Avino Silver & Gold Mines Ltd (ASM) 2020 Q3 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines third quarter financial results conference call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Jennifer North, Investor Relations Manager. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Limited Third Quarter 2020 Financial Results Conference Call and Webcast. On the call today, we have the company's President and CEO, David Wolfin; 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 accompanying this call or on our press release of yesterday's date.

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 turn the call over to Avino's President and CEO, David Wolfin. David?

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q3 2020 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. On today's call, we will cover the highlights of our third quarter 2020 financial and operating performance, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars, unless otherwise noted.

Firstly, I'd like to thank our shareholders for their support and patience during the third quarter, while the Avino mine was closed due to the strike. This was difficult for everyone, and we are especially appreciative of all who stood by and understood the process we had to go through. In addition, I would like to extend my gratitude to the management team in Mexico, led by Carlos Rodriguez, who navigated and negotiated a successful resolution. The strike ended in early October and due to an extended period of inactivity at the mine and before the company can restart operations, a comprehensive evaluation of all underground milling and surface equipment is underway to ensure all are in excellent working condition.

Our third quarter operational performance was directly impacted by the 12-week strike action at the Avino Mine, which resulted in a decreased production profile for the quarter. During the 3 months ended September 30, 2020, no mining activity took place. We are setting our sights on 2021 as we look forward to commencing operations and embarking on the exploration program that was delayed during the pandemic and the strike.

We will be poised to capitalize on increased metal prices when operations return to normal. During the quarter, Avino continued to move forward with the proposed dry stack tailings storage facility, TSF #2, we're calling it, which is on privately owned Avino land is permanent and is currently in the final stage prior to commencing construction. The company is looking forward to positive discussions between the community of Panuco de Coronado and the state government, which should help to provide the social approval to move forward with the construction of TSF #2. Their combined support is important to the vitality of the community and will aid in restarting production activities.

The restart of production activities is expected to provide significant direct economic benefits and stimulus for the local communities. In August, Avino granted Gray Rock, which has since rebranded as Silver Wolf Exploration, the exclusive right to acquire 100% interest in Avino's Ana Maria and El Laberinto properties in Mexico. The details of the option agreement are as follows: Avino to receive 300,000 share purchase warrants of Silver Wolf at $0.20 for a period of 36 months. Avino to receive CAD 600,000 in cash or common shares over 4 years, with the first 50,000 in common shares in 30 days of exchange approval, Silver Wolf to incur a total of $750,000 in exploration expenditures on the properties over 4 years.

By divesting of these 2 assets, Avino limits the cost of maintaining the properties while retaining exposure to any exploration upside through the issuance of shares or warrants. Both properties are on paved road to Avino, which may, in the future, prove to be beneficial to Avino, which has the right of first refusal to purchase and process any ore or concentrate extracted from the properties for processing.

During the quarter, silver and gold prices were volatile but stayed close to the highs reached in the second quarter with gold price reaching a high of $2,067 in August and silver reaching a high of $28.85 in September. Today, we have a gold price above $1,900, which has backed off slightly, and the silver price is sitting around $24.

I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q3 2020.

Thank you, David. It is my pleasure to be on the call, and I would like to welcome everyone who has joined us and is viewing our presentation today. As you can imagine, Avino's operating results were impacted by the previously mentioned strike action at the Avino mine. Having said that, the financial health of the company remains strong as Avino continues with its plan to reduce its debt load during 2020, having lowered its debt liabilities by a further $2 million during the third quarter. This brings total debt reduction for 2020 up to $6.1 million. Working capital at September 30 was $16.9 million compared to $13.8 million at June 30 and $13.2 million at the end of 2019. Our cash balance at the end of the quarter was $12.5 million, up from $10.4 million at June 30 and $9.6 million at the end of 2019.

During Q3, we generated revenues from mining operations of $2.7 million, which was down 61% compared to Q3 2019. Avino also reported mine operating losses of $200,000 for the third quarter, which remains unchanged when compared to Q3 2019. Losses before interest, taxes, depreciation and amortization were $4.3 million compared to $1.6 million for Q3 2019. And adjusted losses for Q3 2020 were $0.7 million compared to $100,000 in Q3 of 2019.

Avino reported net losses after taxes from continuing operations of $4.6 million compared to $1.5 million in Q3 2019, which translates to a loss per share of $0.05 from continuing operations for the third quarter of 2020 compared to $0.03 in Q3 2019. It should be noted that net losses for Q3 2020 did include noncash losses of $2.7 million relating to the exercise of warrants in which Avino received proceeds of well over $3 million as well as unrealized losses on the company's investments in Talisker Resources of $1.2 million.

Our third quarter consolidated cash costs remained fairly stable at $12.56 compared to $12.74 in Q3 2019. However, our all-in sustaining cash cost for payable silver equivalent ounce did increase to $31.61 when compared to $18.62 for Q3 2019. The increase is a direct result of fewer ounces sold during Q3 2020 as well as additional standby costs of $900,000 associated with maintaining operations during the strike action.

Our revenues for mining operations of $2.7 million in Q3 2020 were derived of 31% from silver, 25% from gold and 44% from copper. Our capital expenditures for Q3 2020 were $400,000 compared to $2.3 million in Q3 of 2019. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the third quarter. All necessary upgrades and projects have continued on as planned, including the new dry stack tailings storage facility equipment.

Finally, I want to reiterate that Avino remains financially strong and exited the third quarter with its strongest balance sheet in almost 4 years. We have made significant strides in reducing our debt and currently maintain over $20 million in liquidity, including our investment holdings. With current debt representing less than 50% of our cash balance, I'm confident that Avino is ready for any market uncertainties and to take advantage of the strong metals market moving into 2021.

I will now hand it over to David for a discussion on our plans for the remainder of 2020.

Thank you, Nathan. Our plans for the final quarter of the year include: one, continuing with the comprehensive evaluation at the mine site before ramp-up of operations; two, resume the connection between underground levels at the Avino mine; three, move forward with building the exploration team; four, independent evaluation of structural controls on the property; five, and a structural interpretation to provide better understanding and defining new targets within the dozens of veins that exist on the property.

The last 2 quarters have been particularly challenging, but we are rounding the corner. And I want to ensure our shareholders that our focus hasn't changed, and we look forward to resuming normal operations and exploration activities as soon as we can. We thank you for your patience and understanding. We are optimistic for the future and a return to business as usual.

And finally, I would like to say another thank you to the teams in Canada and Mexico for their dedication, hard work and contributions.

We would now like to move the call to question-and-answer portion. Operator?

(Operator Instructions) First question comes from Jake Sekelsky from Alliance Global Partners.

Just looking at TSF #2, are you able to give us any additional color on the time line and budget there? Is it something you still expect to have completed by early next year?

Pete, do you want to talk about the time line?

Sure, yes. And then I'll pass it over to Nathan to talk about budget. Yes, I mean, it's going to be ongoing next year. We're going to manage the construction of TSF #2 with the amount of space that we have in TSF #1 as well as the open pit. So we're going to proceed along as fast as we can construct that project.

Yes. And Jake, on a budget -- from a budget perspective, we're expecting total costs to come in around $4 million for just about everything involved, all-encompassing. We've paid a bit already on some larger equipment, and we're expecting to make another sizable payment by the end of the year. And then the rest of it will be labor and materials as we build the foundations as well as a lot of dosing work on site.

And the filter press will be ready for pick up in December 15. So we're going to put it on a freighter to Mexico. So we'll have it possibly by year-end or in January. And steel construction work has commenced in Durango.

Yes. The steel construction is underway.

Okay. That's helpful. And then just on the exploration front, I mean, it seems like that's something that's going to be a top priority heading into next year. I mean you mentioned, David, you're building up the exploration team still. Do you have any update on when we should expect to see some details on next year's program and budget?

Yes, in December, mid-December. We'll disclose our budgets. We're just going over that now, but it's going to be a minimum of what we had budgeted for this year, 11,500 meters, possibly more depending on the targets.

The next question comes from Heiko Ihle from H.C. Wainwright.

Just building a bit on what Jake has said, I mean, you were talking about your secured deposits on the long lead items for the TSF. Can you just sort of give a little bit more color on what is left both on which equipment and how much in dollar terms?

Pete? Do you want to talk about that?

Yes. Sure. So I mean a dry stack process, the main component is going to be the filter presses. So those are the things that we've already put a down payment on. Regarding the steel structure, that's just the building essentially and that's an open-air building because of the climatic conditions in Mexico, as you know. And then there's conveyors. And those would be the 3 main components, if we just lump those into 3 things. So we've started on the steel structure, as I said, and started incurring cost us on that. We've placed the deposit on the filter press. And yet -- we haven't yet purchased the conveyors.

Does that answer your question, or do you want more specific detail with respect to the budget?

Well, I mean, if you're willing to provide more color, that'd be great.

Yes, Heiko, it's Nathan here. I can provide a bit of color. So as I mentioned in responding to Jake, it's about $4 million all in. Filter press come in just over $1 million. The steel construction and the labor associated with that will be somewhere in the range of $1.5 million to $2 million. And then the remaining, the conveyors and other pieces will round it out to the $4 million we talked about.

Got it. Okay. You got your G&A down to less than $700,000. I assume a good part of that is the lack of travel. But are you looking into any other cost savings measures going forward? I mean I know you hinted at it in the release that you did something. And if so, what is it? And how much do you think you can squeeze out?

Yes, sure, Heiko, I'll take that one. We've made a lot of efforts, especially after 2018 and in 2019 to reduce our G&A down from close to $1 million in a quarter, if not higher in many quarters. And so we're still looking for improvement there. Obviously, you can see we've made a few additional ones this quarter. Yes, lack of travel, but we are doing some more marketing and a lot more virtual presentations and virtual conferences and getting the message out there about Avino.

And of course, with us being down for 3 months, yes, we took a hard look at everything again for the third, fourth, fifth time. But we're going to do what we can to try and squeeze a bit more out. But at the same time, we understand that there's marketing efforts that need to be incurred and a lot of other professional fees that still do need to be incurred on a quarterly basis.

All right. And purely out of curiosity, and then this won't, obviously, make a big difference in my model, but I mean, I noticed that you still had a small loss from discontinued ops related to Bralorne. And your MD&A says it's for a settlement of working capital items. Just making sure that's the last thing related to Bralorne. Is there any other thing coming in the quarters to come?

No, there's nothing coming. That was just some final settlements more in Q2 and a couple of movements, like little movements in Q3, but that's it.

The next question comes from Joseph Reagor from ROTH Capital Partners.

So most of what I wanted to ask has already been touched on. But I guess, on the strike and the restart, it didn't sound like you guys had a specific time frame you were willing to give for getting back to full operations, and there was some tone about looking forward to next year. What should we be expecting as far as production rates for this quarter? Like do you think you're going to get 1 full month of production? 1.5 months? What does that look like?

We're not planning to restart, so until next year, unless the negotiations with Panuco go very quickly. So don't look at this year, start of January.

Okay. And then when you guys do restart, probably a question for Nathan, what do you think the working capital swing would be on a cash basis?

Joe, good question. So we think there's going to be some additional start-up costs of a couple of million. Obviously, we'll be able to start underground activities sooner than we will milling activity. So there will be a lag from getting stock off -- from mining underground, stock off at surface through the mill and then sold off to our buyers. So I think if I were you, I would say, about a 1.5 months lag -- or 1 month to 1.5 months lag. So maybe we'll incur a couple of million in costs that we won't get paid for until, say, 45 days down the road.

One of the things we do want to highlight is we have some fairly strong liquidity and a decent balance sheet and very low debt at this time, so we're feeling pretty confident that we'll be able to go through and not take a massive hit to our balance sheet.

The next question comes from Matthew O'Keefe from Cantor Fitzgerald.

Yes, just to follow-on Reagor's comments there, the start-up, so you're not -- like what's the sort of delay in getting restarted, again? Because after the COVID shutdown, which I know was a lot shorter, it was like 2 or 3 weeks and you were up and running. And just wondering why it's taking longer this time. And what the -- and is -- there's anything else that you can be doing at this time, be it development or other things, that don't require an impact on tailings?

Sure. We will -- we're hoping to start to get in the underground before the year is over and start the underground development work. But during this, the pandemic and the strike and the closure, we've decided that this is the best time to negotiate with the townspeople. And on the Panuco de Coronado, there are a few people there that had opposed traditional tailings. So we've got the governor's office helping us to educate them and get their blessing to proceed with construction so we don't -- we're not interrupted. Because we had started on that a while ago, probably a couple of years ago, and then there were some issues. So we found other areas to put tailings, but we don't want to have that problem anymore. We want to go to full construction on TSF #2. So we're hoping to get their blessing in the next couple of weeks here.

Okay. And I apologize if you mentioned this already, but so what's the tailings capacity outside of that right now? I mean it's pretty -- is it quite limited then, I'm guessing?

Yes. There's probably about a quarter or just over a quarter, maybe 3 or 4 months' capacity in TSF #1. It could be expanded, but we don't really want to. I mean we could build another buttress. And then in the open pit, there's probably 3 or 4 months of capacity. So once we nailed down the timing on getting the social blessing and construction, then we're going to time when we're going to start up milling activities. So we're hoping that this will be all done very shortly.

Okay. Great. And then just switching gears a bit on the development. So I know one of the things was connecting the 2 portals so you'd have -- be able to improve your throughput. What's the timing on that? And what will your mining rates be sort of limited to until you get that development completed?

Carlos, are you on the line? Do you want to mention when you think we can link up and how long it will take to get level 9 to level 6?

Yes, sure, David. Thank you, Matt, for your questions, Carlos is here. Yes, so we have discussed this connection for the last few quarters. But yes, so we are about 400 meters, as we have mentioned before, to connect both portals. So it will take something from 5 to 6 months to complete the job. We have the equipment, it's just a matter of restart mining there and rehire the jumbo operators and all miners and everything. So 5 months -- I would say, 5 months to complete the job and connect both portals.

Okay. And your throughput -- what's kind of your throughput going to be limited to until you get that completed? And then where do you expect to go after that's completed?

Yes, as we have discussed also in the past, yes, at the moment, we have mill capacity for 2,500 tonnes per day. So I think easily, we can reach 2,600, 2,700, 2,800 tonnes per day, so average, and then have a booster on surface. So I think that we will cover by that.

(Operator Instructions) The next question comes from Bruce Shapiro, a private investor.

Most of my question about commencement of operations were answered prior, but I was curious about the strike itself. Can you discuss what was asked for and what was given to settle the strike?

Well, that's not disclosed. But the strike threat started last year when we closed the San Gonzalo mine because we were laying off 75 workers. We made some concessions, and we moved half those people over to the Avino mine. And then the local labor leaders kept making more demands, not financial but operational, and we couldn't live with that. So they struck, and then we made a settlement, which is being finalized now.

Was the strike in any way connected with the coronavirus and concern about that?

No.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. David Wolfin for any closing remarks.

Thank you to everyone that took the time today to listen to our Q3 earnings call and webcast. As I said earlier, we appreciate the patience of all our stakeholders, and we look forward to resuming normal operations as soon as we can.

As we look towards the future, we are optimistic that metal prices will continue to rise, and we believe that the demand for metals will continue to grow. Further, Avino has fostered its resiliency, initiative and enterprise over its 52-year history by having a large land position in a prolific area with a producing mine and multiple exploration targets, surviving the lean times, implementing cost-reduction initiatives when needed and knowing the right time to expand that will improve operations. We are committed to bringing value to our shareholders. We hope that everyone is staying healthy and safe during COVID. And just yesterday, Pfizer said that early data shows that their vaccine to be 90% effective. So we hope that this is the case and more vaccines around the world will start proving the same.

Thanks, again, everyone, and have a good day.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.