Avino Silver & Gold Mines Ltd.

Thank you for standing by. This is a conference operator. Welcome to the Aveeno Silver and Goldmine's first quarter 2021 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 and operate it by pressing star and zero. 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 and Gold Mines Limited Q1 2021 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 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. 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 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 will now turn the call over to Aveeno's President and CEO, David Wolfen. David?

Thanks, Jen. Good morning, everyone, and welcome to Aveeno's Q1 2021 Financial Results Conference Call and Webcast. Thanks for joining us. Before we begin, please note that the full financial statements and the MD&A are now available on our website. On today's call, we will cover the highlights of our first quarter 2021 financial and operating performance and our plans for Q2 2021, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. It's hard to believe that it has been more than a year since we were first faced with the pandemic and the forced operational shutdowns. As I mentioned during our previous quarter and year-end call, I would like to say a special thank you to the management team in Mexico, led by Carlos Rodriguez, who adapted quickly and carried out critical tasks at the mine to ensure the safety of our employees and surrounding communities. In addition, I would like to extend my appreciation to our shareholders for their support and patience during last year while we experienced the temporary shutdowns due to COVID-19 and the temporary shutdown due to the strike at the mine. The 12-week strike lasted from July to October 2020. As the Labor Authority Office of Mexico City remains closed due to COVID-19 protocols, the company is working diligently with its partners to ratify the agreement. The company is committed towards restarting production and mining operations as soon as possible. Mining in Mexico in general was significantly interrupted last year as a result of COVID-19, with most mines and projects suspended for a number of months before resuming operations under strict health guidelines. Global production of silver declined in 2020 by 5.9% to hit 784 million ounces, as reported by Metals Focus. However, global production is expected to rebound strongly in 2021 with an increase estimated at 8.2% to 848 million ounces. According to the Chamber of Mexico, sector-wide investment fell 50% compared to pre-COVID estimates, dropping from $5 billion to $2.5 billion. However, the industry is set for a rebound in 2021. with many companies announcing increased investment in projects across Mexico. This also goes for Aveeno. As we announced during the first quarter, an increase in our capital expenditures and exploration budget from $6 to $8 million up to between $9 and $11 million. Additionally, hiring has begun for experienced mine workers at site. We are definitely moving closer to a recommencement of operational activities, Our goal is to ensure that we reopen properly with all guidelines, including labor and health in place. During the quarter, the 2021 drill program remained a top focus with the objectives of locating new mineralized zones within the property and to confirm continuity of mineralization in the current Aveeno ET production area. At the end of Q1, 1,870 meters were drilled at Santiago and El Trompo veins. Also in the corridor, we continued moving forward with the proposed dry stack tailing storage facility, TSF number two, which is on privately owned Aveeno land, is permitted and is currently in a final stage prior to commencing construction. We expect this project will now be completed during Q4 2021, and it should add an additional 8 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 solids content. This significantly improves safety and stability and reduces the need to extract water from local sources by recycling the water removed from the tailings. In addition, it requires less land, which in turn results in smaller environmental footprint. Over the years, we have been proactive in developing a partnership between Aveeno and the people of Durango and the four communities surrounding the mine site. We are pleased to announce that Aveeno has just recently hired an ESG manager in Durango to help drive ESG initiatives forward and contribute to the operational continuity of the business under the principles of sustaining and social responsibility. During the quarter, we have helped in many ways, including supported the town of San Jose de Avino by loaning our cat dozer, paying for the fuel and operator time to help expand the town cemetery. We provided multiple bags of cement to fix access roads in the town, provided information to the communities on the safety of dry stack tailings, and we'll follow up again with the new ESG manager. Even though we still have not recommenced operations, the communities surrounding the mine site know that Aveeno will lend a supportive hand when needed. In addition, we have received PPE and hundreds of rapid tests to ensure the safety and good health of our workforce. Avino is the only source of employment in the area, and once we are fully operational again, we will provide steady employment to the people of the Durango and nearby communities. Many people in the communities are keen to get back to work at the mine, and Avino has the full support of the local and state governments. The restart of production activities is expected to provide significant direct economic benefits and stimulus for the local communities. During the first quarter, silver was a bit slow to move with an 8.2% decrease compared to the full year 2020. The price ranged from a low of $24.67 on March 25th to a high of $29.59 on the 1st of February. Coincidentally, this was the day of the Reddit propelled silver squeeze. Gold prices ranged from a low of $16.83 on March 30th to a high of $19.43 on January 4th. The metal prices have continued to be volatile with silver currently in the low 27 range and gold staying slightly above 1800 level. With rapid transition to clean technology being legislated in the USA, silver and gold will be in demand and we expect both will shine. Not to be overlooked is the price of copper. It has been on a tear. and will play a key role in the new green economy. This is definitely worth mentioning for Aveeno as copper makes up at least a third of our revenue contribution when in production. Last quarter, copper was sitting around 350 per pound, and now it's closing in on 475 per pound. The copper price is steadily moving upward on a low inventories and anticipated rebounds of the global economy. growth of industrial activity, strong demand by China, clean energy drive, global vaccination rollout, and a weaker U.S. dollar. We believe that the push towards a green economy and the fact that we mine metals needed will certainly benefit our shareholders going forward. I wanted to touch briefly on February 1st's silver squeeze to propel the Veno share price to a high of $2.82 U.S. on a volume of $130 million on that one day. We all saw how the power of the Reddit traders and the social media drove up the price of silver and silver mining stocks that day and created a trading frenzy. We look forward to growing demand from these new investors and increasing the diversity of our shareholder base. We encourage our shareholders, new and long-term, to check out our website, often for news releases, presentations, and all public information. I will now ask Nathan Hart, Aveeno's Chief Financial Officer, to present the financial results for Q1 2021. 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 a lack of production at the Aveeno mine. Having said that, we are now in the strongest financial position in Avino's 53-year existence. Our cash position at the end of the quarter was $27 million, which represents a 125% increase compared to $12 million at the beginning of the year. Working capital at quarter end was $31 million compared to $15 million at the beginning of the year, which represents an increase of over 100%. We continued with our plans to reduce debt during Q1, having lowered debt liabilities by a further $800,000 during the first quarter. This brings total debt reduction since the beginning of 2020 up to $8 million. We are happy to report that we expect to be debt-free, other than payables and equipment leases, by the end of Q3 of 2021, which allows Avino to maintain significant financial flexibility moving forward. During Q1, minimal revenues were generated. Any revenues generated were a result of settlement of final invoices from 2020, as there were no concentrate shipments during Q1 2021, and as such, no silver equivalent ounces sold. Avino reported mine operating losses of $700,000 for the first quarter, which is made up of $200,000 in standby care and maintenance costs and $500,000 in depreciation and depletion. Losses before interest, taxes, depreciation, and amortization were $1.7 million compared to earnings of $0.4 million in Q1 of 2020. Adjusted losses for Q1 2021 were $900,000 compared to adjusted earnings of $400,000 in Q1 of 2020. Aveeno reported net losses after taxes from continuing operations of $1.8 million or $0.02 per share for the first quarter. which includes non-cash losses of $1 million relating to the exercise of warrants in which Avino received proceeds of over $700,000 during the quarter. Capital expenditures for the first quarter were $400,000. With the strike action, the company took specific measures to limit any unnecessary capital expenditures during the quarter except for exploration activities, which have continued to ramp up. Any necessary projects have continued on as planned and include the new dry stack tailing storage facility equipment We expect that capital and exploration expenditures will increase over the coming quarters as we ramp up exploration and move forward with the tailings upgrades. Finally, I want to reiterate the strength of Aveeno's financial position. As David previously mentioned, February 1st had quite an impact on our financial position, and I want to thank all of our corporate partners and stakeholders who were working diligently alongside us in ensuring that we were well prepared to take advantage of the increased valuation on this day. It is because of everyone's hard work and preparation that we were in a position to bolster our treasury by an additional $17 million at a valuation over 50% higher than today's current share price. We believe this is a sign of things to come and that Aveeno continues to remain undervalued with a significant resource base and a balance sheet that would allow Aveeno to create future shareholder value. We continue with our plans to reducing debt, and at the end of the quarter, we maintained over $30 million in liquidity including our investment holdings. With cash representing over seven times our debt liabilities at the end of the quarter, we are moving forward with increased exploration activities and continuing with our plans to add value for our shareholders and stakeholders throughout the rest of 2021. I will now hand it back over to David for a discussion on exploration and what Avino has planned for Q2.

Thank you, Nathan. Our original plans for the year called for a 12,000-meter drill program, which was increased in March to a total of 30,600 meters of drilling. The increased drilling program was fully funded. We will continue in Q2 to target several areas of the Aveeno property, including the Aveeno vein, the Santiago vein, and the El Trompo vein. To date, 3,763 meters have been drilled. We are currently waiting for assays to be received. Another potential high-grade target that has been tested is called the La Malenche vein, which will be tested in phase two. It is similar style to the San Gonzalo vein, a low sulfonization epithermal vein. More exploration work is needed to confirm our understanding of the system. It is said that this vein was named hundreds of years ago. And the Avena Mine was discovered in 1558 by Captain Ibarra of Cortez's army It's quite possible the vein was named at that time by the miners in honor of Marion LaMalenche, who is the mother of Cortez's children. 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. Preparations in Q2 on ongoing to recommence operations. The dry stack tailings project is going well and the completion will be pushed to Q4. Improvements to the circuit four are ongoing that will improve gold and silver recoveries through the use of new equipment. Avino's main focus for the next quarter is to recommence operating activities at the mine and carry on the exploration program focused on locating new mineralized zones within the property and confirming continuity of mineralization in the current avino et production area finally it has always been our intention to ensure the health and safety of our employees and communities and we continue to analyze situations in the vancouver and mexico and collaborate together to make best decisions that are most beneficial to the widest group, including all stakeholders. We look forward to a productive second quarter and remainder of 2021. We anticipate a brighter rest of the year, including successful vaccine rollouts worldwide, unrestricted travel, and hopefully our Canadian borders will open up. We'd now like to move the call to the question and answer portion. Operator?

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 comes from Jake Sikleski from Alliance Global Partners. Please go ahead.

Hey, David, Nathan, and team. Thanks for taking my questions. Morning, Jake. Hi. Just starting with exploration, you mentioned that you're waiting for assays to come in. Any color on the timeline here? And are you seeing any delays in turnaround times due to COVID?

It has been slow in getting them. Some have trickled in, but we're waiting for we want to complete the program on a particular vein before we release results. So it's hard to say, but in the next few weeks we should have some news.

Got it. Okay, and then just on the back of that, are the Phase I and Phase II programs, are they sequential or concurrent?

Hi, Jake. This is Peter here. Regarding the program, there's some areas, like, for example, below ET that we have to wait until there's underground access. So we're kind of jumping back and forth just depending on, you know, drill availability and relative location. So to answer your question, I guess they would be more concurrent. Okay. That's helpful.

And then just lastly on the tailings project, you mentioned that you might move forward with a PFS later this year. Assuming you do that and the PFS is positive, are you comfortable making a production decision on the back of the PFS or do you think you'd move forward with a full phase?

Saying we'll have the PFS this year is probably a little aggressive. We're drilling and it takes time to do that. It really depends on the results of the PFS before we make a construction decision.

Okay, but you'd be comfortable making a construction decision off the PFS, not necessarily moving to full feasibility?

Jake, Peter here once again. I think it just depends on the risk that we're looking at in terms of that particular project. You know, I think there's limited geological risk given that the tailings are, you know, equally disseminated. You know, and that depends on the metallurgical work and the variability at that point in time. So I think it's too early to say at this point in time. But certainly pending the results of the PFS, we'll evaluate and then make a decision at that point.

Fair enough. That's all for me. Thanks again.

Thank you.

Thanks. The next question comes from Heiko Ehle from HC Wainwright. Please go ahead.

Hey, guys. This is Tyler Bissett on for Heiko. Thank you for taking our questions. Hi, Tyler. Hi. You talk about your drilling program in the release and it's nice to see the increase in holes drilled that was initially announced on March 8th. You mentioned that you're waiting for some assay results in the recent release, but from what you can see thus far, can you sort of guide us through the potential continuity you think you might see at Aveeno ET?

Sure, I can jump in there. So with respect to ET, a lot of those holes are drilled from underground. Well, all of those holes are drilled from underground. I should take that back. So we haven't started that drilling there, as we have to do a bit of work in the underground, and then we have to blast adrift, crosscut actually, so we can drill back across the deposit. So the drilling for this quarter, Q1, was really focused on Trumpo and Santiago, with Trumpo being that offshoot of the Aveeno vein. and Santiago being that cross-cutting the structure across San Gonzalo Bay. So to answer your question, we haven't yet tested the continuity of Aveeno, both down dip and on strike.

Josh, any expectation on when you guys may start that drilling?

We have people in there now. They're servicing the pumps and the electrical components system down there. We're bringing back people. It's hard to say because we want to get the drilling and the blasting and the mining going first, and then we're going to look at drifting away from the vein and then setting up the drill station. It's going to be in the second half of this year.

I appreciate that. And what do you think we will see in total expenses for the ramp-up in Q2? And how much have you incurred as of today, given we're halfway through the quarter? And maybe, if possible, give us some guidance for spend during Q3 as well.

Sure. It's Nathan here. So you're referring to ramping up, getting closer to production, or are you talking about exploration spend?

Exploration spend.

Sure.

Unless you can talk about production.

No, I'll talk about exploration spend. So we're expecting that to increase. Obviously we announced up to 30,000 meters and we're ramping up. April was a lot, obviously heavier than March was as far as meterage. And we're continuing on that path in March or in May, June and further into the second half. We've got all three drills turning right now, which is great. So we kind of, we're expecting that if we continue on the same meterage about, you know, anywhere from half a million to close to three quarters of a million, maybe on a monthly basis. So we're expecting a couple million dollars per quarter out of the maximum. And that depends, obviously, on how quick we're able to move the drills around to.

Okay, great. I appreciate it. Thanks, guys. Thank you.

Once again, if you have a question, please press star, then one. The next question comes from Matthew O'Keefe from Cantor Fitzgerald. Please go ahead.

Thanks. Good afternoon or good morning. Just a question. You had a pretty busy quarter on the finance side. So, you know, you've got $27 million in cash here now, $11 million, actually $30 million in working capital and, you know, $9 million to $11 million budget. So that's still a pretty healthy cushion here. assuming you're going to get back into production, you know, between now and the end of the year. So what are your plans for that additional cash?

Nathan here, Matt. That's a good question. Obviously, we are looking forward to kind of getting back to production activities first. But, I mean, this is kind of a historic quarter for Avino, and it's the first time, you know, we've really been in a comfortable or a very comfortable cash position. And we're looking forward to reinvesting in the mines. And we're just, you know, we're evaluating opportunities as they come in, right? There's a lot of activity in Mexico and a lot of projects that we always have our eye on, but at the same time, we don't want to make any hasty decisions.

So we're... Yeah, and we're looking at improving recovery rates through automation.

Yeah, we've got a lot of capital improvements we want to make first, and then we'll kind of sit back and take kind of a 10,000-foot view of what's best for Avino and for our shareholders.

Okay, and then... So you're not looking at other, well, you're always, I guess, looking at other projects that might be in and around, but would your first choice be something that has some synergies with Avino or something a little bit different? And would it be more on the cash flowing side or the development side?

That's a tough question to answer. I think we're pretty agnostic as far as what we're looking at. We like exploration stories. We like past producing store, there's a lot of stuff that we like. But at the same time, we're going to be very, very cautious with our funds. And we are still focused on Mexico, and at the very least, we plan to remain that way.

We want to find higher-grade material on our property. We want to lower our all-in sustaining costs back to where it was when we were mining San Gonzalo, which was around $10. So that's our goal.

Yeah, that's a big focus is to get everything, you know, we have a large mill circuit, and if we can find higher grade in running some of that material through our mill, we're pretty confident that costs will come down and we'll be in a much better position for the future.

Right. Okay. No, that's great. It sounds like most of it's earmarked for current, you know, unlocking the current potential at Avino. So thanks very much. That's it for me. Thanks, Matt.

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

Thank you, everyone, for taking the time to listen today. We appreciate the patience of all our stakeholders and look forward to resuming normal operations soon. We look forward to a productive second quarter and remainder of 2021. Thanks again for listening and have a great day.

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