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

Welcome to the Avino Silver & Gold Mines webinar. [Operator Instructions], and the meeting is being recorded. [Operator Instructions] I'd now like to turn the meeting over to Jennifer North, Head of Investor Relations and Corporate Communications with Avino. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Avino's webinar on the pre-feasibility study for our Oxide Tailings project. Please note that the feasibility study will be filed on SEDAR+ under the company's profile and filed on Form 6 with the U.S. Securities and Exchange Commission within 45 days of yesterday's release. The links to join this webinar were in yesterday's news release and are also on our website appearing in the banners on the home page. 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. In addition, the company does not intend to and does not assume any obligation to update such forward-looking statements or information. For more information, we refer you to our detailed cautionary note in this presentation as well as in the detailed forward-looking information at the end of yesterday's press release. I would like to remind everyone that this webinar is being recorded and will be available on our website later today, along with the presentation slides. 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 oxide tailings pre-feasibility study webinar. During the webinar, we will cover the highlights from our news release yesterday. Please note that all currency values are presented in U.S. unless otherwise specified. Once we've gone through the presentation, we'll open it up for questions. So turning to Slide 3. So the history of the tailings goes back decades. We've known about it a long time, but we could never really do anything because it was an active tailings dam. So in 2016, we drilled the exposed bench, the bottom tier of the tailings and did a PEA in 2017. The recommendations from Wardrop at the time, which is today, Tetra Tech, was to grid drill the entire tailings, but we couldn't because it was active. And we focused from 2018 to 2020 on mining operations underground from San Gonzalo and Avino. So in 2020, when the COVID happened, we decided to keep the mine closed, let it dry out so we could drill it as recommended in the PEA. So we kept the mine closed for about 1.5 years or so. We then did 3,854 meters of drilling and kicked off the pre-feasibility study in 2023. And here we are with the results, and we're thrilled to present them to you. Next slide. Here, the economic returns, $61 million. This is post-tax with a 5% discount, basically equivalent to our market cap. So we're extremely undervalued 26% post-tax IRR, 3.5-year post-tax payback period. And then pretax with a 5% discount is $98 million, 35% pretax IRR, 2.9% pretax payback period. Capital cost $49.1 million. And then the cash cost per ounce is just under $10 at $9.71, all-in sustaining $10.23. So it looks like it's going to be a very profitable operation for us, adding to the growth profile. So since we drilled it, we exposed the hidden gem in the middle of the tailings, and we've more than doubled the tonnage from the PEA to 6.7 million tonnes, 55 grams of silver and 0.5 gram of gold, which is very good for this project. Nominal processing rate, 2,250 tonnes per day, 821,000 tonnes per year, 9-year mine life. Next slide. Metal recovery rate 77.2% on silver and just under 75% for gold. Pete, our VP of Technical Services, can get into more on the technical side when he does his section of this presentation. Dore production, 9 million ounces of silver and 76,000 ounces of gold, direct employment, 121 employees in Durango, additional supporting jobs indirectly in the surrounding villages. Ease of construction located with existing Avino mine operations. So there's power, road, water, labor, all the ingredients for this already exist. Local economy benefit over $50 million in taxes and $140 million local economy contributions. Next slide. Financial results and analysis. I'm now going to turn it over to the company's Chief Financial Officer, Nathan Harte.

Thank you, David. So now I'll run through the financial side of this project from initial capital costs all the way through unit cost and then rounding it out with a bit of a summary on the overall economics that David touched on with the comparison to the 2017 PEA that was also referenced. So the main message in this initial capital cost is that a project of this size and scale comes in at under $50 million. Another key point to highlight is that the plant comprises about $27 million, just over 50% of the cost. And then some of the auxiliary site direct costs add another $8 million and then the remaining $14 million are indirect and related to the contingency getting us to $49.1 million total. Moving on to Slide 8. The project costs come in at around $21 per tonne, processed. As you can see, the majority of the operating costs come from the processing plant, and there is very little mining costs, primarily due to the pit design and very low material handling requirements due to the proximity of the proposed process plant nearby from where the existing tailings facility is, as David mentioned. Moving on to Slide 9. Here's a visual of the projected all-in sustaining cost per equivalent ounce for the life of the project. You can see there is some variability year-over-year basis, primarily due to grade variation where we have some areas with higher silver grade down near the bottom. Peak production does hit around 2.3 million silver equivalent ounces in year 5. And you can see year 2 is also quite strong as well, with both of those years coming in around an $8 per ounce, all-in sustaining cost. The average for the life of the project comes in at about 1.8 million silver equivalent ounces with an all-in sustaining cost at $10.23 as David did mention. Turning to Slide 10. Here's a summary of the current PFS compared to the 2017 PEA. I won't go through all the items in this table. However, some key points that should jump out to everyone. First one being the post-tax NPV. NPV 5% is up over $100 million to $61 million. And then on a pretax basis, exactly 100%. The IRR did come down to 26% as a result of some increased initial capital costs. We've gone with an updated plant design, obviously, and increased capacity by well over 800 tonnes per day. And then obviously, we've updated the study to account for currency movements and inflation over the last 7 years since the PEA. The life of mine mill feed has increased to 22.50 per day as well over 6.7 million tonnes, well over 100% increase from the 3.1 million we had in the PEA, as David mentioned. And the operating cost per ton has increased again due to the change in scope in plant design, but still a very respectable $10 per ounce on an all-in basis. Moving to Slide 11. Here's a graphical representation of the positive and negative movements of 30% and their impact on the overall project NPV. The key item for us being a silver company as well, too, is that just a 30% increase in the silver results and a 50% increase in the NPV 5 of the project. And silver is the most sensitive input overall for this project. Turning to Slide 12. You can see the results of some of the other sensitivity work, specifically metal prices used and what a spot price analysis would look like as of the effective date of the study. Using spot prices, the NPV 5 came in at $67 million and an IRR of 27.5% with a payback period of 3.3 years. So that wraps up som comments on the financial results and the economic analysis of the PFS. I will now hand it over to Peter Latta.

Thanks so much, Nathan. I will now go over some of the mining and the mineral resource and reserve technical sections of this presentation. So this won't be comprehensive, but I just want to highlight a few of the details. And once again, just looking at the global resource of both properties, of course, the oxide tailings being contained in the Avino mine section up there. We did add a few more ounces just due to an updated topography. So we now have over 370 million silver equivalent ounces in the M&I and inferred categories between both properties. And digging in a little bit more there on the next slide, we will see that the oxide tailings deposit there has increased to a total of 20 million -- just over 20 million silver equivalent ounces at that 6.7 million tonnes of measured and indicated. And looking -- just moving to the next slide to see what that looks like visually, you can see prospective diagram looking northeast there as well as a cross section. And the key takeaway with this slide right here is that there's 3 different types of material we're dealing with. We're dealing with what's called ancient oxides, or what we call ancient oxides, our recent oxides and then the sulfides on top. And it should be noted, as David mentioned in the first part of this slide, we initially drilled that little red piece that was the exposed bench there. That red represents kind of the highest grade material followed by the orange and then the green. So we updated the topography and then drill the rest of the deposit to find that there's a lot of high-grade material at the bottom there. So that became the basis for how we're developing a mine plan. Looking at the next slide. This is the big news for us. For the first time in company history, we do have mineral reserves, total of 6.7 million tonnes at that same average grade that David and Nathan mentioned 55 grams per tonne silver and 0.47 grams per tonne gold. So this is absolutely fantastic for us, and it's a significant amount of reserves and much more resources than we had in the PEA. Moving to the next slide. I will now get into the bit of the mining plan and not too many details here, but just as a general overview, we looked at how we would mine this deposit. And what we came up was a total of 5 pushbacks or 5 separate mining areas. So that we can mine different areas at different times. And you can see that with the total amount of material moved across time there with that graph, looking at pushback #1 through 5 there. So the idea here is to keep the total amount of material moved relatively consistent so you can manage your mining fleet and try and bring as much high-grade forward as you can while still being able to mine the deposit in an efficient way. So moving to the next slide. We can kind of see that 5th pushback in the total pit, the ultimate pit outline there, which is right next to the highway, once again, very compact design. And then, of course, the waste storage facility or the waste rock facility being right next door for when you strip off the waste material, before you go into the mining of the ore to take to the plant, once again, is adjacent, making it a very efficient design. And then moving to the next slide. You can see a basic mining schedule here with grade, strip ratios, the total material moved and of course, the ore set to the plant of that 821,000, which is the target amount of material to send through the plant. What you can take away from this and Nathan certainly touched on it in his slides, year #1, the strip ratio is indeed a little bit higher and the grades are a little bit lower, but that is by design. And then you can see year 2 things really pick up with year 5, once again, being the best year with that grade and strip ratio. But the key, once again, to try and manage the total amount of material move to keep that mining fleet consistent while keeping the plant filled. And then moving to the next slide. Just getting into the process a little bit, and I know this is a busy slide, but the key thing to take away here is we have a conventional plant design with a run of mill -- run of mine and feed preparation area, a 2-stage leaching area, a countercurrent decantation or CCD area. Metal recovery through Merrill-Crowe process and then a cyanide detoxification and a dry stack area, which is going to be a twin version of what we already have on site. So very conventional design. We've implemented a couple of key factors to keeping those capital costs down on the process plant. If you look around and compare capital costs for a process plant to this size, there's a couple of things that we've done, such as eliminating a grinding mill to really save on capital costs and keep that as low as possible. Moving to the next slide. We take those areas and place it on a basic layout. You'll see, once again, a very compact design. This area is currently used by our exploration facility, our core shack, which we will be end up moving. But as you can see, very compact design, however, enough room for maintenance and makes it very easy to deposit the tailings, which is going to be adjacent to this plant. And then finally, moving to the next slide. Just a little infrastructure and layout. You can see the process plant. This is a zoomed out view, once again, a planned view. You see the process plant on the right with the dry stack area there. Of course, that will be -- there'll be a water catchment facility as well as a berm around the plant and a very, very reasonable slope of that dry stack area of 3:1 to ensure geotechnical stability. And with that, I'll hand it back over to David to summarize.

Pardon me, David. You need to unmute your comment -- audio.

Sorry about that. Thanks, Pete. So this is a key pillar to our clear path to transformational growth to become an intermediate producer. So the project portfolio, again, is the producing of Avino Mine, La Preciosa, which we're bringing on this year. followed by oxide tailings. We've got a large endowment of silver. 371 million ounces of silver silver equivalent, 60% silver. So high leverage just silver. Next slide. Here's the production growth profile. So the dark blue is from the producing Avino Mine. The light blue is from La Preciosa, and we put the red boxes of the oxide tailing contribution starting in 2028. Next slide. And production by metal. So this year, 46% silver, 20% gold and 34% copper, scaling up as we bring on La Preciosa and oxide tailings. So we'll become more of a primary silver producer over time. Next slide. And this is -- so now we're going to open it up for question-and-answer period. Operator?

[Operator Instructions] Our first question is from Matthew O'Keefe from Cantor Fitzgerald.

Just on the -- congratulations, obviously, a lot of work went into this, and it's been a long time coming. Just wondering where we are in the process here as far as making a construction decision and how you plan on financing? And is there more work to do before you make a go decision on this?

Definitely. Community engagement, permitting and bankable feasibility study if we want to take on debt. So our focus right now is bringing La Preciosa online and then -- and simultaneously working on community engagement. We want to build up our treasury. So we're in a strong position when we make a construction decision.

Okay. So will we be -- so it sounds like you said you'll be looking at doing a feasibility study there, is that a 2024 event?

Not this year because we're working on community engagement and permitting.

Okay, got it. Okay, got it. Okay. And then if I can ask 1 more while I'm on. Just the CapEx has gone up. Obviously, the scope has gone up, and the CapEx has gone up. I didn't notice in the sensitivity if there was a sensitivity to throughput. Is there an option because $50 million could be a bit of a burden, depending, I guess, when you decide to go on this. Does this fall apart at lower throughput at a smaller scope, or is this sort of optimal and which is why you chose it?

Yes, from -- thanks, Matt. It is optimal for the size of the resource, that's kind of how you kind of back calculate. You look at the total amount and from an NPV standpoint to have a mine life of between 8 and 10 years is kind of the optimized situation. But we can always look at other sizes. It is a convenient size as well from a processing standpoint because we're currently processing just above that rate. So it's just as far as a manageability as far as what the the operations staff is used to seeing and used to working with. It's quite similar that way as far as twinning the dry stack and that sort of thing, it's manageable from that perspective. But certainly, it's something that we can evaluate as metal prices and overall markets change.

The next question is from Jake Sekelsky with Alliance Global Partners.

So just looking at M&A. I mean, obviously, you've done a good job of improving up tonnage from PEA and the PFS. Just curious, as you move towards feasibility level, do you see any additional upside through poking a few more holes or do you think you pretty much drilled it out?

Thanks for the question. I think that the resource is constrained on all sides. This is being tailings project, it's a little bit different. So we do have the bottom topography. So we know that it's not open at depth or anything. So we feel we have a pretty good handle. There might be some few odds and ends at the margins of the deposit. But I feel like this is a -- we have a pretty good handle on the total size and grade action.

Okay. Perfect. And then just -- I'm just curious where you see the tailings project kind of fitting in the development pipeline. I know La Preciosa, it's front of mind right now. I'm just curious if kind of the establishment of the PFS is fast track the tailings projects or if La Preciosa is [ the ] near term focus?

La Preciosa is the primary focus right now because of the grade and the ease. We're not building a new production facility. It's just a portal and a decline and start hauling material, so that's our primary focus for this year, plus community engagement oxide tailings, going into the town of Avino and spending some time with them, letting them understand how this project works and the safety of it. That's the goal for this year.

I'd now like to hand the meeting over to Jennifer North, who will take us through questions submitted in writing.

Thank you, operator. First question comment comes from Nathan Lindstrom. First, I'd like to say thank you for continuing to work hard to deliver shareholder value in spite of a difficult backdrop for precious metals, miners globally. My question is the CapEx is almost equivalent to your current market cap. How do you envision financing the project?

Well, like we've mentioned, we're focused on La Preciosa and community engagement on oxide tailing. So it's going to give us time to build our treasury. We don't anticipate having to finance this thing 100% with debt. We have time to build our treasury, and that's what we're going to do. And we're going to move it forward. And so we're not making a construction decision today. So we have time to work on that.

Yes. And I'll just add to that as well. I think one of the things that we wanted to highlight is we don't really get any value for this project right now. This NPV 5% is $61 million, and our current market cap is right below $61 million. So this is just something we wanted to put out to the market to make sure that we get some value recognized for it. But again, as David mentioned, and we all are echoing La Preciosa is the focus. And when it comes time to move this further down the path, we'll consider the financing aspect a little more.

As the market digests this information, we expect the value of our company to grow.

I'll move on to the next question. It comes from Joel Rieger from Roth. Given the current balance sheet and market cap, what would the plan be to fund this? How do you think about allocating capital between us and La Preciosa?

I think David and I gave the similar answer here. Good question, Joe. I mean, David, I can take this one. Obviously, the focus is La Preciosa. And given the current balance sheet and market cap, again, there's a little capital upfront on La Preciosa, so that's where our focus is. But we just want to make sure that the market is aware of what this project can be, and how successful we can be having 1, not 2, but 3 production as online over the next few years.

All right. There are no further questions. So at this time, I'd just like to pass it back to David for his final comments.

Just thanks, everyone, for their time today. It's been a long time waiting for this, and we're thrilled to have proven and probable reserves, positive economics at current pricing. So the future looks bright for Avino and us achieving our 5-year goal of being an intermediate producer. Thanks again. Have a great day.

This brings to a conclusion today's webinar. You may disconnect your lines. Thank you for participating, and have a pleasant day.