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Welcome to the Avino Silver & Gold Mines Third Quarter 2018 Conference Call and Webcast. [Operator Instructions]I would now like to turn the conference over to Jennifer North, Manager of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Third Quarter 2018 Financial Results Conference Call and Webcast. On the call today we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Malcolm Davidson; we will also have on the line our Chief Operating Officer, Carlos Rodriguez; and one of our directors, Jasman Yee.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 accompanying 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 would now like to turn the call over to Avino's President and CEO, Mr. David Wolfin. David?
Thanks, Jen. Good morning, everyone, and welcome to Avino's Q3 2018 Financial Results Conference Call and Webcast. Thank you all for joining us today. Before we begin, please note that the full financial statements and MD&A are now available on our website. Today, we will cover the highlights of the third quarter 2018 financial and operating performance and our plans for the fourth quarter of 2018, and then we will open it up for questions. Please note that all figures are stated in U.S. unless otherwise noted.During the third quarter of this year, we experienced significant challenges due to substantially lower metal prices at a time where we were committed to completing our planned expansion in Mexico. Overall, production declined compared to the same period in 2017 despite the additional throughput provided by Mill Circuit 4, which remains in the testing and commissioning phase. Silver equivalent production was down 7% to 704,000 ounces compared to 761,000 ounces in the same quarter of 2017. Our silver production was down 7% to 342,000 ounces compared to 368,000 ounces. Gold production was down 18% to 2,204 ounces compared to 2,673 ounces, and copper was down 10% to 992,000 pounds from 1.1 million in Q3 2017. Even with lower metal prices experienced during the quarter, we feel the company is well positioned for the future. During the quarter, our priority shifted from growing our production to preserving our margins. With 4 circuits at the processing plant, we have the flexibility to optimize our concentrate products, which during the quarter involved using Mill Circuit 2 to process higher-margin, historic, aboveground stockpiles, which are cost effective to process since there are no associated mining costs. Accordingly, our consolidated cash costs for the quarter were $9.69, and all-in sustaining costs were $11.15 compared to $9.74 and $11.25, respectively, during Q3 2017. We also continued the testing program for recovery of zinc from the San Gonzalo tailings throughout the quarter. At Bralorne during the quarter, we continued with our comprehensive exploration program, which is being funded by the CAD 6 million flow-through funds announced in April. Over the summer, we completed structural modeling and geological mapping, airborne and ground geophysics surveys, geochemical sampling and a large amount of historical data entry, which has greatly improved our understanding of the property's geology to help us with identifying drill targets. We began the 28,000-meter drill program in August, and we are looking forward to receiving assays. On the corporate side, we completed $4.6 million public offering with proceeds to improve general working capital and alleviate cash flow constraints. I will now ask Malcolm Davidson, Avino's Chief Financial Officer, to present the financial results and provide additional comments on the financing.
Thank you, David, and welcome to those who are on the call and viewing our presentation today. As David mentioned, the third quarter has been a challenging one. And although our financials have been impacted by low metal prices, we delivered a consistent quarter of financial performance, and our results were within our expectations. Revenue from mining operations during the quarter were $8.5 million compared to $8.4 million for the third quarter of 2017. Mine operating income was $657,000 compared to $2.1 million in Q3 2017. The decrease is due to lower metal prices, decreasing grades at San Gonzalo Mine and our decision to use Mill Circuit 2 to process lower-grade, higher-margin, historic aboveground stockpiles instead of newly mined material from the Avino mine. Our average realized silver price decreased by 12% from $16.81 to $14.85 per ounce sold, and our average realized gold price was down from $1,281 to $1,222 or 5% per ounce sold compared to Q3 2017. Our average realized copper price decreased by 4% to $6,020 per tonne from $6,292 per tonne. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $0.3 million compared to $1.1 million in the third quarter of 2017. Adjusted EBITDA was $0.5 million in the quarter compared to $1.9 million in the third quarter of 2017. Just a note on EBITDA. Management believes that EBITDA and adjusted EBITDA provides an indication of continuing capacity to generate operating cash flow to fund capital needs, service debt obligations and fund capital expenditures. These measures are intended to provide additional information to investors and analysts. These are standard definitions under IFRS and should not be considered in isolation or as a substitute for measures of operating performance prepared in accordance with IFRS. Moving on. After taxes, our net loss for the third quarter 2018 was $1 million or a loss of $0.02 basic EPS compared to net loss of $716,000 or $0.01 in the third quarter of 2017. Working capital for the quarter was $9.1 million compared to $20.1 million in the same period of 2017. The decrease is due to our continued investment in capital projects at the Avino property in Mexico as well as at the Bralorne mine in British Columbia. Cash of $7.1 million was on hand at the end of the quarter. We have maintained and controlled our cash costs, and just to recap, our consolidated cash costs for the quarter were USD 9.69, and our all-in sustaining cash costs were $11.15 compared to USD 9.74 and $11.25, respectively, during Q3 2017. Our revenue of $8.5 million was derived 40% from silver, 29% from gold and 31% from copper. Capital expenditures during the first 9 months of 2018 were $11.9 million compared to $8.7 million in the first 9 months of 2017. The capital expenditures are attributed to the completion of the construction of Mill Circuit 4 as well as production equipment to meet the increased capacity. With respect to the equity financing completed in October, these funds were raised to alleviate financial constraints that were caused by a variety of items, including, but not limited to, significantly lower metal prices, the cost of the expansion at the Avino Mine, which we have funded using cash reserves rather than debt, cash flow postponement due to unforeseen delays in shipping and concentrates and the construction of a buttress for the tailing storage facility in Mexico to extend its life by 3 years, which was not included in the 2018 budget. Avino has worked to keep production costs and cash costs competitive, and the company is committing to vigorously protecting our cash models. Further, while we continue to experience challenges in the mining sector, management has commenced cost reduction initiatives that span the company and call for a reduction in capital, operating and administrative costs in Mexico, British Columbia and the corporate offices in Vancouver. Cost reduction measures include temporarily postponing exploration in Mexico, postponing the paste backfill decision in Mexico as well as reducing general and administrative costs through investor relations initiatives and in marketing. The fully funded exploration program will continue at Bralorne. These strategic changes will help reduce cost in all areas of the business as well as conserve cash, increase efficiencies and preserve our profitable operation. At this point, I will hand it back over to David for a discussion on our plans for the fourth quarter of this year.
Thank you, Malcolm. We certainly hope for improved metal prices, and in the meantime, we will continue with reducing and controlling our costs and capital, operating and administrative costs across all the company. Looking ahead to the fourth quarter, we have outlined our expectations as follows: at the Avino property in Mexico, we anticipate receiving drill results from holes that were drilled in the historic open pit area of the Avino vein system, and information regarding the Santiago vein, which adjoins San Gonzalo mine. At Elena Tolosa, ET, we planned a temporary slowdown in development to control costs and protect our margins during weak metal prices. Mill production will be stable for the rest of the fourth quarter. At the San Luis area, underground development and rehabilitation, including bolting and screening, will continue. Work is also underway to develop and drift in areas that were partially developed during the 1980s and 1990s prior to the mine's closure. We will continue to evaluate other areas on the property, including the open pit and to assess the quantity and grace of the remaining historic stockpiles. During the fourth quarter, Circuit 1 is processing San Gonzalo material; Circuit 2 is processing San Luis material; Circuit 3 is processing Elena Tolosa material; and Circuit 4 is processing old stockpile material. Circuit 4 should transition to San Luis material during the first half of 2019. We continue to test the onstream analyzers at Mill Circuit 4 with the goal of improving recovery rates. With respect to cost-cutting measures, we have pared back crews and are looking to our suppliers and offers to achieve repayment flexibility. At Bralorne, we are looking forward to receiving assays from the initial holes drilled at Bralorne as part of the 28,000 meter drill program. Drilling continues to be focused on testing underexplored portions of known veins. We anticipate 4,200 meters of drilling to be completed for the quarter. Drill targets will include Pioneer mine 27 vein extension and King mine area, Mead, Peter and Shaft veins. Phase 2 of the detailed structural modeling review to be completed. Trial 2D seismic reflection survey to be completed. High definition LiDAR survey to be completed. Again, we remain focused on our projects and controlling costs across the company. We will continue to optimize operations and evaluate other areas of the vast Avino property. Finally, I would like to say thank you to the teams in both Canada and Mexico. Avino's resilience in these challenging times is due to their dedicated efforts. We'd now like to move the call to the question-and-answer portion. Operator?
[Operator Instructions] Our first question is coming from the line of Heiko Ihle with H.C. Wainwright.
In the long term, I'm pretty convinced your current expansion this year in this current depressed metal price environment will bear fruit, so keep doing what you're doing. I went through the MD&A, at the breakdown of cash cost between Avino, San Gonzalo and the historic stockpiles. And while doing that, I realized the all-in sustaining costs for the stockpiles are actually the lowest of the 3. And in fact, they're actually quite a bit lower at less than $10 an ounce for all-in sustaining and compare it with $11.09 at Avino and above $12 at San Gonzalo. That said, grades and production at San Gonzalo are declining, so it's not really a surprise that you're seeing it with the near-term end of mine life. So that leads to a fairly obvious question. Any idea how much production from there we will see in Q4? And dare I ask any sort of cost projections for the rest of 2018 and the remainder of the mine life?
Heiko, it's Malcolm here. With respect to how long we'll be processing that material, it really depends on how much we have. We got Carlos on the line as well. We expect we have approximately 6 to 8 months or more. We don’t fully know how much material we have. We do have quite a bit of it. And with respect to cash costs going forward, I don’t think we're going to see any significant changes in our model. I think, once we've been running Circuit 4 for a little bit longer, we may appreciate some further economies of scale. But they have been fairly stable, and we anticipate this going forward.
Yes. And in addition to what Malcolm is saying, Heiko, we don't have actually tonnage, estimated tonnage for the remaining stockpile. But yes, it's a keyword that we have mentioned sometimes, it's around 300,000 tonnes of historical sulfide on surplus.
Yes. It's Jasman over here. I'd like to add something to this as well because what is happening is we've been identifying more and more historical stockpile material. And I guess, the tonnage is really dependent on the assays that we get back from the sampling of the stockpiles. And in some areas, the grades are lower than in some of the other areas. So this could have an impact on the all-in sustaining costs from the historical stockpile depending on the grades that we get. Yes, I hope that answers your question, Heiko.
Yes, yes. It certainly provides more color, and I think that's helpful not just for me. So I know you have to spend the CAD 6 million of the flow financing at the site, but some can be spent in 2019. Any idea how much total will be spent by December 31? I mean, I got to think that all the investments at the site are sooner or later going to bear fruits. So on that same token, how much drilling is going to be done before the end of the year? And how much for 2019, please?
Well, it's certainly underway. Is Fred with the team in Mexico at the moment just to comment on what we anticipate as far as...
Yes, he's here. Yes, Fred is here, Malcolm. Yes, wait.
Can Fred comment on the total number of meters that we plan to drill between now and the end of the year?
Well, I said it in my script. There's 4,200 meters.
Yes, 4,200 meters. And frankly, the -- there's a couple of holes completed on the 27 vein extension in the Pioneer area. We'll be getting assays from these drill holes pretty soon.
Okay. So we should expect some results probably before the end of November. Is that fair to assume?
That all depends on the turnaround time from these assay labs. It's hard for me to comment at this time. I think Fred will probably have a better idea around this.
Yes. It's Fred here. The assay offices are pretty stuffed up these days, and I think not only in Canada but elsewhere. But we kind of get the assays about every 3 to 4 weeks. So we'll -- and the first holes that we drilled were quite deep. So we -- so those holes will be starting to come in, I would say, in the next month or so.
In the third quarter, Heiko, we drilled 1,409 meters in the third quarter at Bralorne, in 2 holes, on the Pioneer mine.
The next question is from the line of Bhakti Pavani with Alliance Global Partners.
Just wondering, with regards to the term facility with Samsung, I believe you had a quarterly payment of about 2 million this quarter. Is that sort of the ongoing? Or is that what we should be modeling going forward? Or are you guys planning to negotiate and amend that facility further?
Bhakti, it's Malcolm here. We're continuously talking with Samsung on ways to restructure our current term facility. Given it has been a challenging year, we may consider making some changes. But we have had some discussions with them, and we may have information coming out in the coming weeks. But nothing has been settled or finalized at this point.
Okay. Perfect. Also in your prepared remarks, you mentioned that you guys are considering the metal environment. You are considering slowing down the development of the ET mine. Just kind of wondering, when you move to next year, do you think the slower development could push you guys to further process the stockpile versus the ET mine in 2019?
No. There's areas of the mines that are prepared for mining. So we're going to look to continue to feed the mill and start mining certain areas that are ready. So it potentially could lower our costs because we won't have the development cost.
In addition to what David had mentioned, we have -- on surface, we have about 80,000 tonnes of broken ore from ET ready to go. I mean, it's just made up of haulage from the surface and to Circuit #3. So it's just haulage cost only.
Also, we have -- we drilled the open pit wall, it has ore in there. So we're going to have results on that. We'll have probably an updated resource estimate early in the new year, and so that will be another area of source of mill feed.
Perfect. That's very helpful. And lastly, with regards to the paste backfill plant, just wanted to understand how much have you spent so far? And how much needs to be spend more on that?
It's been on planning -- mine planning and engineering. So we have not made a construction decision as of yet.
And how much have you spent on that?
Bhakti, it's Malcolm here. Just -- we've spent between 150,000 and 200,000 on some preliminary engineering work. And as David noted, we have not made a construction decision on the paste backfill. If and when we do, I expect it will be in the neighborhood of about $10 million, of which most of that could be financed through various different options. But again, we have not made a construction decision on that.
The next question is from the line of Joseph Reagor with Roth Capital Partners.
So a couple of things. First thing, on the tailings at Avino. The way I understand it is that the current plan is to extend the mine life -- the life of the tailings dam so the installation of buttress is right. And how long is the official goal to set for extending that life?
To build the buttress?
Or like how much time does it add on to the life, total?
Carlos, do you want to take that?
Yes. Thank you, Joe, for the question. Yes, we are in the process of doing the engineering starting from CFE. And it will take about something from 4 to 6 months to complete it, and the capacity that we are planning to have for this expansion will be about 3 years of capacity for the storage.
Okay. And then so from a modeling perspective, should we be assuming that your tailings project is 4 to 5 years away from being a producer then, given that you're going to extend the life of the tailings dam for planning?
You're talking about the oxide tailings resource?
Yes.
Yes. It really depends on metal prices and when we make the construction decision to build the paste backfill. And so if we make that decision next year and build it out, then we won't continue depositing on the expanded tailings area. But at the moment, it's given us a way to save costs and take our time to make sure we have the right plans for the paste backfill. So yes, at the moment, yes, it's going to be pushed out further.
Okay. And then moving over to Bralorne. Given that you guys have kind of gone back to the drawing board to drill this project out, see how big it can be, from an investor and modeling perspective as well there, what should we be thinking about as far as the ultimate timing to see that project reach construction decision?
Jasman here. I think that a lot of that will depend on the exploration results that we're going to get. So I think it's hard for us to sort of put a date on when the development of the mine will take place, contingent on the exploration results.
The -- go ahead, sorry.
I was just going to say, is it fair to say we should be looking at it more like the value of the existing resources and exploration upside rather than on the planned out mining sites since there's not exactly a specific plan in place at the -- right now because you don't know how big it is?
That's fairly accurate. I mean, we do have an internal mine plan at 400 tonnes per day. And Fred can speak to that, but it's not finalized yet. It's not 43-101 compliant. It's just internal at this point.
It's Fred here, Joe. We spent a couple of years looking at putting the mine back into production at about a couple of hundred tonnes per year. But once we went through our mine planning, our engineering and looked at what size we needed to make it economic, we ended up with about 400 tonnes per day operation that we require. And at that time, we only had about 180,000 ounces in resources, which is not enough to justify going through construction. So about a year ago, we decided that we got to go back to exploration. And our first objective was to add to the resources that we had. However, we realized that, that was going to be pretty slow in adding resources. So in January of this year, with the raising of the $6 million flow-through fund, we took a different approach to it, and said, let's look at the overall Bralorne property, the King and the Bralorne and the Pioneer plus we added the BRX, which doubled the size of the property. So look at it from a purely exploration side and try to make new discoveries on current known veins and make new discoveries outside that. And to that end, we're using the -- we've probably got the most comprehensive exploration program that's ever been done on it. We're using modern geophysics. We're using 2D seismic, and we're also providing a couple of kind of rules experts in this sort of deposit. So we've got a -- and David mentioned kind of the third quarter and the fourth quarter. And so this program will go on until June of next year, and depends on how successful we are in making a new discovery, it could add significantly. I also expect that we're probably at least 2 years away from being able to look towards construction.
Yes. But Fred, you can comment on the infrastructure. Once we do make the decision, how fast would that go from that point?
Yes. The thing is, over the last 2 years, we've been doing all the environmental, and because of the age of the property, we've had to do a lot of work on legacy issues. We've had water that we've had to look after, and so we got a permanent place for over 100-tonne per day operation, and we were working towards a permit for 400 tonnes per day, which -- because we have a modern permit now, that would probably take 6 months to do. Our infrastructure, we -- because we decided we couldn't use 100-tonne per day mill or expand it because it just wasn't laid out properly from the old operations side of it and it had some -- a lot of design issues. So we completely removed the 100-tonne plan from the building, and our plan is to build a new crushing station outside, use the old building and that will handle between 400 and 500 tonnes per day operations. So once we get the resources that we want, we will go immediately to the 400 tonne per day permit if that's what we're still at or perhaps we'll be larger than that. But then, the mill itself, we've done a lot of engineering on it already. So within the year, we could have the mill up and running. That will depend on where we find the new resources in that development.
The next question is coming from the line of Michael Wichterle with Cantor Fitzgerald.
So just one, and this concerns the optimization efforts, specifically at Avino. You mentioned there will be a bit of a decrease in the mining rate, temporary. How could I -- can you just help me...
Development rate, development rate.
Yes. And temporary, that's maybe this quarter and the next 2 or...
That's not going to affect the output.
Yes. But just in terms of the development, so it's just pretty much hitting just for Q4.
Say that again.
Just a decrease in development. I mean, you're just -- it's just seen in -- is this the final quarter of the year.
It's going to be ongoing until market conditions improve, but we have sufficient areas already developed ready for mining.
Yes. And besides, we do have a stockpile from the ET mine and with stockpile for some period of time. And that's going to -- we'll be using the stockpile for mill feed in the fourth quarter.
Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back over to management for any additional concluding comments.
Thank you, operator. Thank you, again, everyone, who joined the call today. Once again, during these times of significantly lower metal prices, we continue to work diligently on expanding our operations and making improvements to grow the company and ultimately increase shareholder value. I want to give a special thank you to our operations team in Mexico for doing a fantastic job during these times, and I want to thank you all again for joining us today, and wish you to have a good day. Thank you. Bye-bye.
Thanks, everyone.
Ladies and gentlemen, this does conclude today's teleconference. Again, thank you for your participation, and you may disconnect your lines at this time.