Avino Silver & Gold Mines Ltd (ASM) 2023 Q3 法說會逐字稿

Thank you for standing by, and this is the conference operator. Welcome to the Avino Silver & Gold Mines Q3 2023 Conference Call and Webcast. (Operator Instructions) 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 & Gold Mines Limited Third Quarter 2023 financial results conference call and webcast to join this webcast and conference call. There is a link in our news release dated November 1, and in our news release of yesterday's date, which can be found on our website under News 2023.

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 related to this call on our press release of yesterday's date. Please note that the full financial statements and MD&A are now available on the website under the Investors tab and click on financial statements as well.

The full statements are available on the Venus profile on SEDAR and on EDGAR. 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 and this conference call and webcast will be available on the website. Also note that all figures stated are in US dollars unless otherwise noted.

Thank you. I will now hand over the call to have enough President and CEO, David Wolfin. David?

Thanks, Jen, and good morning, everyone, and welcome to the NOS Q3 2023 financial results conference call and webcast. 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 the third quarter financial and operating performance, and we'll go where the work that we are currently performing, and then we will open it up for questions.

I will begin with a discussion on operations for Q3, and then I'll turn it over to Nathan Harte, Avino CFO, to discuss the financial performance for the third quarter, and Jennifer North, our Head of Investor Relations for an overview of Q3 ESG initiatives.

Please turn to slide 5, where I have outlined the operational highlights. Our Q3 production results were released in mid-October, and we achieved production results of over 591,000 silver equivalent ounces, which brings the 12-month trailing total to $2.63 million silver equivalent ounces.

We are currently pleased with the drill results released in July and September from a total of seven drill holes that included the best intercept in the Company's history. In September, we reported four drill holes below level 17 at the ET area that included substantial width at grades above our current cutoff.

Great. In July, we reported the best drill intercept in the history that showed 57 meters of true width of mineralization drill hole 1823 oh nine had exceptionally wide and very high silver gold and copper grades, which is very encouraging for continued exploration of the Avino vein, I will expand further on the exploration program results later in the call.

We have now completed our planned and budgeted drilling program for the year and drilled 75 hundred and 45 meters in 13 holes. The pre-feasibility study on the oxide tailings project is currently underway and is expected to be completed early in Q1 2024.

Dry stack facility is fully operational with the conveyor system installed and we are now transporting the press tailings to the Avino open pit area at the La Preciosa property communication with the hero group is ongoing and we are fully committed to moving the project forward. It factors prominently into our five year growth plan here on slide 6, we show our Q3 production results.

The production results from the Avino mine continued to be consistent in Q3. We are mining in area areas with lower copper grades and experienced lower recovery rates. The production results are as follows silver equivalent production was 591,000 ounces. Silver production was 237,000 ounces.

Copper production was [1.14 million Pounds]. Gold production increased by 73% to just under 2,100 ounces. Mill throughput was just under 155,000 tonnes based on year to date production. The current time line associated with processing material from leprosy. Also, we have adjusted our internal production estimate for the full year to 2.4 million ounces to 2.7 million ounces of silver equivalent or 5-year growth plan takes us from production levels of 2.4 million ounces to 2.7 million ounces of silver equivalent between 8 million ounces and 10 million ounces of silver equivalent by 2028.

Turning to slide 7, I would like to touch on exploration results from the third quarter. 8,000 meters of drilling was planned for the year, and we have now achieved 745 meters, and the 2023 program is now completed. We released results of September 14th that included four drill holes from below level 17 and on July fifth, we also released three holes.

Moving on to slide 8, the information from September 14 drill results are shown, as mentioned in previous in the previous slide, we released the assays from four drill holes. We had substantial width at grades well above our current cutoff grade on all four holes for whole YT. 2313.

There was 0.7% copper, 31 grams silver and 0.21 grams gold over 44 meters of true width. In addition, we have continued to define the hanging wall Brescia, which is an offshoot of the Avino main vein that originates from surface. The access to the bridge here is relatively easy through existing development works, and we are currently evaluating a mine plan to incorporate these resources into our medium term plans. We were also surprised with the intersection of stockwork vein close to surface, which indicated the complex and distributed nature of the Stockwork system.

It accompanies this thick main Avino vein. The drilling completed in 2023, followed the continuity of the steeply dipping mineralization and helps us in understanding the deep source of the mineralization, as you know, has enlisted a number of world-renowned consulting geologists to contribute to the geological understanding of the mineralization characteristics. The known depth extent to date of at least 750 meters of mineralization is significant.

On this slide, you will see two images revealing the drill hole location and the cross section of hole ET 2313, where you can view the substantial width of the Avino vein at the drill location. The full INTERCEPT and drill data can be viewed in the news release, which is on our website.

Moving to Slide 9. This was very exciting for us. We reported the best intercept in the company's history. On July 5, we released three holes from the program below level 17 at the ET. area of the Avino Mine and one of the intercepts drilled drill hole ET. 2309 showed 57 meters of true width of mineralization. And as I step out of 50 meters to the west of Athena's, most westerly drill hole and 200 meters down dip below level 17 the hole assayed 296 grams of silver equivalent over 57 meters true width, including 407 grams of silver equivalent over 37 meters. True width and 28 hundred and 66 grams of silver equivalent over 3.43 meters of true width.

There are two images on this slide that the one that the top is the longitudinal view of the Avino vein showing the drill hole locations and the projection of the mineralization in red and the lower image is a cross-section of the above mentioned, whole ET. 23 and the down-dip extension from the current mine workings exceptionally wide and very high silver gold and copper grades are extremely encouraging for our continued exploration of the Avino vein and associated stockwork Brescia at depth and suggests a much more complex mineralization system. We are still open along strike and at depth at this time, I will now hand it over to Nathan Harte, Vinod CFO, to present the Venus Q3financial results. Nathan?

Thank you, David. It's my pleasure to be on the call and I would like to welcome everyone who has joined us and is viewing our presentation today.

Turning to slide 10 for a review of the Q3 2023 financial highlights. Our results from this quarter showed positive increases across the board in almost all key metrics, Q3 with the best performing of 2023 when it comes to revenues, mine operating income, EBITDA adjusted earnings and operating cash flow generated before working capital movements.

Revenues for the quarter came in at $12.3 million, an increase of over $3 million from the previous quarter as well as the comparable quarter in 2022. Mine operating income for this quarter was $2.4 million, with $5.3 million generated year to date, cash flows generated from operations before working capital adjustments was $1.8 million, totaling $4.1 million for the full year 2023 so far, adjusted earnings came in at $1.6 million or $0.01 per share for this quarter, with the year-to-date total sitting at $2.6 million or $0.02 per share. At September 30t, we did see an increase in working capital of $2.8 million or 62%, bringing our total up to $7.4 million from the $4.6 million we had at the end of the second quarter.

Turning to slide 11, I'll walk you through some key additional financial results as well as the ones discussed in the previous slide. As noted already, revenues came in at $12.3 million, well up from the $9.1 million we showed in Q3 2022 as we move on from some plant operational challenges that affect the second quarter and part of the third quarter. We are looking for that trend to continue into the end of the year and into 2024.

We generated mine operating income of $2.4 million for this quarter, which includes noncash depreciation and depletion and as compared to $2.1 million in the third quarter of 2022. The increase as a result of higher revenues, which were offset by a very strong peso to US dollar rate when compared to the third quarter in 2022. On a cash basis, mine operating income was $3.1 million, representing a cash operating margin of 26%. Athena reported a net loss after taxes of $0.8 million or $0.01 per share for the third quarter compared to a loss of $1.1 million or $0.01 per share in 2022.

EBITADA was $0.7 million for the quarter, and adjusted earnings were $1.6 million, both showing significant increases for the same quarter year over year. Cash flow from operations for Q3 was $1.8 million before working capital adjustments up from [$1.6 million] in Q3 of 2022 here on slide 12, you can see our cash costs per silver equivalent payable ounce. The third quarter were similar to last quarter at 1690 with both quarters elevated over results from 2022.

Our all-in sustaining cash cost for silver equivalent payable ounce followed a similar trend, although we did see a decrease from the second quarter as it came in at 20 to 69. The increases for both metrics are in line with our messaging on our second quarter call and as a result of lower production from mill recovery challenges and lower grades arising from the planned mine sequence in the underground.

On top of this, the Mexican peso appreciated up over 15% in the third quarter compared to the 2022 average. While we've seen an improvement on this front in the third quarter when compared to the second quarter, there has been an impact on our costs as the mature majority of our expenditures are incurred in Mexico with local suppliers, employees and contractors on-site.

We have put a number of measures in place for cost reduction, including lowering haulage rates to match the mill throughput as we have generated a large ore stockpile over the last few months as well as certain administrative and ancillary personnel reductions.

Now coming to slide 13, you can see our cash per tonnes processed for the quarter came in above the recent average as well at 5946 on an all-in basis. We were also up from our first two quarters, but we did come in below the 2022 average increases on a per tonnes mill basis are primarily a result of higher mining and haulage rates as we mined over 200,000 tonnes this quarter, which is about 30% higher than our milled tonnes of 154,000 as well, lower ounces produced per tonne contributed to the increased costs as a result of the operational items mentioned before. So far in the fourth quarter, we have seen improvements to both grade and recovery and controlling costs remains a key priority for Avino alongside our growth plans.

At this point, I will now turn it over to Jennifer North Head of Investor Relations for an overview of our Q3, ESG initiatives.

Thanks, Nate. And now turning to slide 14. We have listed our recent ESG initiatives for the third quarter of the year continue to build on Venus efforts to incorporate the principles of sustainability and social responsibility. We have added members to the CSR team in Durango, and the department is working to ensure that we continue meaningful conversations with the communities that are close to the mine.

The activities carried out during the third quarter under the new CSR management team were focused on improving relationships between each of the communities and strengthening the social bond while establishing a new social link between company and community. The activities carried out were as follows in all of the communities, parents were offered summer courses for children age 6 to 12.

The summer program was developed to encourage and promote healthy ways to manage children. Summer free time courses in workshops were offered in a number of different activities, including soccer arts and crafts, drawing type window and others in total 220 children from the communities of Conoco to Coronado Zaragoza and San Jose Vinod participated in August of in-house medical department conducted its annual first day training for a period of six days with two sessions a day, there were 119 employees from the mine coming from different departments to learn and improve the first date skills as a high percentage of our employees come from the nearby communities.

This training also benefits everyone in the adjacent areas. The goal is to ensure that all of our employees have the knowledge and skills necessary to be first responders in the event of an emergency also the team put together several educational pieces to show our management of tailings, how we safely manage a tailings, what dry tailings means as well as the testing process, educational flyers and videos in Spanish and English have been posted to the website and shared in the communities for environmental compliance.

And for educational purposes, water samples were taken at the junior high school in September, together with the residents of NewCo to Coronado community alongside company representatives to show Avino sampling process.

In addition, the company continues with its ongoing community, roadworks and delivery of garbage drums and generally supporting and beneficial ways. In September, the company showed its commitment to the mental health of employees by commemorating world suicide prevention day where talks and support were offered.

In addition, we are so pleased with the efforts of the CSR team in Durango as they were recognized for the 2nd year in a row for the ESR. distinction as being a socially responsible company. This designation is a reflection of the passion and dedication of the company and shows that not only do we extract minerals, but we saw knowledge to build a brighter future for generations to come every day. Every action brings us closer to a brighter and sustainable future. The mine is more than a workplace.

It is an example of responsibility and commitment to be in harmony with the environment. One of the top priority because seasonally one of the top priorities for Vinod is to provide jobs to those in the surrounding communities with the goal of fostering generations of enthusiastic and dedicated investors of Avino, we currently have 448 direct jobs, which includes the workers at the mine site and in our Durango offices, this number of jobs would typically translate to three times the number of indirect jobs for services, consultants and suppliers in the surrounding communities and the Durango area in September, I was fortunate to go to Durango and spend time at site in the offices, talking about our strategic alignment goals that span across the company and communicating how we can work towards shared goals and vision.

We have an action plan to inform, educate and support all employees and community members to become ambassadors of Zeno and that we will all benefit when community and company are aligned. The success of Avino is dependent on its people, profitable operations, community support and a strong and sustainable future.

I will now turn it back over to David to continue on with the presentation, providing our plans for the coming quarter. David?

Thanks, Jen. Moving to slide 15, you can see our plans for the remainder of 2023. We are now well into the final quarter, and the pre-feasibility study on the oxide tailings project is well underway. We expect to present the results to the market in Q1 2024.

We are also focused on our plans for the Gloria and other dance here, veins at La Preciosa with Community Engagement ongoing as we ready ourselves to begin development work equipment is being sourced and the environmental permit application has been prepared and we are finalizing it for submission. As we have mentioned previously, we are in talks for the social blessing with the hero group, and this is some something that takes time and patience. We will let the market know when this is finalized. And in the meantime, we continue to negotiate in good faith, so we may move forward with this with our plans.

As mentioned earlier, our drilling program for 2023 is complete, and we will be reviewing the results to determine next steps for 2024.

Lastly, the main goal is to replenish the treasury from cash flow generation from the Avino mine as we look forward to the future development of La Preciosa and the oxide tailings projects.

On slide 16, we want to reemphasize the company's plans for growth of three assets within 20 kilometer footprint totaling hundreds of millions of silver equivalent ounces.

On the same area, we are operating a mill complex, which is currently producing from the Avino Mine. Additional access to water power and tailings storage, all ingredients to grow organically without the major capital investment required. That would be that would expect if you were starting from scratch as you can see on this slide. Our goal is to scale up by 2028 through the production from these three assets.

Lastly, please move to slide 17, where we present our continued initiatives for growth, which are development, production and optimization of La Presse, the Elsa Tailings project pre-feasibility study and eventual construction decisions, developing next steps for exploration and drilling evaluating recommendations made by renowned structural geologist. We would now like to move the call to the question and answer portion. Operator?

(Operator Instructions) Our first question is from Heiko Ihle with H.C. Wainwright. Please go ahead.

A lot of regulatory noise.

Good morning, Ihle. Thanks.

Morning I go we will of course, also for a bit. I mean, in our view, that asset should really help the growth of the firm and the and also the longer term, really given commodity prices, natural political quality, logistics, general market sentiment that FDA has really heard of high loan to be an asset shifted in any way over the past three months.

And then just capital wise, how much cash flow do you anticipate using this site in calendar 2014?

Sorry, Michael, you're not coming in very clear.

I don't think can you repeat the questions?

It's better that way. But I don't think you got perfect formula size with some form of pressure also for a bit. I mean, in our view, the asset should really help growth of the firm and the intermediate and also the longer term given current commodity pricing, Mexico, Mexican political climate and just general market sentiment as your April timeline for the asset shifted in any way over the past few months.

And building on that question, just capital wise, how much cash flow do you anticipate using for the site in calendar 24?

Well, first of all, the grade that we're going to be mining there is much higher than what we're mining now. So we're excited about that time. Line basically hasn't started until we get the blessing of the heroes, which were we think we're in the 11th inning. We've gone back and forth. They've been discussing at their assemblies so we think possibly before the end of the year, we could have an agreement in place and there's aboveground stockpiles that we can start processing right away.

Yes.

On the on the cash flow side of things. Obviously, as David mentioned, we expect to generate a lot of cash flow from our BCOs and some. But as far as the development and paying for that. And one of the nice things is we will be developing in ore as we start to let us use as we follow our mine plan. But as well, the up with Vinod. We do project to generate cash flow in Q4 and continue into 2024.

So we'll have some cash flow to invest in the initial the initial mine plan is on the Gloria vein, which is really close to the surface. So it's not going to be very expensive and the aboveground stockpiles will pay for a lot of it enough.

And then on the oxide tailings project seems to be moving along quite well, not sure if you can disclose any of this really, but have there been any impact positive negative anything compared to what you had previously anticipated for the assets? I mean, anything that you've seen as the study is getting together are?

Yes, Heiko, thank you for the question on a couple of things to note, actually, we have a lot of construction experience. That's something that we've done well with the expansion in circuit for with the dry stack tailings. And that experience directly translates to accurate predictions and pricing for this plant. And that's going to be lower cost than typically what would an engineering company with spec for this so we feel that we'll be accurate with our construction costs based on our experience and the big changes we went from looking at a heap leach to Dynamic Leaching, which is contains.

Yeah. So I mean, if I just wanted to maybe I've summarized the changes that we've seen when we did that drilling, we also found a lot more material. We increased our resource significantly, and that was updated in the resource. And certainly we'll have reserves that come out of this pre-feasibility study and that's that will be forthcoming. I can't say too much on that, but that would be a big, a big change, as David mentioned, the change in process from heap leach to Dynamic Leaching. And then finally, our construction experience to you really are dialing accurate costs that are lower than industry average.

There are no valuation or as part of my questions related to things in the future, that's by design and not a coincidence because I think the future potential is quite large. And with that, I'll go back in queue.

Thank you very much.

The next question is from Jacob Sekelsky with Alliance Global Partners. Please go ahead.

Hey, David may have been so impressed for taking my questions project. So it's just starting from a high level. I mean, the strength of the peso is something negatively impacted producers across the board in Mexico this quarter. I was just wondering if you can touch on that in half it's a cost and maybe on any hedging programs you have or you plan to engage in going forward?

Yes, I heard Jack Nathan here. So obviously you can see across all the producers in Mexico, the impact this has had even the developers or anyone really. So this is not something we didn't see this in the second quarter as well, probably worse than the second quarter actually but then there's been a little bit of an improved third quarter.

And so we're actively managing kind of our foreign exchange rates, especially because know we have we pride ourselves in spending a lot of money in pesos because we're with local contractors and suppliers, and we have a 100% Mexican labor force down at site. And so that obviously is something that does have a direct impact on us as far as hedging from and programs we do monitor and we are continuing to track in our projections for the peso, a lot of sentiment is that it will back off.

But having said that, when we're going through our budget process for next year, we'll be looking at some alternatives for managing the pace of kind of hedging being one.

Okay. That's helpful. And then just more of a housekeeping item. So the CapEx was just under $2 million in Q3. Is that sort of a baseline level we should expect going forward heading into next year? Or do you have any larger sustaining capital items that you see popping up over the next year?

And for us again, Nathan here so for Q4, probably fairly light on the lease, ideally a bit lower. We do have some larger capital maintenance items. We have to do some overhauls of some equipment that will be likely in 2024.

But also looking towards La Preciosa, which, as you noted, isn't exactly sustaining capital, that's growth capital for us we have acquired some equipment for that, but we will need more and as well, obviously, some of the cash flow generated from Avino is earmarked for development.

We've got the most important piece equipment of new jumbo.

Yes, yes, we are driving the ramp so we have gotten this equipment ahead of time, stuff that can be used to be, you know, in the meantime, but can be transferred over to leprosy also as soon as we get the agreement.

Okay. Makes sense. That's all for me.

Thanks again. Thanks, Jake.

Next question is from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.

Thanks, operator. Good morning and thanks for taking my call. Just a couple of operational questions for you. First up on the you mentioned you hold out spectrum 270,000 tons, 27,000 times to service, about 30% more than you milled on. What's the nature of those tons are they like low grade going to a low-grade stockpile? Or are you building out a stockpile? Is it reflecting increased efficiency from the mining side? Could you talk about that a little bit?

Yeah. Thanks so much, Matt. That's a great question we have. And so if you remember last quarter, we improved our ramp conditions on and that's dramatically improved. The ability to haul from underground. So we have been hauling the mine's been outperforming the mill, so to speak, and that's building a stockpile, and that would be actually high-grade stockpiles.

The issue with some of this material and say the issue or the challenge with that is some of those boulders are quite large. So we needed a rock breaker that is now on site to break some of that material. So in Q4, we look to be slowing haulage a little bit to it to draw down on those stockpiles, which will help improve our costs certainly on as well as see some very good grades that go through the mill is what we're working in right now.

Okay. That much good. And then just another question on the mill itself. I know you've made some modifications there, but we know last couple of quarters we've seen recoveries trend down both for silver and copper. Can you discuss that a little bit? And can we expect to see that and those recoveries move back up?

Yes.

I think the simple answer is yes. I think we can expect those recoveries and grades to move back up. And the reasoning for the decrease in grade is we didn't have a piece of the rock breaker on site to break some of the larger oxidized material.

And as a result, we had a higher percentage of the fine material was oxidized. So that has a twofold effect, one, the grade's a little bit lower and then the recovery rates are a little bit lower. And you're when you're starting with the lower grade, even if you have the same tailings grade, your recovery ends getting hit a little bit.

So it's kind of that the double whammy, the nice side, the nice or the fact is that we are now through that material. We have the rock breaker. We're now breaking those larger builders that have the higher grade material and we're already seeing the higher recovery and greater demand.

And the automation has worked well. It's just a few key pieces of equipment were delayed in arriving that affected certain circuits.

Okay. And is that oversized material a comment that you've had or is that a function of different or different are or you need to work a bit more on some of your some of your blasting hasn't had a material effect?

But yes, that's a fair question.

No. As far as blasting, we have we have a lot of rock mechanics consultants come in and we've kind of optimized the blasting. It's kind of the nature of the ET. ore body is that sometimes you get some relatively large boulders in different sections.

And so you just you need a you need a rock breaker on surface to send some of that through the Stockwork systems when they place the shock goes down where the fractures are and it just happens, we've had experts on-site, as you said, and we've optimized it as best we can so we just get some slots as to David's point.

Good. That's it for me. Thanks. Thanks for filling in those gaps.

Appreciate it.

Thank you.

(Operator Instructions) Richard Mangold, a private investor. Please go ahead, sir.

Good morning, fellow. Thank you for taking my call. I have a quick question in reference to wanting more color on the third or Helio group and what happens if they choose not to sign, does it go to arbitration or what actually happens?

Well, we're not ahead of that age as well. We're in the final stage negotiations with them or actions by Sam.

Pardon me, Ms. China, ongoing amendments to our bank EPS figure funding to pay for getting our snowpack getting off now?

Yes, that benefit for high to.

Yes. So we're in the latter stages of negotiations and they want the agreement in place so it's just fine tuning it. So it's eminent. But I guess my point is if they choose not to sign what happens they want to sign, they want the economic benefit so it's happening. It's moving forward smoothly.

Okay. Thank you.

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

Well, thank you, everyone, for joining us on this call today. We're looking forward to a better a healthy Q4. So stay tuned for some.

So news from us, we will have the pre-feasibility study completed in Q4. So hopefully we can get that news out to you before year end. If not, it'll be early in January. So thanks again and have a great day.

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