Avino Silver & Gold Mines Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver and Goldmine's fourth quarter and year-end 2021 financial results conference call. 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 call, you may signal an operator by pressing star and zero. 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 Avino Silver and Gold Mines Limited Q4 and year-end 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 of 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 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 Aveeno's President and CEO, David Wolfen. David.

Thanks, Jen. Good morning, everyone, and welcome to Avino's Q4 and year-end 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 fourth quarter and year-end 2021 financial and operating performance and our plans for 2022, and then we will open it up for questions. Please note that all figures are stated in US dollars unless otherwise noted. Overall, 2021 was a year highlighted by many positives. We ended the year with fourth quarter production numbers that exceeded our expectations. We resumed operations at the Aveeno mine in August. We planned and executed on a comprehensive drill program and the conversion to dry stack tailings is on track for completion in 2022. with the filter building nearing completion. In October, we announced that we'll be acquiring the neighboring La Preciosa development property. When this transaction closes, it has the potential to be transformational for Aveeno. The addition of La Preciosa substantially increases our 43-101 compliant mineral resource to 290 million ounces of silver equivalent. I am also pleased to announce that we have received co-fee approval for the acquisition in Mexico, which was the final regulatory approval required before completing the acquisition. The acquisition is still anticipated to occur before the end of Q1 2022. In addition, the company made its final payment of the term facility in September, which is a significant milestone for Aveeno. Cash and working capital at the end of 2021 had doubled over the year. At the end of the year, the exploration campaign for 2021 had completed 15,500 meters of drilling and focused on several targets. Additional areas for exploration include the main Aveeno vein below current mine activities and the La Podocina vein. The initial results from La Potosina were recently announced, and we are excited to continue exploring La Potosina as it factors in prominently as one of our high-grade near-surface targets. We believe La Potosina has the potential to supplement our current mill feed from Aveeno in the near to medium term. On the oxide tailings resource area, 124 holes have been drilled, 110 of the holes have reported assays and are currently under review by our technical team. In the fourth quarter, production came in from the avianomine only compared to Q3 2021, which was the most recent quarter of production. Silver equivalent production increased by 101% to 541,000 ounces. Silver production increased by 139% to 164,000 ounces. copper production increased by 68% to 1.1 million pounds, and gold production increased by 92% to 2,100 ounces. The full year production highlights are as follows. 842,000 silver equivalent ounces consisting of just over 245,000 ounces of silver, 3,400 ounces of gold, and 1.9 million pounds of copper. Also in the quarter, as I mentioned earlier, we continued with our plans to convert to dry stack tailings, a safer form of tailings management than the conventional wet tailings management process. The team in Durango made significant progress during Q4 on the facility which includes the infrastructure associated with transporting the dry stack tailings. The project is expected to be fully operational in the second half of this year and brings the company towards achieving the guidelines with the global industry standard on tailings management. We have posted a great time lapse video on our website that shows the construction of the tailings filter plant. So I encourage you to go to the video section on the website under the investor tab and watch it. On October 27th, 2021, we announced the acquisition of La Preciosa. As I touched on during the Q3 call, I have always believed the Aveeno and La Preciosa belonged under a common ownership, given the clear synergies and common infrastructure. La Preciosa is an excellent strategic fit within Aveeno's existing operations and further strengthens our presence in Durango by adding not only a large, high-quality silver development project with near-term production potential to our portfolio, but also increasing our mineral exploration concessions by more than sevenfold to over 7,000 hectares. We expect a large portion of the existing La Preciosa resource could be mined via underground to potentially improve Aveeno's production and organic growth profile. We expect the transaction to close in the current quarter. Looking at other junior comparable companies, this acquisition should elevate Aveeno within the silver sector. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. During the fourth quarter, the company continued its training of local workforce at the mine. Additional ESG initiatives completed during the fourth quarter were as follows. Assisted the local schools, their Christmas parties, and supplied food and entertainment. Continued to support the communities of Zaragoza, Panuca de Coronado, and San Jose de Ovino in their waste dump cleanup efforts. Maintenance for local roads and town streets for Zaragoza and San Jose de Avino. Road maintenance within the communities, which include painting speed bumps, maintenance of cattle guards, and general cleanup. Current ESG initiatives include supporting the community of Panuca de Coronado with their project to extend the community cemetery. supporting the community of Zaragoza to extend the water line to areas that currently do not have this resource available. 600 meters of excavation taking approximately 25 hours. Taking a look at the metals and mining outlook for the year, it's clear that the recent invasion of Ukraine by Russia has been the main focus during the last couple of weeks and has made for a jittery market. We have seen the price of gold and silver climb and fall, with daily volatility being the norm. We continue to believe that the outlook for silver is positive. According to the World Silver Institute, the silver demand should see solid growth for 2022 onward, and they have also predicted that global supply demand could rise by 8% from 2021 to a record 1.1 billion ounces this year. The rise is expected to be driven by record silver industrial fabrication, which is forecast to rise by 5% as consumption increases in traditional and green technologies. Investment demand for physical silver bars and bullion coins is expected to jump 13% this year to a seven-year high. Demand for silver to be used in jewelry is expected to rise by 11%. Demand for silverware is forecast to climb by 21%. All this bodes well for the silver miners and their shareholders. The best leverage to silver is owning producers such as Aveeno. I will now ask Nathan Hart, Aveeno's Chief Financial Officer, to present the financial results for Q4 2021.

Thank you, David. It's my pleasure to be on the call, and I would like to welcome everyone who has joined us today and is viewing our presentation. We are extremely pleased with the progress made in Q4 following the restart of mining operations at the Aveeno mine in August, and we feel that our Q4 financial results reflect a turning point for Aveeno. Not only that, we are looking forward as we move close to closing the strategic acquisition of the neighboring La Preciosa development stage project from Core Mining. The company remains well-funded with $24.8 million in cash and $31.6 million in working capital available at the end of 2021. This represents a significant increase to the $11.7 and $14.7 million available at the beginning of the year. With concentrate sales having resumed during the third quarter, free cash flow generation in Q4 was $2.5 million, and the term facility with our long-term partners at Samsung C&T has now been repaid, and Aveeno has the financial flexibility and capacity to move forward our new and existing project. During Q4, we reported net revenues of $9.3 million with 418,000 silver-equivalent payable ounces sold, and for the full year, $11.2 million on 525,000 ounces sold. Aveeno reported mine operating income of $4.4 million for the fourth quarter and $3.5 million for the full year of 2021, which includes non-cash, depreciation, and depletion. On a cash basis, mine operating income was $5.1 million for Q4 and $5.5 million for the full year 2021. Earnings before interest taxes, depreciation, and amortization, or EBITDA, was $4.8 million in Q4 and $400,000 for the full year. Adjusted earnings was $4.7 million for the quarter, or $0.05 per share. For the full year 2021, it was $2.3 million, or $0.02 per share. And rounding out our financial results, we reported net income after taxes from continuing operations of $2.6 million or $0.03 per share for the fourth quarter. For the full year period, we reported a loss of $2.1 million or $0.02 per share. As you can see, Q4 was a significant quarter for Avino as we demonstrated strong operating margins while keeping and maintaining our existing cost structures, both at site and at the corporate level. Further, We generated net earnings for the first quarter since 2019 and we generated $2.5 million in free cash flow, net of any capital expenditures. CapEx for Q4 2021 was $1 million and for the full year was $3.2 million. CapEx for this quarter related to exploration at La Potosina and below the current mining operations at Avino at the ET area of the mine. included was the recommended drilling on our oxide tailings resource as we look to move that project forward to a pre-feasibility level in the near term. Cash costs per silver equivalent payable ounce for the fourth quarter was $9.57, a decrease of 32% when compared to $14.01 in Q4 of 2020. All-in sustaining cash costs for the quarter was $17.24, a decrease of 76% compared to $73.08 during Q4 of 2020. As we continue to ramp up, we expect the all-in-sustaining cash cost figures to continue to decline due to more ounces sold in the coming periods. With Q4 marking the first quarter of uninterrupted mining operations in 2019, I am pleased to report that Avino's financial outlook is very positive. Throughout 2020 and 2021, we have successfully executed on our plans in reducing debt, and at the end, we have come out with our highest working capital in Aveeno's 53-year history. This financial strength allows us to ensure that the acquisition of La Preciosa is fully funded and aligns with our plans to add value for our shareholders and stakeholders throughout the rest of 2022. I will now hand it back over to David for a discussion on what Aveeno is planning for the rest of the year.

Thank you, Nathan. Q4 was a busy quarter with ongoing projects, and we have continued into 2022 at the same active pace. Activities at the mine site during the first quarter of 2022 include continuing production ramp-up at the Avena Mine, ongoing training with locals, dry stack conversion is ongoing as previously mentioned. We received and released drill results from the following areas, Breccia de Bajo, the BART vein, below level 17, and west of current ET mine workings, La Malencha, Nuestra Sonora, Santiago, El Trompo, San Jorge, and most recently, La Potosina. As mentioned earlier, the oxide tailings drill results recently received are under review by our technical team. Ongoing exploration at the main Aveeno vein below current mine activities and at La Potosina. Continue working on how best to integrate La Preciosa into Aveeno's production operations. For 2022, we are targeting production between 2.2 and 2.6 million ounces of silver equivalent. We expect to generate significant operating cash flow this year, which we plan to reinvest in exploration and further mine development projects. 2022 is off to a great start for Aveeno. We look forward to keeping the momentum going. We would now like to move the call to 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 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 Ehle with HC Wainwright. Please go ahead.

Hi, everyone. This is Nate calling in for Heiko. Thanks for taking our questions here. Just regarding, you kind of touched on it already, but regarding the um la precioso project uh obviously good timing here with the commodity pricing um but as far as approvals go you've touched on kofiki um being done is there anything else uh in the waiting here or is this just a waiting game in general um that's my first question thanks uh we're just closing all the documents so we're real close to making uh closing announcements Okay, great. Thanks very much. And then just building on the last question, any ideas that you're willing to share publicly regarding anticipated spend at site and timing of such spending? Will this spending start right after closing or is there more or less a ramp up period?

Hey, it's Nathan here. We're currently reviewing and it's kind of an ongoing process for La Preciosa. I'm assuming you're referring to La Preciosa and not the Aveeno property, correct?

That's correct, yes.

Yeah, so it's an ongoing process. Management's going to be going down the site shortly to go review that with the team, and then we'll be able to update the market on that as it comes out.

Okay, great. All right, thanks. That's all from me. Thank you. Thanks.

The next question comes from Jake Sikelski with Alliance Global Partners. Please go ahead.

Hey, David, Nathan, and team. Thanks for taking my questions. Hey, Jake. Just starting with the ramp up, I mean, it looks like things are progressing nicely. Can you just kind of remind us again what the target throughput rate is there this year and where throughput is currently? Because I'm just trying to get a gauge on how close you are to steady state.

Sure. Peter Latta here. I can take that. So we're looking at, you know, before COVID, we were about 20 or 2,000, 2,200. And that's kind of our target. The mill has a nameplate capacity of 2,500 tons per day. We're currently just de-bottlenecking the mine. We're currently mine limited as opposed to being plant limited. And that includes, you know, hiring a local workforce, which is something David's mentioned over the last couple of calls. Hiring and training, I should say. So That's kind of the ongoing process as we work towards getting back to that 2,200 tons per day.

Okay, and is that something that you think you guys should be able to achieve sometime in Q2? Or is that more of a second half of the year type event?

Yeah, I think it's an ongoing process. I think that's something that we're definitely going to get done in 2022. Okay, fair enough.

And then just looking at operating costs, you know, they seem strong in the fourth quarters. Is that something we should be modeling moving forward in 2022? Or do you think we'll see some further reductions at throughput ramps as we were just talking about?

Hey, Jake. Nathan here. So, on a per ounce basis, you can kind of expect that to stay – fairly flat. One of the things that we were, I wouldn't say surprised of, but we were fortunate for was the good grades throughout most of Q4. We were just in a high-grade zone as part of our mine plan. In Q1, the grades will come down a little bit, so we'll see some increased costs on the per ounce basis, but nothing overly significant. And then on the all-in side of things, as production gets up to kind of that 2,000, 2,200 tons per day that Peter mentioned, Obviously, we're producing more ounces with the same amount of overhead, so we expect the all-in number to either come down or, at the worst-case scenario, stay flat.

Okay. That's all for me. Thanks again, guys. Thanks, Jake. Thank you.

The next question comes from Joseph Rieger with Rock Capital Partners. Please go ahead.

Hey, David, Nathan, and team. Thanks for taking my questions. So you mentioned commodity price volatility, and it made me wonder if we could kind of get a reminder on how your sales get treated. Is there like a three-day rolling average on your price realizations, or is it over a period of time where it resets backwards? Just any color there so that we can maybe you know, more accurately make expectations as far as price realizations for this quarter.

Hey, Joe, Nathan here. So all of our constant sales are done on a spot basis and then it's M plus one for the finalization as we, you know, we still concentrate on a provisional basis. And then there is, yeah, like I said, next month settlement, but that's all spot pricing.

Okay. So, so given that, is it, is it a bit difficult for you guys?

um to take advantage of any of these spikes um or maybe in another way is it positive because um it smooths things out a bit uh yes and no i mean obviously when you're settling the next the following month um you know your final sales are kind of are based on the future um a little bit but uh from a cash flow perspective sure we could we could try and sell fairly quickly and take care take advantage of some prices on a provisional side just to make sure that we get the cash up front and then can put that towards reinvestment in the mine but for the most part yeah it's fairly smooth okay all right thanks my other questions were answered already Joe once again if you have a question please press star then one

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

Hi, good morning. Thanks. Looks like things are going well, so kudos there. Just a question. I know, David, you talked about it a little bit on the exploration. Could you just go over that again, reminding us sort of what the budget is for this year and what the main targets are? and what kind of goals we have set for the year with respect to exploration outside of La Preciosa?

Yeah, the budget is $2 million for drilling. We're putting in, I think, is it 40 holes into Potosina to develop a resource? And Bridge of O'ahu, ET. So, yeah, I mean, there's lots of great targets there. but we're focusing in on the ones that we can develop tonnage on.

Yeah. So ET is still a good target?

Oh, yeah, because we've never drilled below the current working. Sorry, yeah, we haven't drilled below the current working, so we're doing that now and extending the mineralization at depth, and we're excited about that. Because results are coming in and it looks like it continues.

Yeah. Okay. And so, and just again, back to the Poitocino, which was some pretty impressive results earlier this month. It's a little bit further away from the mill, but not that far. Is it, but you say it's relatively close to surface and you could, you know, if things hold together, you could be developing that rather quickly?

Absolutely. Probably though, once we decide to go ahead with mining it, it would take about a year. You've got to put in a ramp and a decline and prepare it for mining. But it's near surface, so it's very similar to San Gonzalo, low sulfidization near surface or zones.

Okay.

And it's easy access. And trucking distance isn't that far. It's about 4 or 5K away.

Okay. No, the other questions were answered, but that's great. Thanks.

Thank you. Thanks, Matt.

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

Thank you operator and thank you everyone for your time today. As I said earlier, we had many positives to talk about in 2021 and look forward to maintaining the momentum. Growth is paramount for success and Aveeno has been laying the groundwork for future growth. We have given priority to most important projects and initiatives to achieve that growth. Unlocking the value of Aveeno property in the region has been a priority and we are looking forward to the next steps in our growth objectives, and in turn, maximizing value for shareholders and stakeholders. Have a great day, everyone, and goodbye.

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