Avino Silver & Gold Mines Ltd - Earnings Call - Q4 2024

Transcript

Operator (participant)

Gold Mines' fourth quarter and year-end 2024 financial results conference call and webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference, you may signal an operator by pressing star and zero. I'd now like to turn the conference over to Jennifer North, Head of Investor Relations. Please go ahead.

Jennifer North (Head of Investor Relations)

Thank you, Operator. Good morning, everyone, and welcome to the Avino Silver & Gold Mines Ltd Fourth Quarter and Year-End 2024 Financial Results conference call and webcast. To join this webcast and call, there is a link in our news release dated March 4 and in yesterday's news release, which can be found on our website under News 2025. In addition, a link can be found on the homepage of the Avino website. On the call today, we have the company's President and CEO, David 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 by the management team may include forward-looking information within the meaning of applicable securities laws.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements. The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. For more information, we refer you to our detailed cautionary note in the presentation related to this call or on our press release of yesterday's date. The full financial statements and MD&A are now available on our website under the Investors tab, and then click on Financial Statements. In addition, the full statements are available on Avino's profile on SEDAR+ and on EDGAR. 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 from this conference call and webcast will be available on our website. Also, please note that all figures stated are in US dollars unless otherwise noted. Thank you. I will now hand the call over to Avino's President and CEO, David Wolfin. David.

David Wolfin (President and CEO)

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q4 year-end 2024 financial results conference call and webcast. We will cover the highlights of our financial and operating performance, and then we will go over the work that we are currently doing, followed by a Q&A. I will start with the discussion on operations, and then I will turn it over to Nathan Harte, Avino's CFO, to discuss the financial performance for the period, and then Jennifer North, our Head of Investor Relations, will present an overview of Q4 CSR ESG initiatives. Please turn to slide five for Q4 and full year 2024 highlights. Avino and the entire team delivered an exceptional performance in 2024, achieving record financial results and a strong operational execution, with full year guidance being realized after a very strong Q4.

The company posted record revenues and significant growth across key financial metrics, reflecting higher production, cost efficiencies, and strong metal prices. Nathan will provide an overview of the financials, but I want to take a moment to recognize that our success in 2024 is the result of years of strategic focus and dedication to our growth plan. Seeing these positive outcomes is truly inspiring, and I reflect on the many individuals who have contributed to guiding us along the way. The outstanding year is not just a milestone; it's a stepping stone towards even greater achievements for Avino. Our balance sheet is currently at a record high of $27.3 million, which is 916% higher than 2023 and represents the highest in company history.

At the start of the year, we shared fantastic news that the underground development at La Preciosa had commenced following the receipt of all necessary permits for mining operations. This milestone is a significant step forward in our growth plan and a clear demonstration of our commitment to delivering on our goals. On the topic of permits and the regulatory environment, just last week at the Mexico Mining Forum at PDAC, there appeared to be fresh optimism for the mining industry under President Claudia Sheinbaum's administration. We view this as a positive step for existing and future mining in Mexico. Moving on to slide six, we turn to our Q4 and year-end production results that were released in mid-January and were as follows: silver equivalent production increased by 32%. Avino produced almost 736,000 silver equivalent ounces in Q4 2024, representing a 32% increase from Q4 2023.

The increase was driven by improved gold grades and increased mill throughput. Mill throughput increased 26%. We processed 182,000 tons in Q4 2024, a 26% increase compared to Q4 2023, and the highest quarter in the company's history. Mill availability and performance is a result of considerable efforts from our operations team in Durango, allowing for meaningful improvements in operational metrics, as well as improving the company's cash and working capital positions. Gold production increased by 76%. Q4 2024, production of 2,560 gold ounces represented a 76% increase compared to Q4 2023 and was our highest quarter of gold production in 2024. Improved feed grade accounted for the majority of the increase, alongside the mill availability noted above. Slide seven. Turning to slide seven, you will see on a yearly basis silver equivalent production increased 10%.

Avino produced 2.6 million silver equivalent ounces in 2024, representing a 10% increase from 2023. The positive movement was primarily due to the improved copper and silver grades, improved copper recoveries, and higher mill feed compared to 2023. In addition, the company also had improvement in its health and safety performance and reports a reduction in lost time incident frequency rate of 32% for 2024, down to 3.39 per 1 million hours worked, while seeing an increase in hours worked by 47% at the Avino operations. Reportable lost time incident frequency rate also decreased to 0.07, down over 90% from 2023. Now moving on to slide eight, we will review our Q4 operational updates, beginning with the Avino Mine. The Avino Mine achieved its guidance target of between 2.5-2.8 million silver equivalent ounces at 2.65 million ounces for 2024.

Higher realized metal prices for silver, gold, and copper in Q4 assisted in the strong financial and operating margins, with records in most financial metrics and significant free cash flow generation. 2025 has begun positively with consistent production in the first months of the year. Moving on to La Preciosa. As mentioned earlier, in January, we announced the receipt of necessary approvals to move ahead with the underground development at La Preciosa, one of the largest undeveloped silver deposits in Mexico and the world. Equipment mobilization and surface works have been ongoing, with underground development getting underway. La Preciosa is an integral piece to our five-year plan and will deliver economic growth and benefit to the local communities in Durango. Please turn to slide nine, where we have photos of recent development activities, surface works, and delivery of equipment. We are very pleased with the swift advancement at La Preciosa.

At this time, I will now hand it over to Nathan Harte, Avino's CFO, to present our record-breaking Q4 and year-end 2024 financial results. Nathan?

Nathan Harte (CFO)

Thank you, David. It's my pleasure to be presenting our fourth quarter and year-end 2024 financial and operating results to everyone who has joined us on the call and is viewing our presentation today. Turning to slide 10 now for a snapshot of these record-breaking financial highlights for the fourth quarter and year, followed by the full table in slide 11. The fourth quarter results were what can only be described as our best in company history. We generated a record $24.4 million in revenues over the quarter, with gross profit margins of 43%. On a cash basis, our gross profit margin was 49%, our highest in recent history and up from 45% in the last quarter. We generated $14.1 million in free cash flow, which translates to $0.10 per share. Our all-in sustaining cash cost per silver equivalent ounce was $18.62, representing our lowest since 2022.

This amount puts us in the lower quartile of junior producing peers and in the mid-range with intermediate producers in Mexico. Moving over to our full year results, I want to highlight the annual revenue of $66.2 million, which is a record high for Avino and represents a 51% increase from 2023, primarily driven by the growth we saw in our fourth quarter. Net income after taxes and all expenses was $8.1 million, or $0.06 per share. After adjusting for non-recurring and non-cash expenses, adjusted earnings was $21.3 million on the year, or $0.15 per share. Mine operating cash flows before taxes was $27.6 million. All-in sustaining cash cost per silver equivalent ounce was $20.57, which represents a deduction of 6% from 2023. Now on to the balance sheet.

Our cash position was $27.3 million at the end of 2024, driven by improved operational performance and sales in the fourth quarter. To put this in perspective, we had under $8 million in the treasury at the end of the third quarter, representing an almost $20 million increase in our cash position during Q4. As highlighted in previous calls, balance sheet strength will be very key over the coming months as La Preciosa development gets underway. With no debt excluding operating equipment, we are well positioned to execute on our five-year organic growth plan. Coming to slide 11, we see all other financial metrics and the significant increases both quarter over quarter and year over year. Highlighting the increases in cash provided by operating activities in both periods, as well as the free cash flow numbers, these figures are both materially higher than prior year periods.

Capital expenditures in Q4 and for the year were $1.5 million and $6.6 million, respectively. We came in below our 2024 guidance range of $7.3 million-$9 million, primarily due to the deferral of certain expenditures to 2025 as we were awaiting the operating permits for La Preciosa. With these permits received in January 2025, we expect to be within our previously released capital expenditure guidance for the year. Reminding everyone that approximately $5 million-$6 million are allocated for equipment and mine development at La Preciosa, which should give us access to over 1 million tons of mineralized material. Here on slide 12, you can see our cash cost per ounce figures for the fourth quarter improved from Q4 of last year, and we're well below previous quarters in 2024 as well, even with lower ounces sold than expected.

We highlighted our expectations for a reduction in cost on our previous earnings call, and we remain pleased with the improvements as costs in Q4 were down 8% on a cash basis to $13.88 per ounce and 14% on an all-in cash basis to $18.62 per ounce. These reductions were primarily a result of increased mill availability and ounces sold, further aided by the Mexican peso showing some further weakness against the US dollar in Q4. The jump in ounces sold is partially a result of increased inventory sales solely due to the timing of shipments, with no intentional strategy to hold back sales in previous quarters. On a full year basis, our cash cost per ounce came in at $14.84, representing a 5% reduction from 2023. All-in sustaining cash cost per ounce came in at $20.57, a 6% decrease from 2023.

The full year cost per ounce reductions were driven by higher grades and production through the mill, as well as the overall weakness of the Mexican peso to the US dollar on an average basis in 2024 compared to 2023. Coming to slide 13, you can see our cost per ton process for the quarter came down fairly significantly, especially from a quarter-over-quarter perspective. We saw a meaningful drop compared to Q4 2023, with cash cost per ton coming in at $51.11, representing a 17% reduction. On the all-in cost side for the quarter, the trend was similar as our cost per ton was $74.29, a 16% decrease compared with Q4 of last year. Both metrics for 2024 were lower compared to the year-to-date numbers at Q3, and we did see reductions compared to the full year 2023 results.

Cash cost per ton process was reduced by 2%, and all-in cash cost per ton processed by 5% when compared with 2023 figures. As shown by our profit margins, these improvements had meaningful impacts on our bottom line. With the Mexican peso weakening in Q4 and into 2025, the pressure on our cost structure has eased. We have been implementing measures to protect our cost structure for 2025. Tariff discussions continue to put uncertainty in the currencies in which we operate in, and reducing our risk associated with costs will be key throughout the year. With metal prices remaining elevated and permits received at La Preciosa, we are excited to be shifting focus to growth in the coming quarters. At this point, I will now turn it over to Jennifer North, Head of Investor Relations, for an overview of our recent ESG and CSR initiatives.

Jennifer North (Head of Investor Relations)

Thank you, Nathan. Moving on to slide 14, we have listed the ESG CSR initiatives that were completed in the fourth quarter. As we have mentioned, Avino follows the ESG standards and the United Nations Sustainable Development Goals, or the SDGs, that work together to address the most pressing challenges facing the world. Fourth quarter activities were focused on SDG number three, good health and well-being, number four, quality education, number five, gender equality, and number six, environment or clean water and sanitation. During the quarter, the following support was provided. Materials were donated for general upkeep of the community's elementary and secondary schools. A talk called Café Rosa was sponsored and supported by Avino personnel on breast cancer awareness and prevention. A vibration analysis was carried out and supported by Avino mine supervisors. Monthly maintenance of the community landfills was carried out.

Avino supported traditional Day of the Dead celebrations with a unique mandate that all costumes were to be made from recycled paper. This initiative aimed to promote the reuse of materials, contributing to the conservation, care, and protection of the environment, while also raising awareness among future generations. Samsung tablets were awarded for first place, with backpacks with school supplies awarded for second and third place. An important initiative called the Orange Campaign was launched to educate both community members and Avino employees about the prevention and eradication of violence against individuals, regardless of gender, sexual identity, age, or any other factor. As part of this campaign, self-defense workshops have been offered, along with educational materials and awareness posters that have been distributed throughout the community. Waste materials such as wood, tires, and plastics were donated to community members, giving a second life to items that would otherwise be discarded.

This initiative helps reduce the mine's ecological footprint. Our CSR team has collaborated with an external company to obtain solar boilers with subsidized prices for our workers and community members for their homes. The CSR team works tirelessly to bridge gaps and address diverse needs, whether economic, educational, or otherwise, by responding to requests, providing support, and sharing valuable information. Finally, I'm pleased to share that we've been working on our inaugural sustainability report, which reflects our commitment to transparency, accountability, and responsible business practices. By sharing our environmental, social, and governance efforts, we aim to build trust with our stakeholders, demonstrate our positive impact, and continuously improve our sustainability performance. We look forward to making it available on our website very soon. I will now turn it back over to David to continue on with the presentation, providing our plans for the coming quarter. David?

David Wolfin (President and CEO)

Thanks, Jen. Moving to slide 15, we were thrilled to see metal prices continue to rally into the fourth quarter and maintain their strength. Coupled with their solid production results, this positions us favorably as we advance towards our transformational growth objectives, particularly with the development of La Preciosa. We are currently mining at levels 13.5 and 14 at Elena Tolosa. An exploration drilling has commenced on the Avino vein below the ET mines, where we previously hit the highest grade hole in company history. The vein is open along strike and at depth following the previous successful drill program. As outlined on slide 16, we want to reemphasize the company's growth plans. We have three assets within a 20-km footprint totaling 371 million silver equivalent ounces.

In the same area, we have an operating mill complex, which is currently producing from our Avino mine and additional access to water, power, and tailings storage. As you can see on this slide, our goal is to scale up by 2029 through production from these three assets. By capitalizing on our existing assets and resources, we can execute our growth plans efficiently and effectively. This approach not only mitigates risks associated with new project development, but also positions us for long success and value creation. In conclusion, this record-breaking year would not have been possible without the dedication, expertise, and hard work of our operational teams and employees across the company. Their commitment to excellence, teamwork, and innovation has been instrumental in achieving these milestones. On behalf of our leadership, thank you for your efforts and contributions. Your work continues to drive Avino's success.

We would also like to thank our shareholders for their continued support. We are pleased for Avino's shareholders who've stayed the course with us. Throughout the year, I've had the opportunity to connect with many of you, and we truly appreciate your trust, confidence, and ongoing commitment to Avino. With a solid financial foundation, strong operational performance, and positive market trends, Avino is well positioned for continued growth and value creation in 2025 and beyond. We would now like to move the call to the question and answer portion. Operator?

Operator (participant)

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Thank you. Your first question is coming from Heiko Ihle from H.C. Wainwright. Your line is live.

Heiko Ihle (Analyst)

Hi, David, Nathan, team.

David Wolfin (President and CEO)

Hey.

Nathan Harte (CFO)

Hello.

Heiko Ihle (Analyst)

Nice. Nice to see the stock price performance today. Well done.

Can you give a quarter-by-quarter breakdown for what you expect to spend in CapEx at La Preciosa this year? I mean, I assume it's going to taper off by Q3 a little bit, right? But maybe just on an actual cash basis, what you expect to spend in Q1, Q2, Q3, and maybe even Q4 if you want to be so kind.

Nathan Harte (CFO)

Thanks, Heiko. Nathan here. I can break it down a little bit. Obviously, we're almost all the way through Q1. We spent a little bit of money, but again, nothing out of line with if you smooth it across the year. We expect a lot of the development expenditures to be Q2 and Q3 focused, and then in Q4, taper off a little bit, and then we'll be looking for the future for OpEx or operating costs.

Heiko Ihle (Analyst)

Quantifying it?

Nathan Harte (CFO)

Sure. Sorry. We did put out in our guidance about $5 million-$6 million total, and that's what we're sticking with. Say, yeah, a little light for Q1, and then Q2 and Q3 will be heavier, and then tapering off at the end of the year.

Heiko Ihle (Analyst)

Okay. Call it 1, 2, 2, 1?

Nathan Harte (CFO)

Sure.

Heiko Ihle (Analyst)

Okay. Cool. You processed almost 182,000 tons in the quarter, highest throughput you ever had, very fancy headlines. Can you provide some color on what bottlenecks, if any, you're starting to see at the plant? I should know this, but I don't. Can you expand the plant from here without additional permits? Because obviously, La Preciosa is going to start to kick in as well.

Peter Latta (VP Technical Services)

Yeah. Peter here, Heiko. Thanks for the question. As far as bottlenecks we're seeing now, we're getting pretty close to the maximum throughput of the mill now. Keeping in mind why this process took a little bit of time is this: last year was the first year we ran full ET material, which is a little bit coarser and a little bit more abrasive. It took us a little while to get our operating practices to the point where we can get the mill on plane. That is really what we showed in 2024, that we were able to understand the maintenance practices and the upgrades needed to get to that kind of nameplate 2,500 ton per day capacity, which we're getting very, very close to.

With regards to expanding the plant, we do not need any permit, but we will need another few pieces of equipment in order to add an additional fifth circuit. That is experience that we have done in the past. Obviously, you are familiar with adding circuit four and circuit three before that. That is something we could entertain, certainly.

Heiko Ihle (Analyst)

Okay. This is—I don't want to say rubber stamp, but this is easy to do.

Peter Latta (VP Technical Services)

Say that again?

Heiko Ihle (Analyst)

Getting an additional circuit would be easy to do if need be.

Peter Latta (VP Technical Services)

It would be straightforward to do it as a practice that we've done in the past, yes.

Heiko Ihle (Analyst)

Okay. Perfect. I'll get back to you.

Peter Latta (VP Technical Services)

Thanks, Heiko. Thank you.

Operator (participant)

Thank you. Your next question is coming from Jake Sekelsky from Alliance Global Partners. Your line is live.

Jake Sekelsky (Analyst)

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

Nathan Harte (CFO)

Hi, Jake.

Jake Sekelsky (Analyst)

Nathan, you touched on the decline in costs in Q4, which is good to see. I'm just curious, are these levels that we should expect to see in 2025 on the back of a weaker peso? Do you feel there might be some more low-hanging fruit on the cost side to capitalize on?

Nathan Harte (CFO)

Yeah, it's a fair question. On the tonnage side, the cost per ton side, we expect it to be fairly level. Obviously, we've taken a risk-reduction approach by hedging compared to the Mexican peso from the US dollar, given some of the uncertainty. On a cost per ounce side, I mean, that is partially driven by mill feed and grade and the recoveries we get. It's hard to say 100%, but we expect to be similar to potentially a little bit lower from where our yearly all-in cost numbers were. We were right around $20-$20.5 on the year. The goal is to be around that same level, if not lower, but the goal is about the same level.

Jake Sekelsky (Analyst)

Okay. That's helpful. Just back to La Preciosa, you have to provide a bit more color on the cadence of the ramp-up there and the delivery of fresh ore to the mill. Do you think we'll start to see those benefits in Q4? Do you think it's more of a Q1 2026 type event?

Nathan Harte (CFO)

Yeah. Fair question. I think we are on track with the guidance we put out, which did include some material from La Preciosa. We were hoping to start blasting very soon, and obviously, all the operating permits, as we've already announced, are in place. I think we're looking at Q4 more so before any tonnage would potentially hit the mill. Again, we are taking a conservative approach, and it's possible that we do stockpile for a little bit to make sure we can run at full capacity in the smaller circuits and then start processing later in the year or even potentially in Q1 of 2026. The goal is for later in Q4.

Jake Sekelsky (Analyst)

Understood. Okay. That's all for me. Congrats again on the quarter.

Nathan Harte (CFO)

Thanks, Jake Sekelsky.

Operator (participant)

Thank you. Your next question is coming from Joseph Reagor from ROTH Capital Partners. Your line is live.

Joseph Reagor (Analyst)

Hey, guys. Can you hear me all right?

David Wolfin (President and CEO)

Hey, Joe. We hear you.

Nathan Harte (CFO)

Hey, Joe.

Joseph Reagor (Analyst)

Hey, kind of just following on what Jake was just asking, are you guys planning to do a PEA or a resource update on La Preciosa that's kind of a more accurate view of how you guys plan to mine it? Because the old resource is kind of more of a bulk tonnage resource.

David Wolfin (President and CEO)

Yeah. No, very fair question, Joe. We will be doing a resource update that will go out next year. There will be a cutoff later this year. We are looking at all options here to look at how we would justify some of the economics.

Joseph Reagor (Analyst)

Okay. As far as reporting goes, would you guys treat this kind of like you used to treat San Gonzalo, where we'll get it broken out as essentially a separate mine, even though it's being processed at one mill?

Nathan Harte (CFO)

Hey, Joe. Nathan here. That's correct. I mean, obviously, it's a separate—we're treating it a bit like a satellite deposit, but it will be a separate operation with separate financial and operating metrics.

Joseph Reagor (Analyst)

Okay. On that basis, what do you think the tonnage will be on kind of an annual basis that you guys have as a goal to process from there?

Nathan Harte (CFO)

Are you referring to this year or future years?

Joseph Reagor (Analyst)

Future. Once you get it ramped up.

Nathan Harte (CFO)

I think, yeah. This year, obviously, it's all ramp-up. I think 2026, we're hoping for close to 400-500 tons per day. Long-term, I mean, based on the current permit, we can go quite high. I think we're targeting about, I think, 1,500, and there's options to increase that depending on what we do with Martha. Sorry, that's the Martha thing.

Joseph Reagor (Analyst)

Okay. All right. That's helpful, guys. Thanks. I'll turn it over.

Nathan Harte (CFO)

Thanks, Joe.

Operator (participant)

Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Your next question is coming from John Tumazos from John Tumazos Very Independent. Your line is live.

John Tumazos (Analyst)

Hello, David. Could you give us a flavor of the conditions on the ground socially in the neighborhood of your mines and mills, given the closing of the U.S. border and, I guess, the off-the-books revenues from human trafficking or narcotics, etc., are less, and the on-the-books revenues from auto and other legitimate exports are challenging. I just wonder what those people do if they stop being coyotes, etc. Are they going to be miners, or are they going to be active in illicit activities, some other thing? Is there any visible change to the neighborhood?

David Wolfin (President and CEO)

No. We employ 450 people directly. We impact probably three times that in the local communities. When we go to the mine sites, the parking lot's full of cars with license plates from the U.S. They are all coming back home to work for us because we pay a good dollar rate there. As Jen had mentioned earlier, we do a lot in the communities. We hand out Galaxy tablets and televisions at the schools, and we do a lot for the community. There is going to be a sustainability report that comes out here very soon, which will lay out a lot of that information. We are nowhere near the border, so we are in the state of Durango. It is a safe place. There is no human trafficking or anything like that that I am aware of going on in our jurisdiction. It is just a farming and cattle ranching community.

It's a safe jurisdiction. Yeah. Yeah. Like 11 hours away from the border. It is a long way away from the border.

John Tumazos (Analyst)

You mentioned hedging the peso in your presentation. Given the GDP impacts to Mexico from closing the border, it's very possible the peso could weaken a lot. Could you elaborate on the amount of hedging you have, etc.?

Nathan Harte (CFO)

Sure, John. Nathan here. We had, knowing what our budget rate is and knowing that we want to beat that for 2025, understanding that it could go weaker, it could go stronger, largely depending on what the U.S. government decides to do. Having said that, all of our contracts are in place to basically provide us with a lot of upside and just limit any downside exposure. I will not get into too much of the details on each individual contract, but it allows for a lot of upside and to follow with the spot market if needed.

Generally, a weaker trade.

John Tumazos (Analyst)

What percent hedged are you for this year?

Nathan Harte (CFO)

What percent hedged on our OpEx? I mean, we can take this call offline if you prefer, but nowhere near 50%.

John Tumazos (Analyst)

Thank you very much. Thank you.

Operator (participant)

Thank you. That concludes our Q&A session. I'll now hand the conference back to David Wolfin, President and CEO, for closing remarks. Please go ahead.

David Wolfin (President and CEO)

Thank you all for joining us today. This is a very exciting time for the company with the high metal prices, new mine being developed. We appreciate your patience in getting to this point and look forward to delivering on our five-year growth plan. Thanks again, and have a great day.

Operator (participant)

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.