corresponded to lower sales later in the corner as our production was impacted by the items mentioned previously.
Avino generated mine operating income of $1 million for the quarter, including noncash depreciation and depletion compared to $3 9 million in Q2 of 2022.
The decrease is a result of higher mined and milled tons during the quarter alongside a strong peso to U S. Dollar rate, which is further offset by lower revenues when compared to previous quarters.
I'll provide more insight on cost during the discussion on cash cost per ounce and per ton later in the presentation.
On a cash basis mine operating income was $1 7 million, representing a cash 20% operating margin.
Avino reported net income after taxes of $1 1 million or one cents per share for Q2, while EBITDA was <unk> 4 million for the quarter and adjusted earnings came in flat.
Cash flow from operations for Q2 was half a million after working capital adjustments with the company spending $1 8 million in capital investment primarily relating to new equipment additions for avino and for lockers user as well as exploration activities and to a lesser extent mill upgrades.
Here on Slide 12, you can see our cash cost per silver equivalent payable ounce for the second quarter did continue to rise in the 2022 average and the preceding quarter at $16 33.
All in sustaining costs were also up from the previous period at 20 306.
The increases for both metrics are a result of lower ounces sold for this quarter as a result of lower production from mill recovery challenges and lower grades arising from the planned mining sequence in the underground.
On top of this the Mexican peso appreciated by over 15% in the second quarter, which had an impact on our costs as the majority of all expenditures are incurred in Mexico with local suppliers employees and contractors.
The increased costs from a larger production volumes with lower level of ounces sold had a substantial impact on operating margins and cost ground.
Again, we remain confident for a decrease in cost per ounce in the second half of the year.
Coming to slide 13, you can see our cash cost per tonnes processed for the quarter came in around the recent average at $46 90.
All in cash cost per tonne processed were down significantly from 2022 and again relatively in line with the first quarter.
Our steady cost per ton reflects the resilience of our offer and our operational team in Mexico during times of inflationary pressure all around the world alongside a strong local currency in the peso as the team continues to deliver and manage distinct within our cost budget.
Controlling costs remains a key priority as rubino alongside our future growth plans.
At this point I will turn it over to Jennifer North head of Investor Relations for an overview of our second quarter ESG initiatives.
Thank you Nathan turning to slide 14, we have listed our recent ESG initiatives for the second quarter.
These initiatives continue to build on Athena efforts to incorporate on a daily basis, the principles of sustainability and social responsibility.
These initiatives are carried out by our teams in Mexico and are as follows in the.
<unk> San Jose does you know the team delivered over 20 trees for reforestation or the green areas provided a forklift and operate here for several hours for car cleaning provided sensing to a designated path in one of our parks.
Provided tobacco for preventative maintenance to the road, leading to the community branch.
Children's and mother's days were supported by as you know in all three of the communities and the children strong contest was organized in all three of the communities to commemorate world environment Day, and Athena supported the five schools that participated in.
Avino also provided Samsung tablets to the winter said, they're drawing contest.
And the community in Sarasota, the team delivered palm trees, replanting and to waste drums for the benefit of the community Plaza.
As detailed in slide environmental and community works extremely important as well as supporting and celebrating families where we can.
One of the top priorities for Avino is Deborah provide jobs to those in the surrounding communities with the goal of fostering generations of enthusiastic and dedicated ambassadors and casino.
Currently we have 438 direct jobs, which includes the workers at the mine site and in our office in Durango.
This number of jobs will typically translate to three times the number of indirect jobs for services consultants and suppliers and the surrounding communities and then triangle area.
After diligently working towards obtaining a CSR designation attainment Durango received the ESR Award for the first time in August of 2022 and is on track to receive this important designation for a second here.
We are committed to performing the CSR diagnostic processes with diligence each year to show our support and commitment to the local communities and the environment.
Yes.
We have strategic alignment goals that span across the company, ensuring all employees from entry level to the executive team are working towards shekels ambition, we have an action plan to inform educate and support our employees and community members to become ambassadors of Avino and that we will all benefit when community income.
Any airlines the success of Athena is dependent on its people profitable operations community sport and its support and the strong and sustainable future.
I'll now turn it over to David to continue on with the presentation, providing a metals and mining overview and our plans for the coming quarter David.
Thanks, Jan moving to slide 15, just a quick look at the outlook for metals and mining we continue to see volatility in the markets in June the U S. Fed left the rates unchanged, which was its first pause after 10 consecutive hikes, which came one week after the bank of Canada.
The increased rates by another quarter percentage point.
And in July the U S fed increase the interest rates to its.
Its highest point in 'twenty two years U S. Now has an interest rate between 525, and five 5% and possibly higher in coming days.
In the second quarter silver price range from a low of $22 34, an ounce.
Early in June .
It was as high as 26.0 to announce in mid April .
The London fix for the price of gold in Q2 range from 18 99 to 2048 per ounce.
The experts in the silver space continued to agree that silver will perform strongly in the years to come.
We share this belief the demand for silver and other precious metals will continue to increase over the coming years as the governments around the world Press forward with there is net zero in green future policies.
As well as the U S Department of energy just officially added copper to its critical materials list.
And as you know the Avino mine is also copper intensive reaching approximately 37% of our production profile in 2023.
Turning to slide 16, you can see our plans for 2023, we're now well into the third quarter of 2023 and the pre feasibility study on the oxide tailings project is well underway, we expect to present the results to the market in Q4.
We are also focused on our plans for the Gloria and the abundance of veins at La <unk> with community engagement.
Ongoing as we ready ourselves to begin development, where the equipment is being sourced.
I met our permit application is being prepared.
We have 8000 meters of drilling planned for 2023, and we are currently drilling below level 17, a recent drill results can be found on our website detailing the best intercept and the company's 55 year history.
Lastly in the main goal is to replenish the treasury through cash flow generation from the Avino mine as we look to the future at La <unk> and the tailings project.
As shown on slide 17, we want to reemphasize the company's plan for growth, we have three assets within 20 kilometer footprint totaling.
Hundreds of millions of silver equivalent mineral resources.
On the same area, we have an operating mill complex, which is currently producing are from our avino mine.
Additionally, access to water power tailings storage all the ingredients to grow organically without the major capital investment required that would expect if we were starting from scratch as you can see on the slide our goal is to scale up by 2028 through production from these three.
System become the next low cost intermediate producer.
Here on slide 18, we present, our continued initiatives for growth, which are development production and optimization of La <unk>. The tailings project pre feasibility study and eventual construction decision.
Further exploration at the Avino mine.
Other exploration and value evaluating regional areas on the avino property.
Sure.
We'd now like to move the call to the question and answer portion operator.
Yes.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
We're 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 as callers join the queue.
Our first question comes from Jake Zukowski of Alliance Global Partners. Please go ahead.
Hey, David Nathan and team Thanks for taking my questions.
J J just on some of the development work that you mentioned are improved.
The improvements of the haulage ramp specifically are you able to quantify the impact of that going forward, whether it be on college rates or throughput.
Pete you want to say, yes sure.
Sure Yeah no problem.
It's been pretty significant you know Hugh you oscillate between being mined limited mill limited when you're when you're operating a mine and.
Earlier, this year end and to and last year as well we were mining limited and that is now shift that bottleneck is now shifted to the mill. So it's a good problem to have but it just shifts the problem too to somewhere else and you debottleneck that area. So.
There are no longer haulage limited as far as our throughput, which is which is fantastic.
And that is credit to the improvements in the ramp so that's both the haulage from underground and the backfill which is fantastic. So now our focus shifts to how do we debottleneck the mill.
Got it okay.
And then just switching over to foreign exchange I mean, we've all seen the peso strengthened quite a bit.
Recently, and it's had an impact on operating costs across Mexico.
Any color on any impact that you guys have been seeing related to freight costs and any steps you've taken or looking to take it to try and mitigate the impact there.
Yeah. It's a good question Jake Nathan here, obviously, I mentioned, even just in Q2 alone the peso depreciated over 15% or around that range.
It's kind of stabilized now which has been good and that just allows for better forecasting.
Considering as I mentioned on the call were first a Mexican company and we pay in pesos in country to local employees suppliers and contractors. So the impact is obviously not it's felt.
On our operation.
What we're doing to mitigate it as we're working with vendors.
And also looking at our hedging options I think.
It's still on no one really predicted that it wouldn't get down this low.
And across the industry. So we're still we're looking at kind of what's what's going to happen next and what's the best move for us as far as mitigating any any further movement.
Okay. So as of now you are still fully exposed youre, just evaluating options no not fully exposed, but yes, we're still exposed because we do still pay in pesos, but we've taken some measures to mitigate that risk.
Okay makes sense, that's all on my end thanks Scott.
Thanks Jake.
Okay.
Our next question comes from Heiko <unk> of H C. Wainwright. Please go ahead.
Hey, there thanks for taking my questions.
Hi, Heiko.
When I look at block Chris you also in your current steps. Your lease stated that you are conducting a variety of community engagement.
And the nearby towers adjacent to the property.
Walk me through the feedback that you're getting from folks.
Commending any particular steps that they would like to see if there's anything particularly want you to incorporate anything that they sort of say hey, this may be holding a permitting or anything I mean, I assume they can't really stop harvesting per se, but they can.
Rattle some cages.
And I assume that you haven't really found anything historical or otherwise that.
You didn't expect correct.
David here, so we've been informing them about our plans, it's going to be a low footprint, we're not planning to build a big open pit mine. So it's taken some time to get that message out because that's what core was planning.
And so we've.
We've been doing that they are all pro mining.
There are several different groups, we're down to the last one negotiating on terms so were anticipating positive.
Results here this year and we are making your environmental permit application.
And and once we have the blessing of the final Ido group will file that so that's where we're at right now.
Fair enough.
Then just a quick clarification, so where those.
The pre feasibility study as pre release is due by the end of 2023 looking at this we're essentially mid August right analysis was really only four and a half months left of the year.
Could you maybe quantify it a little bit closer with a date. When you think we're going to get our hands on that and also what exactly is currently being undertaken with the PFS.
What step of the process are you and please thank you.
Sure Pete you want to take that.
Sure. It's a HEICO thanks for the question.
We're right in the thick of it now as far as the PFS are working with the engineering company being Tetra Tech are they had visited site already as part of the requirements for the the pre feasibility study that went extremely well, we're reviewing flow sheets, where we're trying to lock that in as well as the process design criteria. So.
We're right in the middle of it.
Right now the way the projects scheduled it's looking like we'll be able to release that information in early December theres opportunities to fast track that to bring that schedule forward. A couple of weeks, but then there's also the potential that that could slip a few weeks into into January a best case scenario. You know we're looking at November for press release.
Leasing the information.
You know right now it's targeted for early December , but as I mentioned it could slip a couple of way of a couple of weeks both ways.
It's something that we're actively working on as I mentioned, there's a lot of back and forth as far as optimization of the flow sheet and that sort of thing and that is what are the discussions going on.
We've done kind of preliminary pit shelves at this point in time, we've looked at the resource we've kind of.
Done the cutoff grade calculation. So you know there's been a lot of headway on the project and I think I'm pretty happy with the results thus far.
That's very helpful. I appreciate it and I'll get back in queue. Thank you will.
Thank you thanks Heiko.
Our next question comes from Matthew O'keefe of Cantor Fitzgerald. Please go ahead.
Thanks, operator, good morning, everyone. Just a couple of questions here one on operations.
I'll start with that one.
You mentioned the bottleneck has shifted now from me.
From the mine to the mill.
Just can you remind us again, what kind of what kind of.
Haulage capacity or.
Do you have at the mine now or and what are you running at and then what what's the current mill.
Capacity.
Okay.
Hi, Matt.
Yeah, I'm happy to take that.
The current mill capacity is just over 2500 tonnes call. It 2500 tonnes per day with all four circuits running.
And we have just recently commission circuit two to run if you recall that we weren't running circuit to because we didn't have the the mill the mill feed let's say so our haulage capacity is above 2500 tonnes per day.
And are you running sorry go ahead.
And we're just fine tuning that capacity in the mill because that's that's you know as you shift.
The bottleneck. There then you you end up I understanding what are the limiting factors in the mill and you kind of have to does.
Does optimize those those.
That criteria therefore.
Making sure that you can hit 2500 tonnes per day.
Okay, but we won't we won't see that reflected in.
Will we see that.
Capacity come up through the balance of the year.
Hmm Avino mill, yes.
Yes, I believe so yes.
Okay. Okay.
Okay. That's good that's very good.
So that that kind of feeds into the you're still expecting to make sort of that internal guidance numbers as far as I think it was $2 82.
$3 2 million ounces of silver equivalent.
Yeah.
That's what we're.
We're hoping to get to sorry go ahead.
That's right.
Okay. Thanks, and then one more question if I may on Capex. It looks like you've spent about just over $5 million this year.
What's it look like for the balance of the year and what are you going to be spending it.
Yes, Nathan here. Good question. So as I had mentioned earlier theres not many large scale items left for the year, it's just going to be some some improvements throughout the mill.
Just some some mine development.
So we're not expecting any larger ticket items really until we get into the development at <unk> our CSO.
Okay.
So.
So we can we can assumes less capex through the balance of year.
In the second half of year than the first half.
Yeah, I think the first especially the first quarter was pretty it was a little more with a little more intensive second quarter was a little lighter and we're expecting that kind of continue.
Yes, probably either second quarter rates or slightly lower.
Okay.
And I guess one final question here.
$1 2 million in cash.
Obviously with everything you're talking about it it looks as though cash will start to build again from here, assuming we don't have.
Some sort of.
Oh, well change in metal pricing.
What is your what is your kind of backstop on the cash side should you need should you need to tap into additional capital for any reason.
Castro.
Nathan here. So we do have we did renew our ATM in June and.
And we did use it to backstop a little bit.
As disclosed in our financials as well too so we did.
Treasury a little bit.
But obviously not a huge amount.
Let me to dilute too hard.
So we have that available to us on a continuous basis.
To us if needed.
Okay, Okay, great well that's it.
Thanks, looking forward to it upswing in the second half.
Thanks, Matt.
Once again, if you have a question. Please press Star then one.
Our next question comes from Chris Temple National Investor Publishing. Please go ahead.
Hey, Al you answered some of what I wanted to ask with Heico's question, but to expand on that I was curious if you could clarify exactly what is in bounds and what is out of bounds. These phase in Mexico generally is there an issue with you getting this.
Your mental permitted in the end, assuming you qualify for and all of the regulatory ways given that the government has not been to free in the recent past with new projects.
David Here, we don't expect any delays, but Carlos do you want to expand on the environmental permit process.
Yes, yes of course.
Sure David.
This is carlos so he agrees.
Yeah, we're or environmental.
The consultants they are working on that better meets.
Chris Watson mentioned by David earlier in the call.
You know part important part of the process is a blessing from the communities.
In.
In the project FERC also project is in the middle of that you put in there.
And we have the.
Less important that whatever he looked at this deal we are working on in one of the.
One of the Helios.
And they still.
Negotiating with them, but yeah. So is that fair to meet that.
Clinical pair mix for for mining and everything isn't the way you know we we.
We can.
To meet in the next in the mix.
Couple or three months okay.
Okay Super Thanks Carlos.
This concludes the question and answer session I would like to turn the conference back over to David Wilson for any closing remarks.
Thank you operator, and thank you to everyone for the time today.
As I said, we have embarked on a clear path to transformation about growth and our focus continues to be on delivering the best performance to our shareholders and stakeholders, while executing the growth plan. We are looking forward to the second half of the year have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Yes.
Yeah.
Yes.