Avino Silver & Gold Mines Ltd Q2 FY2024 Earnings Call

Welcome to the Avino Silver & Gold Mines Second Quarter 2024 Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. 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 second quarter 2024 financial results conference call and webcast. To join this webcast and conference call, there is a link in our news release dated July 16, 2024, and in our news release of yesterday's date, which can be found on our website under News 2024. In addition, a link can be found on our home page of the Avino website. 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 of 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. Then click on financial statements. As well, the full statements are available on Avino's 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 from this conference call and webcast will be available on our website. Also, please note that all figures stated are in U.S. dollars unless otherwise noted. Thank you. I will now hand over the call to Avino's President and CEO, David Wolfin. David?

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q2 2024 financial results conference call and webcast. We will cover the highlights of our financial and operating performance, and then we will go over the work we are currently performing, followed by Q&A. I will start with a discussion on operations, and then I will turn it over to Nathan Harte, Avino's CFO, to discuss the financial performance for this period. And then Jennifer North, our Head of Investor Relations will present our overview of Q2 ESG initiatives. Please turn to Slide 5 as we go through the production results. Our Q2 production results were released in mid-July and are as follows: Silver equivalent production was 617,000 ounces, silver production was 293,000 ounces, a 26% increase compared to Q2 2023. Copper production was 1.3 million pounds. Gold production was just over 1,500 ounces. Mill throughput was 141,000 tonnes. Our second quarter production results remain consistent, up 5% over the second quarter of last year. In addition, we were able to start processing La Preciosa surface stockpile material through our mill. Almost 10,000 tonnes were processed from La Preciosa stockpiles in Circuit 1 and Circuit 2 with excellent recovery rates, particularly silver, which exceeded our expectations. This helped contribute to a 26% increase in silver ounces produced in the quarter which we expect to grow significantly when we are able to commence mining and processing underground material from La Preciosa. I would also like to mention that the silver grades achieved in La Preciosa surpassed what we anticipated, which adds to the excitement we feel from the future of La Preciosa. The last two weeks of production for the quarter were slightly impacted due to repairs being carried out on one of our cone crushers, a smaller crusher was utilized to minimize downtime in the mill, and it is now back to full mill capacity. We continue to be on track with our targeted full-year production of 2.5 million to 2.8 million ounces of silver equivalent. Our five-year growth plan aims to increase production levels from 2.5 million to 2.8 million ounces of silver equivalent in 2024 to between 8 million and 10 million ounces of silver equivalent by 2029. Continuing on to Slide 6. We will review our Q2 milestones and ongoing initiatives. As mentioned before, La Preciosa represents a key pillar in our transformational growth strategy and hosts a large endowment of silver and gold resources which we expect to process for years to come. Updates for the quarter include the application for the environmental permit was submitted by the company to relevant authorities. Following the feedback received in this quarter, the company's response has been resubmitted with minor modifications. A further permit application will be submitted shortly after receipt of the environmental permit, which is required to commence the construction of the portal, haulage ramp and the mining of Gloria and Abundancia Veins. This marks the start of a new era for Avino and the nearby communities around La Preciosa, bringing economic benefits that have been absent for years. Early in the quarter, the haulage of old stockpiles from La Preciosa to our mill at Avino for processing was completed. In early June, I traveled to the Durango operations spending time at both Avino and La Preciosa. At La Preciosa, we were able to see that surface works are ongoing in preparation of commencement of mining and the construction of office and outbuildings are underway. In addition, we were pleased to see the preparation of the surface portal location is progressing in anticipation of receiving the underground mining permit. We're confident that the necessary work is progressing on schedule, ensuring we will be well prepared to commence mining as soon as the permits are granted. I encourage you to view the La Preciosa section on our website for pictures taken on our last visit. At this time, I will now hand it over to Nathan Harte, Avino's CFO to present Avino's Q2 2024 financial 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. Now turning to Slide 7 for a summary of the key financial highlights for the second quarter. Our second quarter delivered record revenues and significantly improved financial performance with $14.8 million in revenue and $4.7 million in gross profit. On a cash basis, gross profit was $5.9 million with a margin of almost 40%. We had net income of $1.2 million or $0.01 per share and adjusted earnings was $4.3 million or $0.03 per share, both improved over previous quarters. Operating cash flows before working capital movements were $3.6 million or $0.03 per share, and we ended the quarter with cash on hand of $5.3 million, much improved from previous quarters. As highlighted on our last call, our working capital position has improved significantly with the balance of $13.6 million at quarter end, three times higher than where we were just 12 months prior. As we look to move forward with La Preciosa, our balance sheet strength will be key over the coming months. Coming to Slide 8, I'll walk you through the details of our financial results, which were not touched on in the highlights. I do want to highlight again the record quarterly revenue of $14.8 million and high gross profit of $4.7 million. We see positive improvements in all financial metrics for the second quarter when compared to Q2 of 2023. As noted, on a cash basis, gross profit was $5.9 million, representing a 40% cash operating margin, our highest since operating the Avino mine as a full-scale underground production operation. Moving to the year-to-date columns. Again, we see increases across all metrics, with revenues up 43% and gross profit up 143% compared to the first half of 2023. Net income was $1.8 million or just under $0.015 per share with EBITDA coming in at $5.1 million. Adjusted earnings paints a similar picture with improvements compared to 2023 with $6.4 million or $0.05 per share generated in the first half of 2024. Cash flow from operations before working capital movements was $5.2 million compared to $2.3 million in the first half of 2023. On a per share basis, the first half of '24 generated $0.04 with the comparable '23 period being $0.02 generated. After working capital adjustments, cash flow from operations generated was $3.4 million, with the company making considerable improvements to its working capital and liquidity positions since the end of the year. For 2024, we have been free cash flow positive, if only slightly, as working capital movements did have an impact with efforts already mentioned. Here on Slide 9, you can see our cost per ounce figures for the second quarter did bump up slightly from Q1. However, they do remain in line with 2023 and will be looking to improve for the rest of the year as the Mexican peso has weakened significantly since June 30. Lower ounces sold in Q2 versus Q1 did have an impact on our cash cost and all-in cash cost figures. Our cash cost per ounce number for Q2 came in at $16.29. As you can see on the chart, this was in line with most of last year, but there is definite room for improvement in the rest of 2024. All-in sustaining cash costs per ounce came in at $22.74, slightly below Q2 of last year, but definitely up from the first quarter of this year. Again, there are additional improvements that can be realized throughout the rest of 2024. Coming to Slide 10, you can see our cost per tonne processed for the quarter came in above recent quarters, solely due to the fact that we processed fewer tonnes in Q2 versus previous quarters. As we noted in our production release, we did have some crushing equipment issues, which did impact June and early July mill throughput. This led to decreased Avino tonnes processed by about 20% in Q1, hence the increased cost per tonne for this quarter. With mill availability back up to expectations, the latter part of the year should see improvements. Cash cost per tonne processed came in at $66.79 per ton, and all-in sustaining cash cost per tonne processed tells a similar story at $92.31, both above recent quarters. The Mexican peso held its strength leading up to the election in early June, which did continue to impact our cost structure as the majority of all expenditures are incurred in Mexico with local suppliers, employees, and contractors. With the peso weakening following the election, we have seen some relief and are taking measures to protect our cost structure for the rest of the year. With metal prices remaining elevated in anticipation of La Preciosa, we're looking forward as our focus shifts to the growth side throughout the rest of '24 and into 2025.

Thank you, Nathan. Moving on to Slide 11, we have listed our ESG CSR initiatives that were completed in the second quarter of 2024. Avino follows the ESG standards and the United Nations Sustainable Development Goals or the SDGs that work together to address the most pressing challenges facing the world. The 17 SDGs are integrated, which means that an action or goal in one area can or will affect outcomes in other areas. In the second quarter, Avino's ESG initiatives were focused on the following SDGs; Number three is good health and well-being, which is defined to ensure healthy lives and promote well-being for all at all ages. Number four is quality education, which is defined as to ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. Number five is gender equality, which is defined as to achieve gender equality and empower all women and girls. And number nine, industry innovation and infrastructure, which is defined as to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. Avino's commitments in these areas during the quarter were accomplished through the following: There were medical terms performed to our Avino personnel at site, which positively impacts our teams as well as their families, helping to maintain a health work and home environment. If we look at how some of these goals are integrated, you could say that health care services can be considered a major gateway to advancing economic opportunities for women. When women have adequate resources to care for themselves and their families, they unlock a world of potential for themselves, their communities, and nations. Avino's diverse and inclusive workforce includes nearly 16% women among our employees. During the quarter, we celebrated and honored our working mothers and the women and the communities on Mother's Day. We then celebrated and honored Father's Day in the communities. The CSR team posted and commenced summer workshops for the children in the communities. Avino provided material and assistance with the installation of a new cattle guard, Avino donated furniture for community events and sheet metal for roof replacements in the community. Finally, one of Avino's top CSR priorities is to create employment opportunities for residents and nearby communities. Aiming to cultivate generations of passionate and committed advocates for Avino or as we like to say, ambassadors of Avino. We aim to educate the younger generation about local resources motivating them to appreciate the benefits of mining and envision a future where they can pursue rewarding careers in their own community. Currently, we have 472 direct jobs with our female workforce representing almost 16% of that. This number of jobs will typically translate to three times the number of indirect jobs or services, consultants, and suppliers in the certain communities in the Durango area. 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 12. We were happy to see the second quarter rally in metal prices with silver outperforming gold at times. The higher grade seen in the second quarter from La Preciosa furthers the confidence we have in our strategy to focus on transformational growth with our two mines in Mexico, coupled with the demand for silver, gold, and copper. We are well into the third quarter of 2024, and our ongoing priority is proceeding with our plans for the Gloria and Abundancia veins at La Preciosa. Community engagement is ongoing as we ready ourselves to begin development work. In addition, we are currently mining at Level 14 at Elena Tolosa where we expect to yield higher grades at the beginning of Q3 and then level off during the remainder, the leveling off is due to the planned mine sequencing. As outlined on Slide 13, we want to reemphasize the company's growth plans. We have three assets within a 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 from our Avino mine. Additionally, access to water, power and tailings storage, all ingredients to grow organically without the major capital investment required that we expect if we were starting from scratch. As you can see on this slide, our goal is to scale up by 2029 through production from these three assets. By capitalizing on our existing assets and resources, we can execute our growth plans efficiently and effectively. This approach not only mitigates risk associated with new project development, but also positions us for the long-term success and value creation. We would now like to move the call to the question-and-answer portion. Operator?

Thank you. We will now begin the question-and-answer session. Your first question this morning is coming from Jake Sekelsky from Alliance Global Partners. Jake, your line is live, please go ahead.

Hey David, Thanks for taking my question. So you mentioned the processing of 10,000 tonnes of stockpiled material at La Preciosa. I'm just curious, is this something we should expect to continue in the second half? And can you maybe quantify the remaining stockpile there?

Jake, this is Peter. Yes, this will continue in the second half, and it looks like we have about 5,000 tonnes left.

Got it. That's helpful. In that same vein, do you have any color on what the ramp-up at La Preciosa underground might look like into next year? I mean is there a level of throughput you'd like to see go through the mill from La Preciosa to next year?

Yes. We are currently focused on obtaining the necessary permits and beginning construction. We have various plans in place for ramp-up depending on how quickly we can move equipment. It's important to align this with the capacity of our circuits, which include two circuits at 250 tonnes per day and two circuits at 1,000 tonnes per day. We are trying to match the output from La Preciosa to our circuit capacities, and we are exploring different scenarios based on our timing.

Got it. Okay. Do you think you might see some more color on those scenarios as the permits come in and you start getting underground?

Absolutely.

Okay. Very good. That’s all for me. Thanks again.

Thank you. Your next question is coming from Joseph Reagor from ROTH Capital Partners. Joseph, your line is live. Please go ahead.

Hey, David and team thanks for taking the questions and congrats on a good quarter.

Thank you.

So on this cone crusher you had, should we expect any costs to roll into Q3 from the repair? Or was it relatively minor?

Good question, Joe. Nathan here. Regarding capital expenditures, we have a few replacement costs and additional components as well as labor to get things moving, but nothing significant overall. We are actually under budget in some areas of capital expenditures, so we will be reallocating funds from one category to another. As for operating expenses, we anticipate processing slightly fewer tonnes in July, which may have a minor impact on costs, but again, nothing significant.

Okay. Fair enough. And then you mentioned the Mexican peso. Can you give us kind of a brief reminder of what level of impact move in the peso can have on overall cost for the company?

Yes. It's a fantastic point. So I mean, right now, it's around 19:1, I believe, as of this morning, whereas in the first quarter and most of Q2, we were talking 16 to 17 range. So that's 10% to 15% swing, if not more. So that does have a significant impact. We'd say 80% of our costs are paid in pesos in country. So can do some quick math in that there, but we should have a meaningful impact on cost for assuming it stays at this level.

Great. I'll turn it over. Thanks guys.

Thank you.

Thank you. Your next question is coming from Matt O'Keefe from Cantor Fitzgerald. Matt your line is live. Please go ahead.

Thanks, operator. Good morning, everyone. Most of my questions have been answered, but I would like to revisit the issue regarding the peso. Could you clarify what percentage of your overall costs is related to the peso?

Yes.

The total booking was for 70 days. If this trend continues, it should be beneficial. Regarding the cone crusher, I understand you mentioned this earlier. It seems it will have less impact on throughput in Q3 compared to Q2. Is that an accurate assessment?

That's correct. Yes.

Okay. That was really all I had. So thank you. And nice to see the working capital go up pretty nicely this quarter.

Thank you.

Thank you. Your next question is coming from Chen Lin from Lin Asset Management. Chen your line is live, please go ahead.

Hi, David and team. Thank you for taking my questions. Great quarter, congratulations.

Thank you.

So if you can get some color what kind of CapEx do you expect to get the La Preciosa fully online?

Fair question. Nathan here. We provided our guidance at the beginning of 2024, and that remains unchanged. We expect to spend about $3 million to $5 million to initiate operations at Gloria and Abundancia. As we increase our activities, there will be additional development costs. However, that is our plan for the initial phase of development and mining.

Most of the infrastructure is there; the buildings, access, power, roads, water, everything is there. So it's a dream come true for us.

Okay, great. Good luck with the permit. I just want to confirm that you processed 10,000 tonnes of stockpile and have 5,000 tonnes remaining, correct?

That's correct.

Okay. Great. Thank you. Good luck with your permit.

Thank you., Chen.

Thank you.

And there are no further questions in queue at this time. I would now like to turn the floor back to David Wolfin for closing remarks.

Thanks, everybody. As we mentioned, La Preciosa is the key pillar to our growth. So the next big milestone is getting that permit and start tunneling underground to the initial mining area, which is about 350 meters away from the surface. So we'll get in there quick. And we're thrilled about the grade. The grade doubles, the silver grade at Avino. So stay tuned to watch our growth, and we'll be reporting as soon as we get those permits. Thank you.

Thank you. This does conclude today's conference call and webcast. You may disconnect at this time, and have a wonderful day. Thank you for your participation.