Avino Silver & Gold Mines Ltd.

Mute yourself if you want. Thank

you for standing by. This is the conference operator. Welcome to the Avino Silver and Goldmine second 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 one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator 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 Goldmine limited Q2 2021 financial results conference call and webcast. On the call today, we have the company's president and CEO, David Wolfin, 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 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 will now turn the call over to Avinos president and CEO, David Wolfin. David.

Thanks, Jen. Good morning, everyone, and welcome to Avinos Q2 2021 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 second quarter 2021 Financial and Operating Performance and our plans for Q3 2021. Then we will open it up for questions. Please note that all figures are stated in US dollars unless otherwise noted. During the second quarter, we focused on the necessary work and activities at the mine site that would allow us to resume operations. In addition, we made excellent progress in our exploration program, which was announced during the first quarter of this year. Prior to the restart of operations, multiple preparations were ongoing, including hiring mine workers, upgrades to improve recoveries at the mill, reestablishing or testing the mill circuits and the cleanup of equipment, grounds and facilities. In addition, our exploration program yielded an initial test of drill results, which were announced in July. We had drilling results from El Trompo vein, which is a priority target and an offshoot of the Avino vein, which has been one of the feeder veins for the company's milling complex. Historically, data indicates that there are high grade areas within the vein over considerable widths, and there is underground infrastructure adjacent to the vein, which would allow access for mining. Drilling on the vein has been from surface to confirm continuity of mineralization at depth. We also had results from Santiago vein, which is further north in the Avino mining district in an area of narrow veins that average between one and two meters in width and intersects the San Gonzalo vein with mineralization similar to the historically high grade San Gonzalo silver gold mineralization. The continuity of the mineralization of the Santiago vein is being tested. In addition, we received results from La Melanchee vein, the style of mineralization intersected resembles the low sulfatization epithermal San Gonzalo vein. The vein may represent a northwestern fault dislocated extension of the San Gonzalo vein. These results are encouraging as the presence of mineralized material in the La Melanchee vein has been shown to extend along a strike distance of 250 meters and to depth of 75 meters from the surface. The 650 meter gap between the La Melanchee vein and the Northwest termination of the San Gonzalo vein remains prospective. We are currently infill drilling the oxide tailings resource that sits within our tailing storage facility, TSF number one, we call it. 200 holes were planned of which 57 holes were drilled by the end of Q2. In addition to these four areas of drilling, we are also testing the Nuestra Sonora and San Jorge veins. Last week, we were extremely pleased to have announced that operations were resuming at the mine. We had to take necessary steps over the last few months. And although at times this may have seemed arduous, there were necessary in order to finally have the positive outcome that we have all been waiting for. During the quarter, there was some mining activities at the Avino mine, which included testing them of the mill and resulted in the following production. 3,504 ounces of silver produced, 45 ounces of gold produced, 55,043 pounds of copper produced, all totaling up to 15,477 ounces of silver equivalent. At the mine, we will continue to take precautionary measures as we begin restarting operations. The health and safety of workforce, their families, and the communities in which we operate is paramount. And we continue to be dedicated to maintaining a safe work environment. We believe that the outlook for silver is positive. And according to the Silver Institute, global demand for silver will rise to ,000,000 ounces. In 2021, the highest in eight years led by investments in industrial and investment grade physical silver, i.e. bars and coins. The uses of silver are expanding and they are expanding quickly. According to the Midas Touch Consulting, the price will be forced higher by any expansion in new applications of silver. They see expandable markets for silver use in water treatment, flexible displays, the pharmaceutical industry, 5G communication, RFID radio frequency identification devices, nanotechnology, silver oxide batteries, high performance engines, functional clothing, and solar technology. As well, exploration activities across Mexico is on the rise with hundreds of thousands of meters from various mining companies are planned across the country with increasing budgets. And the same for Avino as our own drill program was announced and then increased in the first quarter. Also in the quarter, we continue to make excellent progress with the dry stack tailing storage facility, TSF number two, we call it, which is on privately owned Avino land, is permitted and is currently in the final stage prior to commencing construction. The concrete foundations have been poured for the building that will house the filter presses needed. And our expectation remains that the project will be completed during the fourth quarter of 2021 or slightly pushed into Q1 2022 due to the unseasonably heavy rainfall. As I've mentioned before, it should add an additional eight to 10 years of tailings capacity based on the current mill throughput rate. We chose dry stack tailings for its environmentally safety and economic advantages. Dry stack is the most stable form of tailing storage. It reduces water consumption and reduces the storage footprint by requiring less land. Our ESG initiatives continue to move forward as we incorporate principles of our sustainability and social responsibility. During the second quarter, multiple social governance policies were implemented as well as a health and safety plan, which includes a new medical doctor and department on site who inspects different work areas to detect any possible risk to the health of our workers. We are committed to growing in a sustainable way that supports the wellbeing of our communities and the environment in which we operate. We believe that the push towards a green economy and the fact that we mine the metals needed will certainly benefit our shareholders going forward. I will now ask Nathan Hart, Avino's Chief Financial Officer, to present the financial results for Q2 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, Avino's financial results were impacted by a lack of production at the Avino mine. Having said that, we exited the second quarter in an extremely strong financial position. Our cash balance at the end of the quarter was $26.8 million, which represents a significant increase when compared to $12 million at the beginning of the year. Working capital at quarter end was $30.4 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 the first half of the year, having lowered debt liabilities by a further $1.7 million for the year to date, June 30th, 2021. This brings total debt reduction since the beginning of 2020 to just under $9 million and we are happy to report that we expect to be debt-free other than the usual payables and equipment leases by the end of Q3 2021. This will allow Avino to maintain significant financial flexibility moving forward. During Q2, no revenues were generated and as such, no silver equivalent ounces were sold. Avino reported mine operating losses of a million dollars for the second quarter, which is made up of $500,000 in standby care and maintenance costs and $500,000 in depreciation and depletion. Losses before interest taxes, depreciation, and amortization were 2.9 million compared to 800,000 in Q2 of 2020. Adjusted losses for Q2 2021 were 800,000 compared to adjusted earnings of 2 million in Q2 of 2020. We reported net losses for after taxes from continuing operations of 2.7 million, or three cents per share for the second quarter, which includes non-cash losses of 1.2 million related to foreign exchange movements and 100,000 relating to the realized loss on the exercise of warrants in which Avino received proceeds of around $100,000 during the quarter. Capital expenditures for the first six months of the year were a million dollars. With the strike action, the company took specific measures to limit unnecessary capital expenditures during the first half of the year, other than for exploration activities which have ramped up since February. All necessary projects and upgrades have continued on as planned, which includes the new dry stack tailing storage facility. We do expect that capital and exploration expenditures will increase over the coming quarters as we continue to move forward with the increased exploration as well as the ongoing tailings upgrades. Finally, I wanna reiterate the strength of Avino's financial position. We continued with our plans in reducing debt, and at the end of the quarter, we maintained over 30 million in liquidity, including our investment holdings. With cash representing over eight times our debt liabilities, at the end of the quarter, we are continuing with our plans to add value for our shareholders and our stakeholders throughout the rest of 2021. I will now hand it back over to David for a discussion on exploration, as well as what Avino has planned for the rest of the year.

Thank you, Nathan. The exploration program is ongoing and is targeting several areas of the property, including the Avino vein, the Santiago vein, and the El Trompo vein. To date, 9,200 meters have been drilled. The breakdown of the drilling is as follows. 2,469 meters at the Avino vein, 1,717 meters at the Santiago vein, 1,568 meters at the El Trompo vein, 820 meters at the La Malencia vein, 340 meters at the Nuestra Sonora vein, 133 meters at the San Jorge vein, 2,160 meters at the Oxide tailings. We are currently waiting for additional assays to be received. Hiring is ongoing at the mine, as we are looking to ensure we are getting closer to the amount of workers at the mine that we had prior to the shutdown. The dry stack tailings project is going well with long lead items on site now, prefab building to be erected soon, with concrete having already been poured. Improvements to circuit four are ongoing that will improve gold and silver recoveries through the use of new equipment. Avino main focus for the next quarter is to ramp up the production levels and operating activities at the mine and to keep moving forward with the exploration program. We are focused on locating new mineralized zones within the property and confirming continuity of mineralizations in the current Avino ET production area. Finally, the health and safety of our employees and communities is always top priority, and we continue to analyze situations in Vancouver and Mexico and collaborate together to make the best decisions that are the most beneficial to the widest group, including all our stakeholders. As of this past Monday, the Canadian land border will be open to fully vaccinated Americans and further opening up to the international community starting in September. So this is a great step forward as we look to put the pandemic behind us. We were pleased with the progress we made in Q2 and we look forward to an even more productive third quarter and remaining 2021. We would 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 are 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 Heiko Eilie with HC Wainwright. Please go ahead.

Hey David and team, thanks for taking my questions. Can you hear me okay? Yes, hi Heiko. Hi David, good news. You know it's a restart of operations in August 3rd. So we're just over a week into production that is in the public domain. Can you just venture a bit of a guess what your current throughput recovery rate and production level at site is? And if you wanna be so kind, maybe provide a little bit of trajectory on how you see the remainder of the month and September and then just building on all of that, any idea how much cash cash money was spent at the site in the last 30 days?

Okay, I'm gonna turn that to Peter Ladder, VP of Technical Services and Nathan to talk about the cash portion. Go ahead, Pete. Thanks so much, David.

Yeah, Heiko, so we're just getting kind of the initial reports back from this week and we are ramping up. So I mean, are you looking for specific numbers or what kind of answer can I give you?

Hey, if you can give you specific numbers, that would be wonderful. It's more than I asked for, but I wasn't bold enough to ask for it. So if you have specific numbers, that'd be amazing.

No, so I mean, we're right now at about a thousand tons per day. So, and we're looking to wrap up to what that was pre-COVID, which is around the 1800 to 2000 mark. Okay.

And so what's your key trajectory for that ramp up?

We're hoping to do that in the month of August.

All in August, okay. Perfect, and then yeah, just how much cash was, but by the way, that's extremely helpful. And then so grades more or less are looking like pre-COVID grades as well, or are you high grading a bit, or are you trying to get to the veins? Is there anything that should surprise us?

No, I mean, we're following a mind schedule and a plan that was laid out last year and is updated. We happen to be in a high grade area, but that's not because we're doing any type of high grading or anything. We're just following the sequence that's planned, basically going from bottom to top. And we can talk more about that if you're interested, but the grades are quite good just due to the sequence. Got it,

perfect.

Okay, yeah,

and then just the cash question. I guess it's to Nathan. Thanks so much. That was extremely detailed, and I think it really helps investors and it certainly helps us.

Hey, I go, yeah, Nathan here. So in addition, obviously there was a bit of lag as we ramp up before we see revenues come back in. So I'd say we probably spent about an additional million dollars in bringing that up, but we'll definitely recoup that fairly quickly. You know, we will have sales in August, and they're getting paid on those fairly soon.

Great, and then just a little follow-up for Nate. And just thinking out loud a little bit. I mean, your balance sheet at present is the strongest it has ever really been. And I'm talking when I say now, I'm talking about 2021. Looking ahead a bit, and again, as much as you're willing to disclose here, have your considerations for minimum cash balance, minimum work and capital, et cetera, changed compared to what you would have thought in 2020 or before even?

No, that's a fair question. I think, you know, our views about balance sheet are obviously, we think very highly of where it is right now and we'd like to keep it there. So I would say, yeah, I mean, to answer the question, I guess, yes, probably our minimum cash balance has gone up a bit just based on where the company is now versus where it was till 18 or 16 months ago. But at the same time, we want to make sure that we're putting our cash to work for our shareholders. Thanks, Torfect 10.

Appreciate your time and I'll get back

to you. Thank you, Heiko. Thank you.

The next question comes from Matthew O'Keefe with Canter Fitzgerald. Please go ahead.

Thanks, operator. Well, gentlemen, great to see you back in production. On some of the other programs that you've got going on, obviously, exploration is going well. On the dry stack tailings project, when is that, is that expected to be completed by the end of the year? When is that expected to be completed?

Yes, it's expected to be completed by the end of the year. Okay. But there has been some delays because of the heavy rainfall. It's possible it could be Q1 next year, but we're shooting for the end of this year.

Okay, great. And then are there any more mill improvements that you're working on? If so, can you sort of talk about that? And also on the mine development front, what's the plan there?

Sure. I'll let Peter Lata take that. He can talk about what's going on in the mill and the mine development. Go ahead, Pete.

Sure. Thanks, Matthew. Yeah, we are looking at a few different projects in the mill for sure. We've added some additional recovery equipment and that's been completed. We're looking at an automation project that we've kind of just kicked off, which is good to try and modernize a lot of our automation and tie everything together with kind of a central DCS system, which is fantastic, which should help reduce those costs and hopefully improve recovery. We're also looking at some, you know, a variety of different types of projects to increase efficiency. And I'm happy to talk about those in more detail, maybe offline.

Okay. No, that's good to know. And within the mine, are there, you know, there's still some development there to allow for increased capacity, is that correct?

Yeah, that's kind of what we talked about last time before we ended up shutting down. And that work still needs to be done. That's that extra, that's to bring us up from the 18 to 2000 tonnes per day that we saw before pre-COVID to that 2,500 tonnes per day limit. And we do need to do that underground development. And it fits at about 350 metres of development required of that underground development to make for that one way traffic. And I think that was something we were talking about last year.

So will you pick that up now? And what would be the timeline to get up to that, to increase that? Yeah, I mean, we're

gonna see how the wrap up goes. You know, Carlos is busy, you know, bringing back more underground workers and making sure that we can get our mine up to the throughput first, the pre-COVID throughput. And then we'll look at the underground development project.

Okay.

Okay, that's good. Okay, that's- Plus we've ordered

some new, we've ordered some new underground equipment and larger scoop trams.

Good, well, that'll help too. Great, that's it for me, thanks.

Thank you, Matthew.

Once again, if you have a question, please press star, send one. The next question comes from Jake Sikelsky with Alliance Global Partners. Please go ahead.

Hey guys, thanks for taking my question. Just a quick one on TSF2. Sort of the timing on that. And it sounds like it was pushed to Q4 early 2022. What does existing capacity look like now? And, you know, are you guys fairly comfortable that, you know, if there are any more delays, you know, we shouldn't see an interruption at all, in production?

Yeah, there's still capacity in the open pit. So at current rate, yeah, it should be fine there. But also we have some capacity left in TSF number one, and which won't impact the drilling that's going on there. And then another option, if we wanted to increase the size of TSF number one, we could consider putting in some safety barriers and then we could have more capacity there. So we don't see any interruption between now and getting TSF number two completed.

That's good. So you guys do have some flexibility if needed. That was all on my end. Thanks, guys. Thank you, Jake.

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

Thank you, everyone, for taking the time to listen today. We're looking forward to ramping up production now that operations have resumed. We appreciate all of our stakeholders' patience and support. We're excited for the remainder of 2021 and for Avino. 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.