Avino Silver & Gold Mines Ltd. (ASM) Earnings Call Transcript & Summary

Welcome to Turning Hard Times Into Good Times. I'm you host Jay Taylor, and I'm speaking to you from the Borough of Queens in New York City. It is the first day of February 2023, and I'm really glad you're with me today. Before we get started, I would like to ask you a favor. I would like to ask you to, if you like this interview, to hit the Like button at the bottom of your screen and also subscribe to this channel. I've titled today's show Michael Oliver Has Seldom Been More Bullish on Silver. With that title, I may have put some words in Michael's mouth. I will find out in a few minutes because he's with me and we'll hear what he has to say about silver and many other very important markets. But given my perception of Michael's views on silver, I'm happy to tell you that David Wolfin, the President and CEO of Avino Silver & Gold is with me as well today. He will follow Michael in just a few seconds. After we finish our discussion with Michael, David will be with me. And we're happy to say that Avino Silver & Gold is the sponsor for today's show. Avino Silver & Gold, well it's a microcap stock, it trades on the New York Stock Exchange. It produced -- selling at about $0.80. So it's a real cheapy but it does trade on the New York Stock Exchange. It produced 2.65 million ounces of silver last year. And David has plans to lead the company upwards to 8 million to 10 million ounces in the next several years. And I think if we're in a bull market for silver and Avino can increase its production and do it profitably over those -- up to that magnitude, then I think we could be in for a very nice run for Avino Silver & Gold. So you may want to stick around after we finish our discussion with Michael to hear what David has to say. But right now, I'm happy to tell you that Michael is with me as you can see, those of you who are watching on YouTube, and he's with me now, and I'd like to also remind my listeners and my viewers that they should go to olivermsa.com to avail yourself completely with what Michael has to say, because what you're going to hear now is just a small fraction of the advice and the wisdom he passes along to his paid subscribers. Thank you, Michael. Thank you so much for joining me.

Hi, Jay. Good to be back.

Always good to have you, and I know you've been one of my favorite guests, one of the guests that my listeners and my readers show have always begged to have you on more often, and they used to get kind of mad at me for talking too much, so I'm going to try to do less of that and let you talk. Well, silver, because I've put silver in the introduction of today's show. Did I overstate your views? I've seldom seeing you more bullish on silver than I do now. I mean, I've been following you for quite a few years, and I can't remember a time when you've been more bullish on silver. Do I have it right?

You got it right. It's never good to be narrow focused, right? That's what we're told, and that's generally a truism, but right now, I'm pretty narrowly focused. And I think silver is going to be -- stand out among markets this year. [ just a ] percent gain -- percent movement. Yes, gold is the mama, as I always say. It holds the leash. But silver is the wild dog and when it runs, it can run. And both downside and upside. As we're saying in the -- since summer 2020 peak in silver, it dropped to almost $17 back in September. Now we're trading either side of 24 for the last -- this is now the seventh week, you just [ got out ] of 24, just below $25. In fact we've had 2 highs recently, of $24.70 something and $24.60 something. Well, that's very interesting from our perspective, that momentum structural analysis because various metrics we look at, including price, actually, in this case, we see that getting above $25 could be a point where you really engage. Now we've already pretty much engaged pretty strongly just since September low. I mean, you went from $17 to $24.70 something. So that's a huge percent gain, beat gold. But it's still not back to its high. It's like gold basically is back to its highs. Gold is, for example, its peak monthly close. There are 2 peak closes in gold over the last couple of years. One was in 2020, one was in 2022 -- March 2022. The monthly closes were $1970 and I think the other was $1960 and change, okay? Our recent traded high is 1948 -- $1949.8. So just we're 1% below engaging a new high monthly close for gold in history. Nobody on CNBC is pounding the table about that.

No.

At some point, they will. But as gold has been reengaged [ itself ] after stopping out a lot of people by popping to a false floor on price. And silver done the same. I think they've reengaged back to the upside. We're very positive right now. We're not waiting on this last signal. But I think that last signal -- so we're getting above $25 by some credible amount, $25.25, for example. We've got one number next month, it's going to be $25.15, to be precise, just traded. Now I'm using the March contract from month active future. I think silver could lock and load, where instead of fighting its way higher it does whoosh and suddenly you're back at 2 and above $30, which is an obvious price level for anybody just looking at a price chart. You see these 2 peaks up there at $30, we say gold, we've got to get through that. Well, you could wait for that if you want. But I'm telling you, you get above $25 by much, you're probably going to go through that. And I think that we're -- when you study silver going back 50 years in gold and compare them, a spread basis, how -- what's silver price in relation to gold. Silver is still very undervalued compared to gold. And technically, when we plot that spread relationship month to month closes and then run a momentum study of it, it's now back to positive trend. Meaning, at the end of September, we issued a report that said okay, silver has now shifted from an underperformer to gold to an outperformer. And sure enough, since September, what's happened? Silver's gone up a lot more in percent terms. And we think that will now continue. Usually, when that spread favors silver, it means it's a net price uptrend for both metals. And what that spread is saying is yes, you're in an uptrend now, but silver is going to lead that uptrend. So anyway, I think in 2023, we could see a very exaggerated advance in silver, very much.

Well, so $30 might be the sort of the interim sort of the target, the next target then?

Well, no, I think that's -- if you get above the 25, I think you could just simply zap, that you're probably above that level before you even take a breath again, so to say. So far, really, if you go back and look at the lows, and try to find a sustained pullback to sort of get in again if you got out, you really haven't had one. You've had a couple of days where you'll drop a $1, $1.5 and the next thing you know you're back in the high again. There's no real gentlemen's entry. So if you guys stopped out of silver or if you're not long and you suddenly want to get long, you're not being given the opportunity, no gentlemen's entry point. And I don't think you're going to get one. I think you might get one if you go past $30, maybe then it will pause for a month or 2 or something like that. And the process of going from that fake-out bear trap low to and through the highs could be very quick, especially when you get above $25.

No. No. Very good. Well, yes, as you say that gold is near its all-time high and yet nobody is getting very excited about it. I guess maybe a lot of people are detracted (sic) [ distracted ] by bitcoin. Maybe we get your views on bitcoin. But the gold shares haven't kept up at all. It seems generally they have not kept up with the metal, with gold. What are your thoughts about GDX or silver, I mean the gold producers?

If you measure them by looking at the price chart and say, okay, GDX, for example, a very popular ETF with gold miners and silver miners, many highs. Above 40 couple of times, one time above 45, even -- but let's say above 40. It got up there 3 or 4 times in the last couple of years. And then the recent low was down near 20. So it got cut in half, while gold had a 20% pullback from its top tick to its low tick, a 20%, about 21% drop, which was quickly erased. The gold miners have zapped back up to where they're now in the 32, 33 area on GDX. So they're like $12 off the low. Well, yes, we're not back at the high. So when you look at the highs we've made the last couple of years, GDX looks anemic compared to gold. But if you measure from the low and you take an -- GDX from just above 20, and you take it up to 32, you're talking 50%-plus rally. Gold didn't have a 50%-plus rally from its low at 16.13. It had a $300 rally, but that's not 50%. So on a percentage basis, the gold miners, though they look on the price chart like, "Oh, they're are back at" -- the percent gain from that low has been much more dramatic than gold. And we think that like silver, the miners are a better place to be than gold is going forward.

All right. When you also -- in your weekend misses, so you talked a little bit about some other metals, copper being one, you also mentioned uranium. Would you care to comment on either of those?

Yes. Copper is like most of -- copper tends to move with the commodity complex, not so much with gold, let's say. And it had a correction from early 2022, down into several months ago, we made a low just below $3.50, with our highs up there, I think it was $4.70 something. So it had a pretty good percent drop. But that was coincident with the Bloomberg Commodity Index having its pullback as well. So most commodities peaked. If you threw a dart at them, most of them peaked like a few weeks after the Russian invasion. Anybody who says, "Oh, this commodity upcycle was caused by the invasion" no, it wasn't. The commodity upcycle began in October 2020 and we put out a buy signal, said commodities are going to explode, used the word explode. Well, they did. They went from $70 on the Bloomberg to $140 on the Bloomberg Commodity Index. Most commodities participated in that regardless of what kind of commodity: ag commodity, base metal. Silver and gold did not, because they had already had their move, but then they all corrected together over the last year and a quarter, or a year, let's say. And copper is now reengaged to the upside as far as we're concerned. If you ever get that red metal back up to $4.75 again, it could really engage big time. Now this is not a monetary metal. So it's doing it for different reasons. But this is exactly what the Fed doesn't want to see. If I say something about lower gasoline prices, oh, boy. Meanwhile cattle's making new highs. Copper is reengaged and frankly, oil looks like if you rally about $5 from where you are now, it's going to reengage. So it looks like the commodity complex, which has been in a corrective mode since just after the peak after the Russian invasion, whereas if you bought that news, you bought the high, okay. If you sold that news as the war news, you made money on commodities. But it looks like commodities is going to reassert themselves. And if we get that signal, then that's going to be a nightmare for the Fed. And for the stock market, because if "inflation" as narrowly defined by commodity prices, reasserts itself in a way that people can notice, like oh, gasoline price is back up, oh, copper at highs? What's going on here? Sugar, for example, is one we're watching. It's getting quite strong. So a lot of markets out there are tending to move in unison back to the upside. And if that occurs, that's again going to put pressure on the Fed to do what, to stay the course. We can stress what the stock market doesn't want to hear. And we are certain that those people who think that gold will suffer if the stock market suffers, think twice. How come gold had an unchanged year last year with NASDAQ down 30%, S&P down 20%. How come goal is now up on the year nicely, pressing at all-time highs. And S&P and NASDAQ are still down there. They're the worst. And if they break -- if the stock market goes into a new leg down, which we're anticipating possibly in the first quarter, it goes through the September lows, for example. I think then you're going to start to get panic-type situations. More layoffs, especially the non-tech companies that will show up at unemployment. And other headline type events that will be psychologically linked to people's perception of, "Oh my gosh, it's not going to be soft. We've been betting on soft. It's not going to be soft." And that's when the Fed has a real problem.

Right. Well, that's very interesting, Michael. You mentioned the commodity complex going up. But David Stockman in the last few days wrote an article titled Wall Street is Whistling Past the Grave in which he said, people on Wall Street and mainstream are betting on that soft landing. They're betting that inflation rates are going to come down. But David points out that, in fact, the commodities, the reason the headline number is lower is because of the decline in the oil prices and some of these other commodities' corrections that you were just talking about. And now those prices are likely -- David says, he believes, as do you apparently, that they're going to go back up, and there's not going to be any significant decline in the inflation rate in David's views. And so that, as you say, will play into a lot of other markets, too. And what about -- I have to ask you about interest rates in TLT, which I know you follow as well. What are you seeing with your technical on TLT?

The T-bonds, T-bond futures, 30-year bonds and TLT which is 20-year plus maturity bonds. That's an ETF. They both came down together. We called the top there back in 2021, well before the stock market peaked. So they were headed down, many yields headed up. And they really had -- they had a bigger percent drop in T bonds than they ever have in about 100-plus years, okay, in such a short period of time, more drop than the S&P had or the NASDAQ had, on a percentage basis. When they hit a low a couple of months ago, TLT we'll talk about. It hit a low, just below, I think, 94. We projected that the low would be 95 to 98 here. They pierced below that target low. Now when we say target, we mean a bounce point, not a low-low, not a sustained low, but a point to have a bounce from -- they hit our bounce point. And sure enough, they rallied up to almost 110% last month. Then they pulled back again. Right now, they're trading at 106, 107. We don't think this rally in bonds, meaning the dip in yields, is sustainable. We think it's just a countertrend rally in the bonds, just like we're getting a counter trend rally in the stock market. We don't think it will sustain. We think bonds will again rejoin the major trend, which is down, and stocks will do it as well. So meaning that your 2 major asset categories, the 60-40 rule 60% stocks, 40% bonds. You got killed last year on both sides of that equation. And we think you're going to continue to get killed on both sides of that, that balanced portfolio. What does that leave you? Well, there's one core commodity been around a couple of thousand years out there and it's at all-time highs. Somebody is speaking.

Yes, the markets in their collective wisdom are speaking. In your weekend missive you said -- that is, in your gold and silver report, I guess it was, you said, and I quote, "Don't just look out the front windshield for gold, watch the side mirrors. And 1 of those mirror situations to watch now are the banks." So then you showed a chart of, I think, KBE. What are you seeing there in the bank sector, because what we're constantly hearing is, don't worry about the banks this time. It's not like 2008, the banks are well capitalized, the American banks are well capitalized, but the market [ at least with its collection ]...

Things change. The banks will participate in the down, they have so far. In fact, the percent drop that we had in KBE, which is a major ETF of the banks, from its peak to its low in September, from its peak at early 2022 to its low in September last year, was as big, if not a little bigger than the S&P's drop. So it was this anemic week as the S&P. They hadn't had a bounce like the S&P has had since its September low. S&P's had a much bigger bounce on a percent basis. And when you look at KBE, and I look at the ink on the price chart since June low and then the September low and then the rallies in between, you're about in the middle of that ink, which all of this weight lifting you've done for 7 months now, buy it, take it up, it goes back down, take it up because it doesn't go anywhere. And right now, you're about in the middle of that price zone, whereas the S&P is closer to the upper end of that rally zone. So the banks have noticeably weakened relative to the broad market on a spread basis, sort of relative performance basis, sharply weakened. We measured, the chart if you saw it, you would say, whoa. No, not so much in price. But when you look at the relationship, they are far weaker, more anemic suddenly, and this started 2 months ago. Now we haven't had any headlines that have caused this. But we see technical events like that. And by the way, the spread relationship now between the banks, what percent of price is KBE, in relation to the S&P 500, it's lower than it was in 2009. So the spread is like I've taken out the 2009 lows. So yes, we're watching the banks because primarily it is not a focus on financial channels or among analysts, they're looking at tech. We think you better watch the banks.

Right, and in tech, in general, do you think you're still pretty bearish on these big names?

Tech has lost a lot more than the S&P. It was the leader on the upside, and it's been the leader on the downside in percentage terms. We think from here on, yes, it will be slightly weaker than the S&P going the next leg down, but not as sharply weak as it was in the first leg down, where it really led profoundly. The spread relationship has collapsed. If you plot NASDAQ 100 versus the S&P and you plot the spread, not only has NASDAQ dropped, but its relationship to the S&P on a percentage basis has collapsed. But it's done a lot. And so I wouldn't bet on it continuing to be a lot weaker than the S&P. Instead, I would think the broad market now -- again, there may be an issue of the soft landing or no soft landing -- the broad market now and the next leg down will likely be almost as weak as tech is. So it's going to broaden out in the [ woods ], I think.

All right. Well, you've covered a lot of markets. I should tell my viewers that actually, we just skimmed the surface. You cover a lot of the minor markets and send your missives through. Whenever there's something that your subscribers need to know about, you let them know. You send us information all the time when you see markets changing and it's been a service that's been so valuable to me, Michael. I want to thank you so much. Just in closing here, maybe, I guess summing up, then, I guess the markets you're bullish on basically commodities and precious metals, including precious metals, not much else right now.

Yes. The commodities aren't always in sync with gold, by the way. You'll notice they had their move from October of 2020 was their low, and they turned up and exploded through early 2022. Well, gold was in corrected mode all during that time. But gold had already doubled in price, 2015 to -- so they're not always in sync. But right now, it looks like they may be getting back in sync again, where the Bloomberg is trying to turn back up and gold clearly has turned back up. So we might get both of them together this time.

Right. Well, very good, Michael. Thank you so much for coming on with us in this new format. I'm sure people are going to really enjoy seeing the person they've been listening to for the last number of years. It's always a pleasure having you, and I want to thank you very much. Well folks, don't go away, because right in just a few seconds from now, David Wolfin will be with me. He is the CEO of Avino Silver & Gold. And this is a low-cost stock. I mean, it's under a buck. It's trading on the New York Stock Exchange. It's a producer, a growing producer of silver and gold and some other precious metals as well. But don't go away, we'll be right back with David Wolfin. Welcome back to Turning Hard Times Into Good Times. I'm your host, Jay Taylor. And well, as you just heard, we've heard some pretty bullish words from Michael Oliver on silver. Michael is as bullish as I've ever seen him on silver. He's bullish on gold, too, but Michael studied his history, and he knows in bull markets for precious metals, silver usually does better than gold. They'll both do well. But we're looking for silver companies, companies that can produce the metal as we move into a bull market. So I'm really happy to have David Wolfin with me today. He's the President and CEO of Avino Silver & Gold. It's a company I've been following for many, many years, even when the company closer to its start-up date, when David's father Louis Wolfin, was the founder of the company. And I -- so I've been following this company, Avino Silver & Gold, for a long time. It operates near Durango, Mexico, and it's on a significant growth path. It's been a company that's sort of a small producer for many years. But now David has got some real exciting growth potential in mind, and he's gearing up for it. So before I say hello to David, let me just tell you that the stock trades in New York and Canada under the symbol ASM, 118 million shares outstanding, selling at around $0.80 in U.S. money and gives us a market capital just a little bit under $100 million. Thank you very much, David, for joining me today.

Thanks, Jay. Pleasure to be here.

You really, as I say, I've been following Avino Silver & Gold for many years. I've gotten really excited about it this year when I saw the -- your plans to ramp up and to make it a much bigger producer. It has been producing 1 million, 2 million ounces a year, that sort of thing for a long time. But now bigger is better in this business, generally speaking. Margins matter a lot, too, of course, but you've got to have a certain amount to meet threshold cost, basic cost before shareholders start paying attention. And I think the track that you're looking to get onto is going to be very bullish for this stock. Maybe we you could just start out by you talking a little bit about 2022, what you accomplished in 2022 because there was a lot of things that I think were very, very significant.

Yes, our production exceeded our internal guidance. We beat 2021 by over 200%. 2022 was a full year production since we restarted. We embarked on building a new dry stack tailing storage facility, which is being commissioned right now. They're just putting in the conveyor systems, going to backfill the open pit, and there's a new tailings storage facility area that we're going to build. We've got plenty of capacity for our big expansion plans. And last year, we acquired La Preciosa for Coeur Mining in March, and basically tripled our resources. And so we've got 3 key assets: the Avino mine that's producing has good margins right now. We had La Preciosa and the oxide tailings resource, which is the old tailings. So last year, we drilled it all off, and we couldn't drill it when it was active. It was too dangerous to put a drill on it. So we did 150 drill holes. Metallurgical work is favorable. We're now embarking -- planning to commission a pre-feasibility study. So these are the ingredients with a clear path of transformational growth. We're looking at 300% growth over the next 5 years.

Wow, okay. So we're looking at something like 8 million to 10 million ounces potentially. That's what you have in mind, and that's the path you're setting out on to achieve those goals. So talk to us a little bit about how you're planning to get to what -- I guess you kind of did talk about how you're planning to get there. What sort of capital costs are going to be required over the next several years, David? OR at least maybe just talk about 2023, what are you going to have to do in 2023?

Our capital expenditures are between $8 million and $12 million for this year. We're going to self-finance that. Going forward, once we have the pre-feasibility study on the oxide tailings, we're going to have reserves. So we're going to look to get a revolving credit facility, so we don't have to just rely on debt and equity for our expansion to build out the oxide tailings expansion. It's going to be a big expansion. And then over at La Preciosa, it's not going to be very expensive. We're just putting in a decline, and we're not planning a giant open pit mine that Coeur was doing, that wouldn't fly in that jurisdiction. There's too many people. So we're looking at a low profile underground mine ramping down to Gloria and then over to Abundancia and then Martha. So we'll have 3 different working faces, and we think we can bring out 500 tons per day from each. So ultimately, we'll bring out 1,500 tons per day is what we're thinking now, based on internal planning. But at some point, we're going to bring in an outside engineering firm to look at an optimization plan that may even be larger. So this is one of the reasons why we're drilling. We're drilling right now below Level 17 on the Avino mine. And we've extended the down dip mineralization by over 300 meters, almost doubling it. Even after 500 years, there's still potential there. And we've commissioned 2 structural geologists, at Newmont and Kinross, to help us figure out what the ultimate potential is there because it's a porphyry style system. There's potential that it could turn into a porphyry at depth. It's getting richer in copper and pockets of gold as we go deeper. So who knows what's below where we are, it's never been drilled. So we know that an engineering firm is only going to take the information we give them. And so we thought we better do as much drilling as we can before we look at an optimization study. But internally, we feel very confident on our plan that we put out to the market.

Very exciting. So do you -- any possibility, David, of poking a really deep hole down there to see if you can find what's down there? Maybe like that porphyry. And my goodness, if you're onto a -- copper is something that people really, the projections for copper are very, very robust. People -- the demands, copper...

If you look at the capstones close and in mine in the next state over. I mean it gets richer as they go down and it's really opened up there. So is it similar potential? We don't know, but it's in the same geological area trend. So it's, the potential is there.

So you're going to be able to finance your CapEx from cash flow generated from operations. That's what you're quite sure you can accomplish at least 2023.

Yes, for the next few years, until we're ready to embark on expansion, then we'll determine what our needs are at that time, but we're taking the traditional route of doing a feasibility study. So we'll have reserves.

David, could you give us a sense of what your operating cost and your all-in sustaining costs are currently? And also maybe give our viewers a sense of the mix, because it's silver, you have some gold, and you have some base metals.

Yes, right now, it's about 40%, 41% silver and then a small amount of gold, 10% or 15%, and the rest copper. But the silver is going to grow as we expand because the Preciosa is 95% silver, and the oxide tailings same thing. So yes, we expect to be just considered a primary silver producer going forward. Our resource estimate is around 300 million. We've got a new one coming out in the next few weeks. I think people will be pleasantly surprised at the growth that we've accomplished through our drilling, which is obvious in our drill results. You can see what we found. So we've got -- we've extended the mine life at Avino for a long time. So ultimately, we will be looking at an optimization study that may even be bigger than what we're considering now.

Could you give us a sense with your acquisition last year, what your current resource is?

It's 300 million ounces of silver equivalent. And oh yes, and you were asking about the cost. So currently, our cash costs are between $10 and $12. All-in sustaining is between 16 and 19. But during the 5-year expansion, as we add production, the cost is expected to drop based on the current parameters. But we think in the next 5 years, we'll get our cash cost below 10 and the all-in sustaining between 10 and 12. So it will be a very profitable operation as we grow. And we want to get included in the indexes. So you need to be a $250 million market cap. So our target is to exceed that. If you look at Endeavour Silver, it produces 8 million or 9 million ounces, they're a CAD 900 million market cap. So that's where we're heading towards. Will we get there? We've delivered on 3 expansions before. So we don't see any reason why we wouldn't. We've got all the right people there. What's unique about Avino is we have 100% Mexican labor force right up to our Chief Operating Officer, who is a graduate of Colorado School of Mines. So we've got very competent people. We've been building our geological department. We recently retained the services of a senior level geologist that's worked in big mines in Mexico as our Director of Geology, to help oversee what the ultimate potential is. Now that we control so much land there, we want to know what the district potential is on our ground.

Yes. Well, that's one of the things that really excited me is the exploration potential that come with your acquisition last year. So just in summing up, David, what do you think -- I guess you mentioned you're going to have a new resource pretty soon and people will be pleasantly surprised, you believe. I guess we'll see some numbers from the Q4 2022 pretty soon. Anything else that people should keep their eyes on?

Yes, well I mean, we trade in line with silver. It's a good leverage to silver with that many ounces. You can see that the traction is in our stock. We've almost doubled in less than 6 months. So with the rising metal market, Avino should outperform.

Very good. Well, I want to thank you very much, David, for spending the time with us today. And we'll want to keep track of what you're doing going forward, because it is a very exciting story, one that I've been watching for a long time. But I can't remember a time when I've been more excited than I am now about Avino. So thank you so much for being with us. So folks, that is it for this week. If you like this video, make sure to hit the Like button and subscribe to this channel. Next week, we're going to have Alasdair Macleod with me. He's going to be talking about Russia's intentions, how they plan to start getting out -- well, they are actually getting out of dollars now and going to gold, but they're working with China and other [ RIC ] countries towards using gold in their trade, and the Asian trade especially. So this should be a very interesting time. I hope you'll join me next week to hear what Alasdair has to say. So until then, goodbye and God's blessings to you.