Avino Silver & Gold Mines Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2024

There are 9 speakers on the call.

Operator

Welcome to the Avino Silver and Gold Mines Third Quarter 2024 Financial Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Jennifer North, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to the Avino Silver and Gold Mines Limited Third Quarter 2024 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated October 17, 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 the homepage of the Avino website. On the call today, we have the company's President and CEO, David Wolfen our Chief Financial Officer, Nathan Hart our Chief Operating Officer, Carlos Rodriguez and our VP, Technical Services, Peter Latta.

Speaker 1

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 full financial statements and MD and A are now available on our website under the Investors tab and then click on Financial Statements as well as the full statements are available on Avino's profile on SEDAR Plus and on EDGAR.

Speaker 1

Just a reminder 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.

Speaker 1

Thank you. I will now hand over the call to Avino's President and CEO, David Wolfen. David?

Speaker 2

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q3 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 that we are currently performing, followed by a Q and A. I will start with a discussion on operations, and then I will turn it over to Nathan Hart, Avino's CFO, to discuss the financial performance for the period. And then Jennifer North, Head of Investor Relations will present an overview of Q3 ESG initiatives.

Speaker 2

Please turn to Slide 5 as we go through the production results. Our team delivered a strong Q3 with total equivalent production results increasing by an impressive 13% over the Q3 of last year. The full Q3 production results were released in mid October and are as follows: silver equivalent production was 671,000 ounces silver production was 282,000 ounces, a 19% increase compared to Q3 2023 Copper production was £1,800,000 Gold production was just over 1600 ounces. Mill throughput was 157,000 tonnes. Moving on to Slide 6.

Speaker 2

We will review our Q3 updates beginning with the Avino mine. It was a strong quarter from an operational standpoint, with higher realized metal prices from all three metals and improved unit operating costs. The company demonstrated strong cash operating margins and a reduction in cash costs on both per ounce and per tonne basis. Next, mill availability, together with higher grades and recoveries in silver and copper, put us back on track for a production guidance of 2,500,000 to 2,800,000 ounces of silver equivalent for 2024. In addition, we resolved ore crushing challenges that were experienced in June July.

Speaker 2

Now moving on to La Preciosa. We continue to process La Preciosa historical stockpile material as part of the sampling program to prepare for fresh mill feed. The initial recoveries from the lower grade material were better than expected and provide potential upside as the project moves forward. The operations teams are in the last phases of securing approvals to move ahead with underground development at La Preciosa. As the next phase of our growth strategy, La Preciosa is an important component of our transformational growth plan.

Speaker 2

Our 5 year strategy aims to increase production targeting between 8,000,000 and 10,000,000 ounces of silver equivalent by 2029. At this time, I will now hand it over to Nathan Hart, Avino's CFO, to present Avino's Q3 2024 financial results. Nathan?

Speaker 3

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 7 now for a summary of the key financial highlights for the Q3. The Q3 built off Q2 with another quarter of improved financial performance. We generated $14,600,000 in revenues and a quarterly record of $5,700,000 in gross profit.

Speaker 3

On a cash basis, mine operating cash flows before taxes was $6,700,000 representing a 45% margin and is our highest in recent history. We had net income of $1,200,000 or $0.01 per share and adjusted earnings came in at $5,000,000 or 0 point were $4,100,000 or $0.03 per share and we ended the quarter with cash on hand of $7,800,000 again much improved from the previous quarters. Our working capital position continues to improve with almost $16,000,000 at quarterend, a further improvement of $2,000,000 in the quarter and over $6,000,000 improved from the end of 2023. As highlighted in our last call, balance sheet strength will be key over the coming months as La Preciosa development gets underway. Turning to slide 8, I'll walk you through some of the details of our financial results, some of which I did touch on the previous slide.

Speaker 3

Again, highlighting gross profit of $5,700,000 in mine operating cash flows before taxes of 6,700,000 we saw further improvements in all financial metrics for the Q3 when compared to Q2 and Q3 of 2023. Our gross profit margin was 45% on a cash basis. This further exceeded our prior record of 40% margin from last quarter, taking the crown as our highest since operating the Avino mine as a full scale underground production operation. Other figures for Q3 not previously discussed are CapEx and free cash flow at the bottom of the table with CapEx being flat period over period and we saw a meaningful positive swing in free cash flow of over $4,000,000 as we generated $2,300,000 in free cash flow in Q3. This is compared to $1,900,000 in cash flow used in Q3 of 2023.

Speaker 3

Moving over to the year to date columns. Again, we saw increases across all metrics with revenues up 33% and gross profit up 142% compared to the 1st 9 months of 2023. Net income was $3,000,000 or 0 point 0 $2 per share with EBITDA coming in just shy of $9,000,000 Adjusted earnings paint similar picture with improvements compared to 2023 with $11,400,000 or $0.08 per share generated so far this year. Cash flow from operations before working capital movements was $9,100,000 compared to $4,100,000 in the 1st 9 months of 2023. On a per share basis, this year has generated $0.07 with the comparable 2023 period being $0.03 generated.

Speaker 3

After working capital adjustments, cash flow from operations generated was $7,600,000 compared to just under $1,000,000 in the 1st 9 months of 2023. For 2024, we have been free cash flow positive with $2,600,000 generated. This is a meaningful swing from the $6,500,000 used in 2023 and is a testament to Avino's operational performance in Q2 and Q3 of this year. Here on slide 9, you can see our cost per ounce figures for the 3rd quarter improved from Q2 and back to our expected trend line, even with lower ounces sold than expected. We highlighted our expectations for a reduction in costs on our Q2 earnings call and we are pleased with the improvement.

Speaker 3

The reduction was primarily a result of increased mill availability and strong production grades and was further aided by the Mexican peso showing some weakness against the U. S. Dollar in Q3. Our cash cost per ounce number for Q3 came in at $14.94 As you can see on the chart, this was improved from last quarter and from Q3 of last year and below the 2024 average to date. All in sustaining cash cost per ounce came in at $22.06 decreasing from last quarter.

Speaker 3

This was also impacted by lower ounces sold as we do expect further reductions. The lower ounces sold in the period were rebounded in August September however and our strong September production did remain in concentrate inventory at September 30. ANSYS sold subsequent to September 30 have been higher than previous months and we look forward to reviewing our Q4 figures. Coming to Slide 10, you can see our cost per tonnes processed for the quarter was materially improved from last quarter. We see more improvement compared to Q2 on this slide versus the cost per ounce slide as there was no production to sales time gap.

Speaker 3

On a cash cost basis, we came in under $50 per tonne, a decrease of 27% from last quarter, which demonstrates the operational strength of our team. Running an underground mine at these cost levels is a tremendous achievement. This quarter's operational results brought our average for the year down to $55,000,000 68 and is more in line with our lofty expectations at the Avino mine. All in sustaining cash cost per tonne process tells a similar story for the quarter at $72.15 below recent quarters and in line with Q1 2024. The average for the year so far is $78.46 and this is where we expect to be rounding out the year.

Speaker 3

With the Mexican peso weakening since the election, the pressure on our cost structure has eased. We are taking measures to protect our cost structure for the rest of the year and into 2025, especially with the recent strength of the U. S. Dollar. With metal prices remaining elevated and the anticipation of La Preciosa, we are looking forward as our focus shifts to the growth side throughout the rest of 'twenty four and into 'twenty five.

Speaker 3

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

Speaker 1

Thank you, Nathan. Moving on to slide 11, we have listed the ESG CSR initiatives that were completed in the Q3 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. 3rd quarter activities were focused on SDG 4, Quality Education SDG 6, Environment, Clean Water and Sanitation and SDG 9, Industry Innovation and Infrastructure to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. In the communities, the following support was provided.

Speaker 1

In San Jose do Avino, bridge work to prevent overflows during rainy season, road maintenance, installation of a new bell in the Avino church, landfill maintenance and delivery of school supplies. In Ignacio Zaragoza, there was water irrigation work done for a special celebration, landfill rehabilitation and a social perception study focused on how to motivate future generations in the communities. In Panuco de Coronado, we are looking to assist the community in coordinating better health systems. For all the communities, we are looking into various community programs that Avino can help collaborate between company, seed capital and state government, food, health, construction and education. Currently, we have 471 direct jobs.

Speaker 1

This number of jobs will typically translate to 3x the number of indirect jobs for services, consultants and suppliers in the surrounding 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?

Speaker 2

Thanks, Jen. Moving to Slide 12. We are thrilled to see the metal prices continue to rally in the Q3 and continue to remain strong. Our solid production results position us favorably as we prepare to achieve our transformational growth objectives through the advancement of La Preciosa. I would like to thank our operations teams for doing a tremendous job in Q3 by keeping costs down while increasing production.

Speaker 2

We have seen higher grade material continue well through October and for the 1st part of November. We continue to prioritize our plans for La Gloria and Abundancia veins at La Preciosa. In addition, we are currently mining at level 14 at Elena Tolosa, and we expect to move up to level 12.5 later in the quarter, where we expect higher silver grades. As outlined in Slide 13, we want to reemphasize the company's growth plans. We have 3 assets within a 20 kilometer footprint, totaling 100 of 1,000,000 of silver equivalent mineral resources.

Speaker 2

In the same area, we have an operating mill complex, which is currently producing from the Avino mine. Additionally, access to water, power, tailing storage, all the ingredients to grow organically without the major capital investments required that would 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.

Speaker 2

We'd now like to move the call to the question and answer portion. Operator?

Operator

Certainly. Thank you. We will now begin the question and answer Your first question for today is from Heiko Ihle with H. C. Wainwright.

Speaker 4

Hey, David and team. Thanks for taking my questions.

Speaker 2

Hi.

Speaker 4

Hey. Let's talk about the production increase at the Avino mine. I just this morning went through your October 17 production press release again. May I ensure you pin the strong production on low performance and availability? At this point, we're more than 2 days, we'll be halfway through Q4.

Speaker 4

Would it be fair to model the same performance, uptime, availability, etcetera, for Q4 as what you saw in Q3 or have there been any impacts that may change these things either positively or negatively?

Speaker 5

Heiko, thank you very much for

Speaker 6

the question. I think that's fair at this point. December obviously is a bit slower month with the amount of holidays that we have. But I think what we've seen so far has been a continuation of that. But we're always conscious going into the holiday season and certainly it's a very important season to our Mexicans.

Speaker 4

Okay. Just maybe a question for Nate, but I'll throw it in here anyways. You had mine operating cash flow of $6,700,000 in the quarter.

Speaker 7

Do you

Speaker 4

guys have a sensitivity analysis or just some guidance maybe even to the impact of the $1 change in the price of silver has on your mine operating cash flow, maybe even for the fiscal year Q4 and then if you want to take a crack at it, maybe even for 2025 given some of the cost increases that are probably especially in the longer term associated with the higher commodity pricing?

Speaker 3

Hey Heiko, Nathan here. I mean given the length of that question, it's tough to answer that one on the spot. I think from a purely mine operating cash flow perspective, I mean, at that level, a dollar increase is pretty close to 100% obviously. And we have seen improvements on the cost side. But as I mentioned, just with that, there's a lot of other inputs that go into mine operating cash flows.

Speaker 3

So if everything remains constant, sure, it's dollar for dollar, but there are a lot of other inputs that go into that. Happy to discuss that one offline if it's easier.

Speaker 4

I think that may make more sense. I'll get back in queue. Thank you.

Speaker 2

Thank you. Thank

Operator

you. Your next question is from Jake Sekelsky with Alliance Global Partners.

Speaker 7

Hey, David, Nathan and team. Thanks for taking my questions.

Speaker 2

Good morning, Jake. Good morning, Jake.

Speaker 7

So starting with the stockpile material, Elauparaiso, can you just remind us what's remaining on those stockpiles? Just trying to get a sense of how we should be looking at that heading into 2025?

Speaker 6

Yes. I think we've processed all that we're going to process from it. We sampled a lot of different areas to just get an idea of the grade. And I think we've processed through what we want to process.

Speaker 7

Got it. Okay. And staying in that vein, as we're getting near the underground at La Preciosa, can you just touch on sort of some of the development costs that you see coming in the next few quarters to reach fresh ore and maybe even the timing of that material getting to the mill?

Speaker 3

Sure. Jake, Nathan here. I think Key obviously is getting into the underground and getting started and that will determine the exact timing of the capital spend and the development costs there. In our 2024 guidance, we did put out CapEx estimates about $3,000,000 to $4,000,000 in cost associated with that initial development. And we're still thinking that that's probably accurate.

Speaker 3

Having said that, with an improved balance sheet, we are looking at ways to increase how we can or to increase the throughput much quicker, I guess accelerate those plans. So we'll provide a bit more color to that probably early in the New Year. But as of now, yes, we still stick with the same guidance we had.

Speaker 7

Got it. Okay. And then just lastly, Nathan, you touched on the weakening peso on the back of the election. Are you getting a bit more aggressive on hedging there? Or is that something that you're going to be working through as you get through 2025 budgeting?

Speaker 3

Yes, it's a pretty topical question. Obviously, I'm sure we're not the only ones looking at it right now. We given the weakness we saw and especially in 2023 and all the way up to the essentially the Mexican election, we are taking some measures to protect ourselves, especially above this 20, 20.5 range from peso to USD. So yes, we are definitely taking some measures to make sure that for 2025 budgeting purposes, we have an expected peso rate that we can use and accurately stick close to, just it helps with cost management. And it has been quite volatile this past year and we want to make sure that the company is set up good for 2025.

Speaker 3

But metals remain unhedged? Yes. David, as David said, we do not hedge any of our metals.

Speaker 7

Okay, very good. That's all for me. Thanks again.

Speaker 3

Thank you. Thanks.

Operator

Your next question for today is from Joseph Reagor with ROTH Capital Partners.

Speaker 8

Hey, David and team. Thanks for taking the questions. I guess first at La Preciosa, can you guys give us just an updated outlook on your timeline there as far as what items still need to happen and when?

Speaker 2

The final item that needs to happen is the military needs to go to site to check the building that we've created we built to house the explosives. That's it. We've satisfied everything else.

Speaker 5

Okay.

Speaker 8

And the timeline on that so you guys can get going with the underground development?

Speaker 2

It's up to them, but we're hoping before the end of the year.

Speaker 8

Okay, great. And then, I guess, a question for Nathan on taxes. Your effective tax rate has been a bit elevated the last two quarters. And I've seen that with a couple of other Mexican based mining companies. Is there anything we should be reading into that?

Speaker 8

Or is it just a timing thing?

Speaker 3

That's a good question. I think a lot of it you can see at least from our perspective is a chunk of that is on the deferred side, which is more so reflective of the people using up their tax losses they would have generated in probably 2023. I know that's the case for us. So I would think that should stabilize a little bit. And on the current side, yes, I mean, obviously Q2 and Q3 were very profitable quarters for us.

Speaker 3

So we're paying our fair share to the Mexican government.

Speaker 2

But when we get La Preciosa up and running, we have significant tax losses to carry forward that we inherited from core.

Speaker 3

Yes. So there should be some relief there, as we get La Preciosa moving.

Speaker 8

Okay. Thanks.

Speaker 5

I'll turn it over.

Speaker 2

Thank you.

Operator

Your next question is from Matthew O'Keefe with Cantor Fitzgerald.

Speaker 5

Thanks, operator. Good morning, everyone. Most of my questions were answered, but I just wanted to ask just on the sustaining capital. I mean, your cost per tonne, that was you're in a very nice range there. Just wondering on sustaining capital, when you're looking at all in sustaining, That bounces around a fair bit.

Speaker 5

Is there a are there any what can we expect sort of going forward as a range? And are there any major at Avino mine, are there any major items coming up? Or are we kind of past most of that?

Speaker 3

There's probably yes, sorry, Matt. Nathan here. There's probably going to be a bit more in Q4 just as we do some upgrades to the crusher mill upgrades. So we expect probably similar to Q3, maybe a bit more. But I think a couple of million a year is kind of what we've guided everyone on the sustaining side.

Speaker 3

And so we think that that will stick. And then of course, obviously, we're going to have capital at La Preciosa and that will be development and then non sustaining capital.

Speaker 5

Right. Okay. And on the peso, you addressed that. I'm just wondering how sensitive are your costs to peso movement?

Speaker 3

Fairly sensitive. I think we obviously get to get our revenue coming in, in U. S. Dollars and with most of our costs in Mexico and a pretty lean team here in Vancouver, we're probably close to 75% on the peso with some capital and operating payments being in USD. But the majority is peso, hence why we're looking to protect from any further volatility in the peso.

Speaker 3

I think we suffered quite heavily in 2023 along with a lot of the other Mexican producers. So yes, that's it.

Speaker 5

Good. All right. That's it for me. Congrats on a good quarter. Really good.

Speaker 3

Thanks, Matt. Thanks, Matt.

Operator

We have reached the end of the question and answer session. And I will now turn the call over to David Wolfin, President and CEO for closing remarks.

Speaker 2

Thank you all for joining our call today. We're very excited about the company's future. We're fully capitalized to reach our goals at La Preciosa and we're maintaining a disciplined approach with strong margins and a clean balance sheet. Stay tuned for encouraging news to follow at La Preciosa once we get the necessary approvals. Have a great day.

Powered by Quartr
Earnings Conference Call
Avino Silver & Gold Mines Q3 2024
00:00 / 00:00