Avino Silver & Gold Mines Ltd. (ASM) CEO David Wolfin on Q4 2020 Results - Earnings Call Transcript

Avino Silver & Gold Mines Ltd. (NYSE:ASM) Q4 2020 Results Earnings Conference Call March 4, 2021 11:00 AM ET

Company Participants

Jennifer North - Manager of Investor Relations

David Wolfin - President, Chief Executive Officer, Director

Nathan Harte - Chief Operating Officer

Peter Latta - Vice President of Technical Services

Conference Call Participants

Jake Sekelsky - Alliance Global Partners

Heiko Ihle - H.C. Wainwright

Joseph Reagor - ROTH Capital Partners

Matthew O'Keefe - Cantor Fitzgerald

Operator

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver & Gold Mines Ltd. Q4 and year-end 2020 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. [Operator Instructions].

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

Jennifer North

Thank you operator. Good morning everyone and welcome to the Avino Silver & Gold Mines Ltd. Q4 and year-end 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 that accompanies 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?

David Wolfin

Thanks Jen. Good morning everyone and welcome to Avino's Q4 and year-end 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 fourth quarter and year-end 2020 financial and operating performance and our plans for 2021 and then we will open it up for questions. Please note that all figures are stated in U.S. dollars, unless otherwise noted.

2020 was a challenging year and although we are relieved to put it behind us, the year can be marked as one of learning, patience and a significant focus on health and safety of our entire company spanning Mexico, Canada and the U.S. The pandemic presented new challenges for our team and I am proud of the way we were united by our shared culture of discipline, flexibility and teamwork that truly made us a stronger company.

I would like to extend a special thank you to the management team in Mexico led by Carlos Rodriguez, who cooperated quickly and responsibly with the Mexican authorities and carried out critical tasks at the mine to ensure the safety of our employees and surrounding communities.

Lastly, I would like to extend my appreciation to our shareholders for their support and patience during the entire year while we experienced the temporary shutdown due to COVID and when we went through the strike at the mine. While strike ended in early October, we have been waiting for the government offices in Mexico to reopen so the agreement with the labor union may be ratified. In the meantime, we completed the comprehensive evaluation and over the last month, various supplies are being ordered and delivered as we look towards startup of operations.

Our fourth quarter operational performance was directly impacted by the 12 week strike at the mine and resulted in no mining activities taking place during the three months ended December 31, 2020. During the quarter, we continued moving forward with the proposed dry-stack tailings storage facility number two which is on privately owned Avino land and is permitted and is currently in the final stage prior to commencing construction. We expect this project to be completed during Q3 2021 and should add an additional eight to 10 years of tailings capacity based on the current mill throughput rate.

We chose dry-stack tailings for its environmental and safety and economic advantages with its high solid content. This significantly improves safety and stability and reduces the need to extract water from local sources by recycling the water removed from tailings. In addition, it requires less land, which in turn, results in smaller environmental footprint.

Over the years, we have been proactive in developing partnerships between the people of Durango and Avino and we are happy to have helped in many ways, including providing maintenance of water reservoir, installed new water pipes and expanded the drinking water network, maintained the neighborhood streets and roads, educated the communities in the importance of mining, delivered sports equipment and maintained sports facilities and provided medical and ambulance services. But above all, we provided steady employment to the people of the poor communities that surround the mine.

Currently, we are in the process of receiving enough PPE and rapid COVID tests so we may ensure that the safety and good health of our workforce and provide employment one again. The restart of production activities is expected to provide significant direct economic benefits and stimulus for the local communities. So we are very much looking forward to that.

During the fourth quarter, silver prices ranged from a low of $22.15 to a high of $26.48 and gold prices ranged from a low $1,870 to a high of $,1940. The metal prices have continued to be volatile, but have stayed close to the highest reached in the third quarter with silver reaching $29.58 early in February and the gold price reaching a high of $1,943 early January. Over the last few days, silver price hovered around $26 and $27 and gold has backed off from earlier highs to around $1,730.

As silver has many industrial applications, we believe it will be of great demand as stimulus in the U.S. gets going. It is also worth mentioning the price of copper as it makes up close to third of our revenue contribution when in production. The copper price has been steadily moving upwards on low inventories and anticipated rebound of the global economy, growth of industrial activities, strong demands by China, global vaccination rollout and weaker U.S. dollar. We hope that our favorite metals will continue to shine. Our sights are set on a positive and brighter 2021.

I will now ask Nathan Harte, Avino's Chief Financial Officer, to present the financial results for Q4 and year-end 2020.

Nathan Harte

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. 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 very strong as Avino continues with its plan to reduce its debt load into 2021, having lowered its liabilities by a further $1.1 million during the fourth quarter. This brings total debt reduction for the year all to over $7 million.

Working capital at December 31, 2020 was $14.7 million, compared to $16.9 million at September 30 and $13.2 million at the beginning of the year. Our cash balance at the end of the year was $11.7 million, compared to $12.5 million at September 30 and $9.6 million at the beginning of the year. During Q4, we generated revenues from mining operations of $1.4 million from silver equivalent ounces sold of 59,000. Avino also reported mine operating losses of $1.3 million for Q4, which includes $1.5 million in standby costs, an increase of $800,000 when compared to Q4 2019.

Losses before interest, taxes, depreciation and amortization were $2.3 million, compared to earnings of $1.3 million in Q4 of 2019. Adjusted losses for Q4 2020 were $200,000, compared to adjusted earnings of $1.6 million in Q4 of 2019. Avino reported net losses after taxes from continuing operations of $1.6 million or $0.02 per share for the fourth quarter of 2020 and $7.5 million or $0.09 per share for full year 2020. It should be noted that net losses for the year includes non-cash losses to $2.7 million relating to the exercise of warrants in which Avino received proceeds of over $3 million.

Our fourth quarter consolidated cash production costs, net of standby costs, was $14.01 per silver equivalent payable ounce sold compared to $13.14 in Q4 of 2019. Due to significantly lower ounces sold in Q4 of 2020, our all-in sustaining cash cost per payable silver equivalent ounce number, which includes standby costs of $1.5 million, increased to $73.08. The full year consolidated cash production costs, net of standby costs, were $10.68 per silver equivalent payable ounce sold, which is a decrease compared to 2019 of 12%. Consolidated all-in sustaining cash costs, including standby costs of $2.4 million for the year, were $20.35 per payable silver equivalent ounce sold, compared to $17.19 in 2020. Again, the increase is a result of fewer ounces sold throughout the year. The standby costs were directly associated with maintaining operations during the temporary shutdown due to the pandemic and the strike action as well as certain severance costs associated with the resolution of the strike.

Revenues for the year from mining operations were $16 million and were derived of 32% from silver, 24% from gold and 44% from copper. Capital expenditures for the full year were $2.2 million, compared to $9 million in 2019. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the third and fourth quarters. All necessary upgrades or projects continued on as planned, which includes the new dry-stack tailings storage facility. On a consolidated basis, the company reduced its general and administrative expenditures by $300,000 or 9% for the full year 2020, compared to 2019.

Finally, I want to reiterate that Avino remains financially strong and exited the year with a strong balance sheet. We have made significant strides in reducing our debt and at the end of the year we maintained over $20 million in liquidity, including our investment holdings. With current debt representing less than 50% of our cash balance at the end of the year, Avino is looking forward to putting the drill bit to work as we recently announced the kickoff of our 2021 exploration drilling campaign for a phase 1 initial 12,000 meters.

I will now hand it back over to David for a discussion on exploration and other exciting plans for what is shaping up to be a great 2021 for Avino.

David Wolfin

Thank you Nathan. Our plans for the first quarter of the year include the drills are churning and we are excited. We have already started the 12,000 meter drill program, which is targeting several areas of Avino property including the Avino vein, the Santiago vein and the El Trompo vein. Future exploration targets may not be limited to these three areas and during the year our priority targets may change if geological interpretations on other areas present enhanced opportunity.

We are currently working on increasing the exploration program with details to be released once an increase in the budget is approved. Continue to ready the mine for startup of operations, continue moving on the dry-stack tailings project, making improvements to the Circuit 4 that will improve gold and silver recoveries through the use of new equipment, Avino's longevity demonstrates a commitment to maintaining our mission, vision and values.

As we enter our 53rd year, we remain diligent in our efforts across our operations with respect to COVID-19 and are working together to keep our employees and communities healthy. We look forward to a positive and productive 2021 together with the potential of continued strengthening of the market and the commodity prices. We thank you for your patience and understanding. We are optimistic for the future and a return to business as usual.

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

Question-and-Answer Session

Operator

[Operator Instructions]. The first question is from Jake Sekelsky from Alliance Global Partners. Please go ahead.

Jake Sekelsky

Hi David and team. Thanks for taking my questions.

David Wolfin

Hi Jake.

Nathan Harte

Good morning Jake.

Jake Sekelsky

Starting with TSF 2, it looks like completion is scheduled for Q3. Maybe if you could give us any color on how far along you are there and the total construction timeline? And I am also curious if you are seeing any delays on sourcing key materials or labor for that due to the pandemic?

David Wolfin

It's on schedule right now. There has been no delays whatsoever. The filter presses have arrived in Mexico, clearing customs. it should be delivered probably within a week or two. Steel works is underway. So everything is moving ahead as planned.

Jake Sekelsky

Okay. That's good to hear. And switching gears to exploration, how much of the Phase 1 program is focused on the Santiago vein? And when do you think we will start seeing some results from that initial program that you did mentioned?

David Wolfin

I think there is, what, about 3,500 meters on Santiago. I think we are on the second or third hole. Anywhere from six to eight weeks to get results, depending on how the lab is and we have also started drilling of El Trompo, which is another 2,000 meters.

Jake Sekelsky

Got it. And following up on that a bit. You mentioned that there is potential for increase in the program. Is that something you think we will see details on in Q2?

David Wolfin

You will see it next week.

Jake Sekelsky

Got it. Okay. Perfect. That's all for me. I will hop back in the queue. Thanks again.

Operator

The next question is from Heiko Ihle of H.C. Wainwright. Please go ahead.

Heiko Ihle

Hi guys. Thanks for taking my question.

David Wolfin

Good morning.

Nathan Harte

Hi.

Heiko Ihle

Just to follow-up. It was a good quarter during a pretty crazy year for Avino and the world in general. With all the exploration that you are doing, what are you seeing with costs for the drilling and probably almost importantly the timing for assay results, please?

Nathan Harte

Hi Heiko. It's Nathan here. So I will take the cost side of things. I don't think we are seeing any significant increases. Obviously, we mentioned a few times we have our own drills and have very good relationships with local drillers of Durango. And so we are not seeing any significant increases even during these kind of unprecedented times. As far as the assay results, I think Dave had mentioned, six to eight weeks turnaround from when we send them off. So hopefully we will get them back in just a month from now on some of the initial stuff and then we will have to asses the results.

Heiko Ihle

With the lack of mining, can you just sort of walk us through what you have been seeing with cash burn so far in 2021, on a month, I guess, January and February basis, mostly at the mine site? Obviously, I assume you can just frontline corporate expenses from Q4, right?

Nathan Harte

Yes. No, that's fair. At the mine site, I would say, right now there is not a lot of expenses going on. It's really just care and maintenance and maintaining the water at ET underground. So it's about a couple hundred thousand dollars probably, yes, about $250,000 per month, I would say.

Heiko Ihle

Okay. Very good. And then lastly, startup expanses or as you called them in the press release, your transitional efforts, you want to just sort of give us an idea how much money we are looking at that you will be required to spend until this thing is fully up and running, please?

Nathan Harte

Sure. Yes, I think we are looking at about an additional $1 million to $1.5 million in costs over the ramp-up period. And again, we don't only expect that to be super long once we start up. But that's kind of what you can expect.

Heiko Ihle

Sure. That's definitely lower than what I had in my model. Excellent. Thank you so much.

Nathan Harte

Thanks Heiko.

David Wolfin

Thank you.

Operator

The next question is from Joseph Reagor from ROTH Capital Partners. Please go ahead.

Joseph Reagor

Good morning guys. Thanks for taking the questions.

David Wolfin

Hi Joe.

Nathan Harte

Good morning Joe.

Joseph Reagor

So a couple of things. I guess first one on the sales in Q4. My assumption is that it was just inventory drawdown. But is there anything we can expect or we should technically add to our Q1 number that were additional inventory sales so far this year?

Nathan Harte

I would say, it's Nathan here, that was some final inventory drawdown, just from cleaning up the tanks and some other areas of the mine. And so we sold some product of to our partners in. But I would not expect anything for Q1 2021 unless -- yes, I would say no at this time.

Joseph Reagor

Okay. Fair enough. And then on your ATM, what do you guys have, if anything, left on that? And it looks like you guys pretty opportunistically used that during the quarter already, something near a $2 average price. Any additional color you can give me there?

Nathan Harte

Yes. Sure, Joe. Obviously, we wanted to use that opportunistically and so we really only used it for, as you can imagine, a day or two. We have about $7 million to $8 million left of on it. So you can do the math backwards and I think we have spoken on subsequent events now. But yes, as you correctly pointed out, we raised at just under $2 a share. So significantly above levels that we are at now and at a fairly low cost of capital.

Joseph Reagor

Okay. That's obviously great to get the cash at a good valuation there. On other investments, Talisker shares. Have you guys made many additional sale there? Or what's your current share count still in Talisker?

David Wolfin

It hasn't changed. It think it's about $15 million. We have no plans to sell it. There are four drills churning and four more they are adding this spring. So it will have eight drills churning talk. I talked to Terry, the CEO and they expect they are working on the resource between 1.5 to tow million ounces.

Joseph Reagor

Okay. That's great. So last thing. Obviously, we all realize that the Mexican government is out of your hands. But can you give us kind of what you think is best case and worst case scenario for getting the new agreement with the union ratified?

David Wolfin

It's a tough one because COVID is dictating when the office would open. But we are bringing back people slowly and looking at soft start here to see what happens. But we are hoping that that agreement is ratified pretty soon.

Joseph Reagor

Okay. But not comfortable giving a time range on it yet?

Nathan Harte

That's again, as David mentioned, a tough one. I think best case scenario, within the coming weeks and that's what we are striving for.

David Wolfin

Our plan there is to start underground mining first to get and build the stockpile.

Nathan Harte

Yes.

David Wolfin

And we can do that. So that's what we are planning for right now.

Nathan Harte

Yes.

Joseph Reagor

All right. Thanks. I will turn it over.

Operator

[Operator Instructions]. The next question is from Matthew O'Keefe from Cantor Fitzgerald. Please go ahead.

Matthew O'Keefe

Yes. Good morning. Thanks for taking my question.

David Wolfin

Good morning.

Nathan Harte

Good morning Matt.

Matthew O'Keefe

Thanks for taking my call. A lot of good questions already asked. So I just want to circle back to a couple of things. One, you just mentioned I think on the last, from one of the last question that you are you are going to do some underground development or stockpiling now. Is that before you get that okay from the Mexican government?

David Wolfin

The plan is to slowly start and not create a lot of noise there. So we feel underground work is not going to generate a lot of interest from the union. So that's --

Matthew O'Keefe

I see. So that's a different group. That's like a contract group as opposed to your operating group?

David Wolfin

Employees that we will hire from the local community.

Matthew O'Keefe

I see. Okay. And then I guess just on the startup. You mentioned there would be some cost associated with that and it won't take it -- is it a matter of once you do get the okay and you are good to go, is it a matter of weeks or a full quarter to get sort of up to full throughput?

Nathan Harte

Nathan here. We wouldn't think it's a matter of a full quarter, for sure. And Peter is here as well, he can speak to more of the time line and I can speak of the cost side of things. I think I mentioned earlier about $1 million to $1.5 million over the ramp-up period in additional cost.

And as far as timeline, Peter, maybe you want to touch on that?

Peter Latta

Yes. I mean it's just going to be a couple of weeks here, really, we think once we get the underground going. I would give us a month.

Matthew O'Keefe

Okay.

David Wolfin

We are also anticipating automation in the mill. So we won't need as many people when we go to start up the mill. There is a lot more that's going to be automated.

Matthew O'Keefe

Okay. And then, yes, it sounds like once things get going, you are well positioned and you have got good amount of cash. You have got some good exploration to look to. On the capital side, you have done a lot of that already for some of those thicker tailings in the mill. What is the capital expenditure budget for 2021? Did you mention that?

Nathan Harte

Yes. I think we touched on it briefly previously and talked even in the prior news release, Matt. But obviously, as David mentioned in the call that we are looking to increase that. We have pretty much essentially got some additional increases approved, mostly on the exploration side but also on the automation and actually potentially another area of the mine that we will be excited to talk about hopefully next week. And so I think right now, we probably had it set at around $6 million to $7 million and we think we are looking at closer to up to $12 million per year.

Matthew O'Keefe

Okay. $12 million, good. All right. That's it for me. Thanks. Looking forward to a better 2021.

David Wolfin

Thank you.

Nathan Harte

Thanks Matt.

Operator

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

David Wolfin

Thank you to everyone that took the time today to listen to our Q4 and year-end 2020 earnings call and webcast. As I said earlier, we appreciate the patience of all our stakeholders and we look forward to resuming normal operations soon. As we look forward to the future, we are optimistic that our favorite metals will shine and we believe that the demand for metals will continue to grow. More vaccines are being approved by Canada and the U. S. and as the rollout of vaccines seems to be getting better organized, there is optimism that we will all be vaccinated by the fall of 2021. Once that happens, we look forward to meeting with each other face-to-face, something we have all missed. Stay safe everyone. Thanks again and have a good day.

Operator

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