Avino Silver & Gold Mines Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Avino Silver and Gold Mine's first quarter 2022 Financial Results Conference Call. 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 Avino Silver and Gold Mine's limited Q1 2022 Financial Results Conference Call and webcast. To join this webcast and conference call, there is a link in our news release dated May 4th, which can be found on our website under news 2022. As well, you may find a link under the investors tab, then click on events and you will see the link at the top of that page. 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 Lada. 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 Wolfen. David?

Thanks, Jen. Good morning, everyone, and welcome to Avinos Q1 2022 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 first quarter 2022 financial and operating performance and our plans for the second quarter, and then we will open it up for questions. Please note that all figures are stated in US dollars unless otherwise noted. We had a strong start to the year highlighted by record revenues and mine operating income. Our financial performance in the first quarter demonstrates strong operational achievements that helped to generate revenues of $11.1 million and $4.7 million in mine operating income. Nathan Hart, Avinos CFO, will expand on our financial results later in the call. We had a very active first quarter, which was highlighted by closing of the La Presiosa acquisition. La Presiosa hosts one of the largest undeveloped primary silver resources in Mexico and is located adjacent to our existing operations at the Avino mine. This is a major milestone for Avino and sets us on the path of achieving our goals of intermediate producer status. Also during the quarter, we released drill results from our extensive 2021 exploration program and the target areas included Brecha de Bajo vein below level 17 and west of the current ET mine workings, La Malentia, Nueces Sonora, Santiago, El Trompo, and San Jorge veins, as well as encouraging results from La Potosina and the Oxide tailings project drilling. Overall production in Q1 was slightly down compared to the fourth quarter 2021. This was expected due to mine sequencing. The production came from Avino mine only and is compared to Q4 2021 as that was the most recent quarter of consolidated production. The highlights are as follows. Silver equivalent production decreased by 15% to 458,000 ounces. Silver production remained steady at 164,000 ounces. Copper production increased by 8% to 1.2 million pounds. Gold production decreased by 66% to 801 ounces. Mill throughput increased by 7% to 111,138 tons. The recovery is for both silver and gold increased by 3% to 92% and 77% respectively, with the copper recovery is decreasing slightly by 1% to 89%. We continue moving forward on the capital projects that we outlined for the year. We are making great progress with the dry stack tailings facility and completion is expected near the end of Q2. To reiterate, we chose dry stack for its environmental safety and economic advantages with a 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 the tailings. We aim to be responsible community stewards. As previously touched on, at the beginning of the quarter we released drill results from phase two of the 2021 drill campaign and had completed over 15,500 meters of drilling focusing on several targets. In addition, the initial results from La Potosina were announced in early March and included 2,400 meters of drilling. This area of the Avino property has been known to host high grade, low sulfatization style mineralization similar to what we saw at our San Gonzalo mine. La Potosina area is only three kilometers from San Gonzalo and just five kilometers from the mill facility at the Avino mine. 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 Avino in the near to medium term. Also, just subsequent to the end of Q1, we released results from the 110 hole drill program on the oxide tailings project, which included 3,645 meters of drilling. And since we have drilled a further 17 holes on the oxide tailings project, samples are being prepared for metallurgical test work as recommended in the 2017 preliminary economic assessment. We are thrilled to be able to advance another Avino asset. The results from the program showed the gold grades are better than anticipated and we are excited to understand the implications for the total resource. To date, the company has completed 5,075 meters of drilling in 2022. With the dry stack tailings facility nearing completion, this means we are closer than ever to decommissioning the current tailings pond, TSF number one we call it. The team in Durango continued to make significant progress during Q1 on the facility, which includes the infrastructure associated with transporting the dry tailings. As mentioned, this 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 standards on tailings management along with previously mentioned community stewardship. We have posted a great time lapse video on the website that shows the construction of the tailings filter plant, so I encourage you to go to the video section of our website under the investor tab and watch it. On March 21st this year, we announced the closing of the acquisition of La Preciosa project from Coor Mining. I've always believed that the Avino and La Preciosa projects belonged under one common ownership given the clear synergies and common infrastructure. La Preciosa is an excellent strategic fit within Avino'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 are moving ahead with our internal mine plans, focusing on Gloria and Avalansia veins. Our goal is to be producing from Gloria vein by late 2023, early 2024, which would add three to five hundred tons per day with the longer term outlook being to add 1,500 tons per day from Gloria, Avalansia, and Martha veins. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. During the first quarter, the company continued its training of local workforce at the mine. ESG initiatives completed during the first quarter were community road repairs to improve visibility of speed reducers and cattle guards for safer driving conditions, delivered water tank with capacity of 5,000 liters to the primary school in the community of San Jose de Avino, supplies delivered to the health center of Zaragoza to help with building improvements. Recycle containers for waste collection were given to the high school in Zaragoza. Sport and recreation are important to the communities and the company repaired some lighting in its sports complex in San Jose de Avino as well as donating volleyball to support them in their local tournament. Avino hosted a mining in my community conference at the high school in Zaragoza and the students were provided with general knowledge of the mining processes as well as the importance of the industry in the development of other sectors. Avino continues to offer inclusive opportunities by hiring locally, training women for many different roles at site including underground heavy equipment operators, rock breakers at surface, in the mill, and in the assay lab. The metal markets for the first quarter have been bumpy with volatility brought on by the global crisis. The Russian invasion of Ukraine, which is nearing its third month, has added uncertainty to the global economy just as the world was emerging slowly from the two-year pandemic. We've seen a range in silver prices since the beginning of the year from $22 to $25 in the beginning of March. It has since tapered down and sits between $21 to $22. According to the World Silver Institute, with no clear end to the Russian-Ukraine war, the near-term outlook remains uncertain. With the jump in energy prices, ongoing supply chain disruptions, and the re-emergence of COVID-19 cases in China, all of this points to downward risk to the global economy. With the Fed rate heights coming, these factors, along with high inflation, could mean investment inflows to silver. We continue to believe that the outlook for silver is positive and that demand should see solid growth from 2022 onwards and will be driven by record silver industrial fabrication, increase in green technology, and investment demand for physical silver. All this bodes well for the silver miners and their shareholders. The best leverage to metals is owning producers such as Avino. I will now ask Nathan, our CFO, to present the financial results. Nathan?

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. Following a strong end to 2021, Avino continued to deliver with great financial results in the first quarter of 2022. We set records for both quarterly revenues and mine operating income, and on a cash operating basis, we generated a mine operating margin of 47%. The company also generated $3.7 million in operating cash flows before working capital changes and $0.03 per share in adjusted earnings. On top of our strong results, and as David previously mentioned, we are thrilled to announce that we have closed the strategic acquisition of the neighboring La Preciosa project from core mining. This project adds over 135 million silver equivalent resource ounces on a property within 20 kilometers of the current Avino mining and milling operation. In total, Avino now holds over 290 million silver equivalent resource ounces, with 190 million, or 65%, of these ounces in being silver. Following the acquisition payment, the company remains well funded with $11.7 million in cash available at the end of the quarter, which represents a net increase of $2.2 million at the end of the year after factoring in the acquisition payment made in March. During Q1, we reported net revenues of $11.1 million from 495,000 silver equivalent payable ounces sold, which resulted in mine operating income of $4.7 million for the quarter. This includes non-cash depreciation and depletion, and on a cash basis, mine operating income was $5.2 million for the first quarter. Avino reported net income after taxes of $0.6 million, or one cent per share, for the first quarter of 2022. As you can see, Q1 continued to build off our strong fourth quarter for Avino as we continued to demonstrate strong operating margins. This was despite significant inflationary pressures seen around the world, and I want to commend our team in Mexico for the diligent work in keeping our cost structure intact. Earnings before interest taxes, depreciation, and amortization, or EBITDA, was $2.8 million for the quarter, and adjusted earnings was $3.4 million, or three cents per share. Cash flow from operations before changes in working capital was $3.7 million, on a diluted basis. Capital expenditures for Q1 2022 was $0.9 million on a cash basis, with total additions being approximately $2 million, as the company continues to work with our partners to finance equipment at below or at market interest rates. Capital expenditures for this quarter related to the addition of a new underground mining scoop to assist with the ramp up of mining operations, as well as exploration expenditures at La Porosina and below the current mining operations at ET. Also included was additional drilling on our oxide tailings resource, as we completed another 17 step-out holes to increase the footprint of the resource. This project continues to move forward towards the pre-feasible level in the near term. Rounding things out, and most importantly, Avino generated net income for the second consecutive quarter, and $2.5 million in free cash flow, net of capital expenditures, and working capital movements, which brings our total up to $5 million in free cash flow generated over the last two quarters. Cash costs for silver equivalent payable ounce for the first quarter were $11.81 and all in sustaining cash costs were $19.90. As we continue to ramp up, we expect the all in sustaining cash cost figures to continue to decline due to increased ounces sold and lower per unit variable costs. With Q1 marking the second quarter of uninterrupted operations since 2019, I am pleased to report that the financial outlook for Avino is very positive. With strong operating margins and cash on hand of $11.7 million, following the completed upfront consideration payments, our focus is on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022. I will now hand it back over to David for a discussion on when Avino has planned for the rest of the year.

Thank you, Nathan. To recap, the first quarter was busy with the completion of La Preciosa acquisition, drill results from several areas on the Avino property, and the ongoing construction of the dry stack tailings. Activities at the mine site during the second quarter include continuing production ramp up at the Avino mine, ongoing training, dry stack facility nearing completion. We currently have drills turning on La Potosina at ET below level 17 and Brecha de Bajo veins. Moving forward with a comprehensive metallurgical test work program on the oxide tailings project to move it to development stage. Internal mine plan focused on Gloria and Abadancia veins at La Preciosa. Production for the full year is on track between 2.2 to 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. Also, in keeping with our strategy of divesting of non-core assets, we announced last week that we had granted an option to Endurance Gold to acquire the Olympic claims, which are located on the south side of Carpenter Lake in the Lillooet Mining Division near Braylorne in British Columbia. The closing of the acquisition of La Preciosa sets us on the pathway to expand our current mining complex through regional growth and the goal of achieving intermediate producer status. Together with exciting drill results from La Potosina and the oxide tailings, the events of the quarter are the beginning of an important time in Navino's history and we are looking forward to the remainder of the year and beyond. The first quarter is behind us and we are well into the second quarter and we are excited as 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. Our first question comes from Jake Sikelsky of Alliance Global Partners. Please go ahead.

Hey, David, Nathan and team. Thanks for taking my questions. Hey, Jake. Morning, Jake. Just starting with costs, I mean, and Nathan, you mentioned this, obviously we've seen industry-wide cost inflation across the board. Keeping all of the spending costs below $20 an ounce in the first quarter was quite impressive. I mean, can you just touch on some of the things you're doing and some proactive steps that you're taking to manage cost inflation going forward, whether it's labor, energy consumables, anything like that?

Sure, that's a good question, Jake, especially given where the world is right now. Some of the things that Vino is doing really is just continue what we've always done. I think we've always maintained a pretty strong cost structure. To get ahead of the curve on the inflation side, we have done a bit of stockpiling at site, and that's more to deal with any supply chain disruptions, not just the cost side of things. So we're just continuing to maintain what we've always done and making sure that we're ready for any interruptions moving forward.

And during the COVID shutdown, we increased our inventory of parts and reagents and consumables, so we're sitting in a good position.

And then just on La Preciosa, I mean, the acquisition is closed now. When do you think we might see some type of formal work or exploration program announced? Is that a mid-year type event, you think?

Currently, we're working on the social aspects, getting an agreement with the HEDOs. There's three different HEDO groups, and there's agreements pending. So we think probably within six or seven months, we'll have those in place, and then we'll roll out our plans following that.

Okay, so it sounds like we might see some activity there in the first half of next year, towards the end of the year. Yeah,

I mean, based on the internal mine plan planning, we expect to start surface works early next year. And we also have the dedicated power line, the 20-kilometer dedicated power line capable of five megawatts, only utilizing three. We're planning to extend that over to La Preciosa to the portal, where we're planning a new portal. We're planning to put in a decline in six or seven levels. And so that development work will be underway early next year, and possibly be generating ore by late next year. Also, there's 50,000 tons of ore sitting on surface from when LewisMin had it in the 80s and 90s, and that was never processed. So that's a little gift there that's worth about $5 or $6 million. It's probably going to pay for the portal and the surface works. So we're in discussions with the locals there to remove that, so that could happen this year.

Next time. Okay, that was all on my end. Congrats again on a strong quarter. Thank you.

Our next question comes from Hiko Ile of HC Wainwright. Please go ahead.

Hey there. Building on what Jake just asked, would you be willing to eventually guess on how much you've spent on La Preciosa in the last two months?

Sure, Nathan here. So far, not a whole lot, given we're just working on the integration and just, you know, making sure that the transition goes smoothly. We're still pretty focused on Avino and ramping up there, and then our focus will shift once we have the proper agreements in place and we can start on surface works and some more exploration.

Fair. And I mean, is there a figure that you'd be willing to say that we should expect and spend for the rest of 2022 or for all 2022?

Is that specific to Preciosa or on La Preciosa? It really depends again on the timing of getting all the proper, you know, social licenses and agreements in place. So I can't say for sure, but you know, it really depends on that timing. I would say any spend would come later in the year and we're not thinking, you know, multi-millions here. It's not going to be fairly significant as any development will likely start in 2023.

Got it. And then finally, David, you mentioned earlier on this call that you always know La Preciosa should be under the same umbrella. Are there any quantifiable advantages that you can already take advantage of? I mean, I don't know, access to different drilling sites or road access or anything like that that you didn't have before since closing?

Yeah, I mean, I can probably take that one back. I think the most important thing is going to be the low, you know, having one giant, one management operation and one operating asset really in one location. And I think the synergy is there and the cost structure there will be extremely beneficial and it'll save us on infrastructure and developing it. And I think that's why Avino was able to be so competitive in acquiring this.

Yeah, but also the oxide tailings project, if we need to build the leach pads out in the valley, we've got more ground now available. So we could be trucking oxide tailings material in one direction and bringing ore back in another direction. So yeah, I mean, that's a pretty good synergy there.

Yeah, and given the goals of increasing, you know, production and overall ounces produced at Avino, this is probably the best, most creative way to do it versus acquiring something in another state or another area because we have the administrative team already in place and we just need to expand on that to manage it.

Yeah, and there's no competition for labour. I mean, I was after Mitch for years telling him that, you know, if Newmont and Barrick can do it in Nevada, we should be looking at operational synergies here. And I thought that they would take the bull by the horns, but apparently they turned over the reins to us. So it makes sense to what we're doing because we have the expertise in the area with Carlos and his team.

Hey, I think it's a wonderful transaction. I'm glad you did it. So that's all for me. I'll get back to you.

Thank you. Thanks, Echo.

Our next question comes from Matthew O'Keefe of Canter Fitzgerald. Please go ahead.

Thanks. Good morning. Just a quick question for me on Avino. Your throughput, what's your throughput now? I guess because you're still ramping up, where are we with throughput sort of end of Q1 and now as we're well into Q2, where are we and is that continuing to rise through the year? What are the bottlenecks there?

Right, Matt. Yeah, thanks for the question. I think I'll answer that last part first, actually. The bottlenecks right now, we have to improve the quality of the ramp from a physical standpoint, just smooth that out to increase the speed for trucks and reduce kind of maintenance there, in addition to some operator training. So that's kind of the key focus for us is getting qualified, trained underground miners to help us ramp up production because we're currently mine limited at this point. So that's our focus.

Okay. Can you tell us what your throughput is right now?

Yeah, on a daily basis or a monthly basis, we're looking to transition sometime into Q3 to get us up to that nameplate production of 2,500 or 22 to 2,500 tons per day. Right now, we're operating about 1,400 to 1,900 tons per day.

Okay, so pretty much on track, I think, from what we talked about last time.

Yeah, yeah, we're hoping to.

Okay, and then just one other question on CAPEX. I know Iko touched on this, but what is the sort of estimate for the balance of the year company-wide on CAPEX?

Yeah, so I think at the beginning of the year, we put out our guidance around both the $8 million range, and that was including all exploration. We think it might be a bit less on a cash basis, just because some of the larger pieces we are producing, so those costs will be spread out over a few years. But I still think we have probably in the range of about $4 to $5 million left, including Q2, and that includes exploration, as we've put out a fairly low cost. And again, I just want to emphasize that, not including La Preciosa, which will start in 2023.

Right, so no real inflationary hits to you there?

No, we've factored those into our budgets pretty heavily already at the beginning of the year. We kind of, you know, everyone saw the freight train coming, so we think we're still going to be well within or under our guidance of, I think, $7 to $9 million.

Okay, great. That's it for me. Thank you.

Thank you. Thanks, Matt.

Once again, if you have a question, please press star, then one. Our next question comes from Joseph Rigor of Roth Capital Partners. Please go ahead.

Hey, guys. Thanks for taking the questions. So most of the things I want to touch on were already asked by prior callers, but, you know, just thinking about how the markets are right now, are there any precautions you guys are taking from a balance sheet standpoint or from, you know, as you make decisions on capital spending over the rest of the year, you know, to maintain your strong balance sheet?

Yeah, Joe, good question. Nathan here. I think we're continuing to monitor everything as far as, you know, what's going on with silver and copper and gold prices and what's going on in the market. We don't need to raise money. I mean, I think we've gotten that question a number of times, but we definitely do not need to raise money to continue funding, you know, our general operating and capital activities. There's not really any pressure there. So some of the things we're doing just to preserve that, again, just, you know, checking in, you know, daily, monthly, weekly on the progress of our projects. All of them are financed as it stands now, so we're not overly concerned. But again, just ensuring that we're maintaining the cost structure that I touched on earlier in the call. And filling

the mill is our number

one priority. Yeah. Yeah. And bringing our per unit cost down, as David mentioned, by filling the mill.

Okay. And then I noticed during the quarter there was, looked like there was a bit of an inventory sale. Your silver equivalent sold was greater than the production. Was that intentional or just a timing thing?

I would say a bit of both. We obviously, you know, building inventory in Q4. Production was well over 500, close to 520,000 ounces, silver equivalent, and we only sold about 80% of that. So we did have a bit of an inventory build at the end of December, which was subsequently sold in January, February. It wasn't really intentional, per se, to hold it back, but we were, you know, we did receive embedded some benefits as far as pricing goes on that standpoint. So we're happy with how that turned out. And yes, our inventory did decline a bit at the end of Q1 compared to the end of the year.

Okay. Thanks.

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.

Thanks, operator. And thanks, everyone. We're thrilled about their Q1 financial performance with record revenue and closing of La Presa was a major milestone for us. Puts us on a path to achieving intermediate producer status, which we'll share with everyone as we develop those plans. So thank you very much 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.