Avino Silver & Gold Mines Ltd.

Thank you for standing by. This is the conference operator. Welcome to the AVENO Silver and Gold Mines Limited Q4 and Year End 2020 Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Jennifer North, Manager Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the AVENO Silver and Gold Mines Limited Q4 and Year End 2020 Financial Results Conference Call and Webcast. On the call today, we have the company's President and CEO, David Wolfen, our Chief Financial Officer, Nathan Hart, our Chief Operating Officer, Carlos Rodriguez, and our VP, Technical Services, Peter Lara. Before I get started, please note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements. The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. For more information, we refer you to our detailed cautionary note in the presentation that accompanies this call or on our press release of yesterday's date. I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information in the presentation slides accompanying this conference call and webcast will be available on the website. Thank you. I will now turn the call over to AVENO's President and CEO, David Wolfen. David?

Thanks, Jen. Good morning, everyone, and welcome to AVENO's Q4 and Year-End 2020 Financial Results Conference Call and Webcast. Thanks for joining us. Before we begin, please note that the full financial statements and MD&A are now available on our website. On today's call, we will cover the highlights of our fourth quarter and year-end 2020 financial and operating performance and our plans for 2021, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. 2020 was a challenging year, and although we are relieved to put it behind us, the year can be marked as one of learning, patience, and a significant focus on health and safety of our entire company spanning Mexico, Canada, and the U.S. The pandemic presented new challenges for our team, and I'm proud of the way we were united by our shared culture of discipline, flexibility, and teamwork that truly made us a stronger company. I would like to extend a special thank you to the management team in Mexico led by Carlos Rodriguez, who cooperated quickly and responsibly with the Mexican authorities and carried out critical tasks at the mine to ensure the safety of our employees and surrounding communities. Lastly, I would like to extend my appreciation to our shareholders for their support and patience during the entire year while we experienced the temporary shutdown due to COVID and when we went through the strike at the mine. While the strike ended in early October, we have been waiting for the government offices in Mexico to reopen so the agreement with the labor union may be ratified. In the meantime, we completed the comprehensive evaluation, and over the last month, various supplies are being ordered and delivered as we look towards startup of operations. Our fourth quarter operational performance was directly impacted by 12-week strike at the mine and resulted in no mining activities taking place during the three months ended December 31, 2020. During the quarter, we continued moving forward with the proposed dry stack tailings storage facility number two, which is on privately owned Avino land and is permitted and is currently in the final stage of prior to commencing construction. We expect this project to be completed during Q3 2021 and should add an additional eight to 10 years of tailing capacity based on the current mill throughput rate. We chose dry stack tailings for its environmental safety and economic advantages with its high solid content. This significantly improves safety and stability and reduces the need to extract water from local sources by recycling the water removed from tailings. In addition, it requires less land, which in turn results in smaller environmental footprint. Over the years, we have been proactive in developing partnerships between the people of Durango and Avino, and we are happy to have helped in many ways, including providing maintenance of water reservoir, installed new water pipes and expanded the drinking water network, maintained the neighborhood streets and roads, educated the communities in the importance of mining, delivered sports equipment and maintained sports facilities, and provided medical assistance. We have also provided a number of other projects to the people of Durango, including medical and ambulance services. But above all, we have provided steady employment to the people of the four communities that surround the mine. Currently, we are in the process of receiving enough PPE and rapid COVID tests, so we may ensure that the safety and good health of our workforce and provide employment once again. The restart of production activities is expected to provide significant direct economic benefits and stimulus for the local communities, so we are very much looking forward to that. During the fourth quarter, silver prices ranged from a low of $2,215 to a high of $2,648, and gold prices ranged from a low of $1,870 to a high of $1,940. The metal prices have continued to be volatile, but have stayed close to the highs reached in the third quarter, with silver reaching $2,958 early in February and the gold price reaching a high of $1,943 early January. Over the last few days, silver prices hovered around $26 and $27, and gold has backed off from earlier highs to around $1,730. As silver has many industrial applications, we believe it will be a great demand as stimulus in the U.S. gets going. It is also worth mentioning the price of copper as it makes up close to a third of our revenue contribution when in production. The copper price has been steadily moving upwards on a low inventories and anticipated rebound of the global economy, growth of industrial activities, strong demands by China, global vaccination rollout, and weaker U.S. dollar. We hope that our favorite metals will continue to shine. Our sights are set on a positive and brighter 2021. I will now ask Nathan Hart, Aveeno's Chief Financial Officer, to present the financial results for Q4 and Year-End 2020.

Thank you, David. It's my pleasure to be on the call, and I would like to welcome everyone who has joined us and is viewing our presentation today. As you can imagine, Aveeno's operating results were impacted by the previously mentioned strike action at the Aveeno mine. Having said that, the financial health of the company remains very strong as Aveeno continues with its plans to reduce its debt load into 2021, having lowered its liabilities by a further $1.1 million during the fourth quarter. This brings total debt reduction for the year to over $7 million. Working capital at December 31, 2020 was $14.7 million compared to $16.9 at September 30 and $13.2 at the beginning of the year. Our cash balance at the end of the year was $11.7 million compared to $12.5 at September 30 and $9.6 at the beginning of the year. During Q4, we generated revenues from mining operations of $1.4 million from silver equivalent ounces sold of $59,000. Aveeno also recorded mine operating losses of $1.3 million for Q4, which includes $1.5 million in standby costs, an increase of $800,000 when compared to Q4 2019. Losses before interest, taxes, depreciation, and amortization were $2.3 million compared to earnings of $1.3 million in Q4 2019. Adjusted losses for Q4 2020 were $200,000 compared to adjusted earnings of $1.6 million in Q4 2019. Aveeno reported net losses after taxes from continuing operations of $1.6 million, or $0.02 per share for the fourth quarter of 2020, and $0.07 million, or $0.09 per share for full year 2020. It should be noted that net losses for the year includes non-cash losses of $2.7 million relating to the exercise of warrants in which Aveeno proceeds of over $3 million US. Our fourth quarter consolidated cash production costs, net of standby costs, were $14.01 per silver equivalent payable ounce sold compared to $13.14 in Q4 2019. Due to significantly lower ounces sold in Q4 2020, our all-in sustaining cash costs for payable silver equivalent ounce number, which includes standby costs of $1.5 million, increased up to $73.08. The full year consolidated cash production costs, net standby costs, were $10.68 for silver equivalent payable ounce sold, which is a decrease compared to 2019 of 12%. Consolidated all-in sustaining cash costs, including standby costs of $2.4 million for the year, were $20.35 per payable silver equivalent ounce sold, compared to $17.19 in 2020. Again, the increase is a result of fewer ounces sold throughout the year. The standby costs were directly associated with maintaining operations during the temporary shutdown due to the pandemic and the strike action, as well as certain severance costs associated with the resolution of the strike. Revenues for the year from mining operations were $16 million and were derived of 32% from silver, 24% from gold, and 44% from copper. Capital expenditures for the full year were $2.2 million compared to $9 million in 2019. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the third and fourth quarters. All necessary upgrades or projects continued on as planned, which includes the new dry stack tailing storage facility. On a consolidated basis, the company reduced its general and administrative expenditures by 300,000, or 9%, for the full year 2020 compared to 2019. Finally, I want to reiterate that Avinum remains financially strong and exited the year with a strong balance sheet. We have made significant strides in reducing our debt, and at the end of the year, we maintained over $20 million in liquidity, including our investment holdings. With current debt representing less than 50% of our cash balance at the end of the year, Avinu is looking forward to putting the drill bit to work, as we recently announced the kickoff of our 2021 Exploration Drilling Campaign for a Phase 1 initial 12,000 meters. I will now hand it back over to David for discussion on exploration and other exciting plans for what is shaping up to be a great 2021 for Avinu.

Thank you, Nathan. Our plans for the first quarter of the year include the drills are turning and we are excited. We have already started the 12,000 meter drill program, which is targeting several areas of the Avinu property, including the Avinu vein, the Santiago vein, and the El Trompo vein. Future exploration targets may not be limited to these three areas, and during the year, our priority targets may change if geological interpretations on other areas present enhanced opportunity. We are currently working on increasing the exploration program with details to be released once an increase in the budget is approved. Continue to ready the mind for startup of operations, continue moving on the dry stack tailings project, make improvements to the circuit for that will improve gold and silver recoveries through the use of new equipment. Avinu's longevity demonstrates a commitment to maintaining our mission, vision, and values. As we enter our 53rd year, we remain diligent in our efforts across our operations with respect to COVID-19 and are working together to keep our employees and communities healthy. We look forward to a positive and productive 2021 together with the potential of continuous strengthening of the market and the commodity prices. We thank you for your patience and understanding. We are optimistic for the future and a return to business as usual. We would now like to move the call to the question and answer portion. Operator?

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. The first question is from Jake from Alliance Global Partners. Please go ahead.

Hi David and team. Thanks for taking my questions. Hey Jake. Morning Jake. Starting with PSS2, it looks like completion is scheduled for Q3. Are you able to give us any color on how far along you are there in the total construction timeline? And I'm also curious if you're seeing any delays on sourcing key materials or labor for that due to the pandemic.

It's on schedule right now and there's been no delays whatsoever. The filter presses have arrived in Mexico. Clearing customs should be delivered probably within a week or two. Steelworks is underway. So everything's moving ahead as planned.

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

I think there's what about 3,500 meters on Santiago. I think we're on the second or third hole. Anywhere from six to eight weeks to get results depending on how the lab is. And we've also started drilling Il Trumbo, which is another 3,000 meters.

Got it. Got it. Following up on that a bit, I mean, you mentioned that there's potential for an increase in the program. Is that something you think we'll see detailed on in Q2?

You'll see it next week.

Got it. Okay, perfect. That's all for me. I'll hop back into the queue. Thanks again.

The next question is from Jaico Ile of HC Wainwright. Please go ahead.

Hey guys, thanks for taking my questions. Hey, just a couple of things. I mean, it was a good quarter during a pretty crazy year for AVENO and the world in general. With all the exploration that you're doing, what are you seeing with costs for drilling and probably almost as importantly the timing for assay results,

please? Hey, Jaico. Nathan here. So I'll take the cost side of things. I don't think we're seeing any significant increases. Obviously, we've mentioned a few times we have our own drills and have very good relationships with the local drillers in Durango. So we're not seeing any significant increases even during these kind of unprecedented times. As far as the assay results, I think data mentioned six to eight weeks of turnaround from when we send them off. So hopefully we'll get something back just over a month from now on some of the initial stuff and then we'll have to assess the results.

Okay.

With the lack of mining, can you just sort of walk us through what you've been seeing with cash burn so far in 2021 on a month, I guess, January, February basis, mostly at the mine side, obviously, I assume we can just trendline corporate expenses from Q4, right?

Yeah, no, that's fair. At the mine site, I'd say right now, there's not a lot of expenditures going on. It's really just care and maintenance and maintaining the water and DT and the ground. So it's about a couple hundred thousand dollars, probably a quarter of a million dollars a month, I would say.

Very good. And then lastly, startup expenses, or as you call them in the press release, your transitional efforts. You want to just sort of give us an idea how much money we're looking at that you'll be required to spend until this thing is fully up and running? Please.

Sure. Yeah, I think we're looking at about an additional million to million and a half in costs over the ramp up period. And again, we don't expect that to be super long once we start up, but that's kind of what you can expect.

Fair enough. Definitely lower than what I had in my model. Excellent. Thank you so much.

Thanks, Echo. Thank you.

The next question is from Joseph Rieger from Ross Capital Partners. Please go ahead.

Morning, guys. Thanks for taking the questions. Hi, Joe. Morning, Joe. So a couple of things. I guess first one on the sales in Q4, my assumption is that was just inventory drawdown. But is there anything we can expect, or we should technically add to our Q1 number that were additional inventory sales so far this year?

Hey, I would say, Nathan here, that was some final inventory drawdown just from cleaning up the tanks and some other areas of the mine. And so we sold some products off to our partners at SAMHSA. But I would not expect anything for Q1 2021 unless, yeah, I would say no at this time.

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

Yeah, sure, Joe. Obviously, we wanted to use that opportunistically. And so we really only used it for, as you can imagine, a day or two. We have about 7 to 8 million left of capacity on it. So you can do the math backwards. And I think it's disclosed in our subsequent events now. But yeah, as you correctly pointed out, we raised at just under $2 a share US. So significantly above levels that we're at now and at a fairly low cost of capital.

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

Hasn't changed. I think it's about $15 million. We have no plans to sell it. They have four drills turning and four more. They're adding this spring. So they'll have eight drills turning. Talk to Terry, the CEO, and they expect they're working on a resource between $1.5 to $2 million ounces.

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

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

Okay, but not comfortable giving a time range on it yet.

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

Our plan is to start underground mining first to get build a stock file. Yep. And we can do that. So that's what we're planning for right now.

All right. Thanks. I'll turn it over.

As a reminder, it is star one to ask a question. The next question is from Matthew O'Keefe from Cantor Fitzgerald. Please go ahead.

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

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

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

Employees that we'll hire from the local communities.

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

Nathan here. I wouldn't think it's a matter of a full quarter for sure. And Peter's here as well. He can speak to more of the timeline and I can speak to the cost side of things. I think I mentioned earlier about a million and a million and a half over the ramp up period on additional costs. And as far as timeline, Peter, maybe you want to touch on that? Yeah, I mean, it's just going to be a couple of weeks here really, we think, once we get the underground going. I

would give us a month.

Okay.

We're also looking at automation in the mill. So we won't need as many people when we go to start up the mill. There's a lot more

that will

be automated.

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

Yeah, I think we've, we touched on it briefly previously and possibly even in a prior news release, Matt, but obviously, David mentioned in the call that we're looking to increase that. We've pretty much essentially got some additional increase approved, mostly on the exploration side, but also on the automation and actually potentially another area of the mind that we'll be excited to talk about hopefully next week. And so I think right now we probably had it set as around six to seven million. I think we're looking closer to up to 12 million over the year.

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

Thank you. Thanks, Matt.

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

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

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