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spk09: Thank you for standing by. This is the conference operator. Welcome to the Aveeno Silver and Gold Mines second 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 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.
spk08: Thank you, Operator. Good morning, everyone, and welcome to the Avino Silver and Gold Mines Limited Q2 2022 Financial Results Conference Call and Webcast. To join this webcast and conference call, there is a link in our news release dated August 10th. 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 the 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 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 and 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 Aveeno's President and CEO, David Wolfen.
spk02: Thanks, Jen. Good morning, everyone, and welcome to Aveeno's Q2 2022 financial results conference call and webcast. Thank you for joining us. Before we begin, please note that the full financial statements and MD&A are available on our website. On today's call, we'll cover the highlights of the second quarter 2022 financial and operating performance and our plans for the third quarter, and then we will open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted. Our second quarter performance was strong operationally, highlighted by steady production from the Aveeno mine and higher grades that helped to drive positive results. In addition, the mine optimization work continued in Q2 for the underground mining processes. They are aimed at managing and tracking and planning underground movements which helps increase efficiencies across communication and planning. We have also received encouraging drill results from the oxide tailings project and from the Aveeno ET mine area below the current level 17 mining area. The acquisition of La Preciosa closed during the first quarter and during the second quarter we continued developing our internal plans for the property. The property hosts one of the largest undeveloped primary silver resources in Mexico and is located adjacent to our existing operations at the Avino mine. Our financial performance in the second quarter indicates strong operational achievements that helped to generate revenues of $9.4 million, $3.9 million in mine operating income, and as well, lower cash costs and lower all-in-sustaining costs were realized. Nathan Hart, Aveeno's CFO, will expand on our financial results later in the call. The second quarter production marks the third full quarter following the restart of operations in August 2021. With production coming from the Aveeno mine only, it is compared to Q1 2022 as that was the most recent quarter of consolidated production. The production highlights are as follows. Silver equivalent production increased 42% to 649,569 ounces. Silver production increased to 225,537 ounces. Copper production increased by 35% to 1.6 million pounds. Gold production increased by 69% to 1,350 ounces. Mill throughput increased by 6% to 119,224 The recoveries for copper increased by 3%, and gold recovery increased by 1%, with the recoveries of silver decreasing by 1%. On a gram per ton basis, the feed grade for silver increased by 30%. For gold, the increases was 57%, and for copper, the grade increased by 23%. During the quarter, our exploration and drilling program provided encouraging results across the oxide tailings project and the Aveeno ET area below level 17. At the end of Q2 2022, a total of 7,694 meters have been drilled. In April, we announced drill results from 2021 drill program on the oxide tailings project that sits within our tailings storage facility number one. There were 110 holes for a total of 3,645 meters of drilling. This drilling follows up the 2015 slash 2016 campaign from which the 2016 NI43-101 preliminary economic assessment is based on. The results were encouraging and included 0.76 gold grams per ton over 19.5 meters. With gold grades better than anticipated, we were eager to understand the implications for the total resource. Additionally, the 2022 drill program from the Oxide Tailings Project included 17 drill holes, which we received and released in May. The gold grade in the oxide portion of the recent holes continues to be encouraging in giving the distance of the step-out holes, we feel this will provide meaningful resource expansion significantly beyond what was described in the previous PEA. The positive results from the oxide tailings drilling supports our belief that this project will factor significantly into Aveeno's growth strategy. Also during the quarter, we announced drill results from the Aveeno ET area below the current level 17 mining area. We received and reported assays from six holes. These results confirm the down dip continuity of widths and grades of the Aveeno vein extending significantly potentially to a depth of at least 290 meters down dip below the current development. This is encouraging and confirms our expectations that mineralization continues at depth as well and contains significantly higher copper mineralization with grade of copper intercepts encountered at depth within our permit boundaries. We encourage you to view the interactive 3D model on our website, which is linked to the June 13th press release showing the location of the drill results in proximity to the current mine area. Full drill results, including images for the 2021 and 2022 drill programs are available on our website. Since 2019, following our sale of Braylorn, we have focused our resources on creating value at the Aveeno property by optimizing production, executing an exploration strategy focused on growing the resource base and completing a strategic property acquisition in La Preciosa. At La Preciosa, we are currently conducting community engagement in the nearby towns adjacent to the property, as well as studies on how to optimally integrate into our mine plan to leverage the existing facilities and infrastructure. Aveeno is fully committed to moving this project forward as part of the company's organic growth strategy. This is a major milestone for Aveeno and sets us up on the path of achieving our goals of intermediate producer status. During Q2, we continued moving forward on the capital projects that we outlined for the year. The dry stack tailings facility is nearing completion, which means we are inching closer to decommissioning the current tailings storage facility number one. The team in Durango continues to make significant progress during Q2 on the facility which I was able to see firsthand at the end of May. The project is expected to be fully operational during the second half of 2022 and brings the company towards achieving the guidelines within global industry standards on tailings management, along with the previously mentioned community stewardship. We have posted updated photos of the construction as well as the 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 of our website under the investors tab and watch it. Our ESG initiatives continue to move forward as we incorporate principles of sustainability and social responsibility. Following the restart of operations, It has been the company's directive to train and hire a local workforce. By providing jobs to those in the surrounding communities, we aim to foster generations of enthusiastic and dedicated ambassadors of Aveeno. ESG initiatives completed during the second quarter were tree planting campaign in the community of Panuco de Coronado, donating over 100 fruit trees. Volleyball tournament held in the community of San Jose de Ovino to promote sport and family coexistence as well as other sport equipment delivered to the surrounding communities. Mining training and education seminar held for secondary school students of San Jose de Ovino and the elementary school of Panuco de Coronado. Cleaning and maintenance campaigns of landfills in the communities of San Jose de Ovino. Panuca de Coronado, and Zaragoza. Continued work to repair Panuca roads to Madero, San Juan. Classroom renovations at the San Jose de Avino Community Elementary School. Provided construction materials for modernization projects, which is commencing at the San Jose de Avino Cemetery. In collaboration with City Council of the Municipality of Pinuco de Coronado and the local authority of the community of San Jose de Avino, the company assisted the communities with an upgrade well for drinking water, delivered hand tools for the technical school number 47 of the community of Pinuco de Coronado for their agricultural classes, continued road maintenance to the main access road to the mine, Finally, we are very pleased to announce that Aveeno has received for the first time the ESR award granted by the Mexican Center for Philanthropy and the Alliance for Corporate Social Responsibility. The ESR award is obtained through a diagnostic process based on indicators reviewed and endorsed annually by a committee of experts in the various CSR areas. This is an extremely prestigious award in the Mexican business world, granted each year to a select group of enterprises in recognition of the efforts to make a voluntary and public commitment to implementing socially responsible management and ongoing improvements as part of business culture and strategy. We are thrilled to receive the ESR award as this is a great accomplishment for Aveeno. I would like to express my congratulations to the entire Aveeno team, with a special thanks to the ESG team in Durango, led by Oscar Lara, Aveeno's Superintendent of Corporate Social Responsibility, whose proactive approach to governance was the top priority since joining the company a little over a year ago. Aveeno continues to be committed to our employees communities, shareholders, and stakeholders as part of our mission, vision, and values. During the second quarter, volatility in the markets persisted with some negativity due to rising interest rates, inflation, and a strong U.S. dollar, which put pressure on precious metals. We have seen a range in silver prices during the quarter from a high on April 19th of $0.25 91 to a low on june 30th of 20.41 this is an interesting time and we should probably brace for continued continued volatility and higher interest rates we will take a measured approach to all operational activities during this inflationary period we continue to believe that the outlook for silver is positive and that the silver 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. I will now ask Nathan Hart, Avino's Chief Financial Officer, to present the financial results for Q2 2022. Nathan?
spk04: 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 and first quarter of 2022, Avino continued to deliver meaningful financial results in the second quarter. On a cash operating basis, we generated a consistent mine operating margin of 47%, same as in the first quarter. The company also generated $2.5 million in operating cash flows before working capital changes and $0.02 per share in adjusted and unadjusted earnings. Following the acquisition cash payment of 15.3 million, the company remains well-funded with 12.8 million in cash available at the end of the second quarter. This represents a net increase of 3.3 million from the end of the year after factoring in the acquisition payment made in March. During Q2, we reported net revenues of 9.4 million from 595,000 silver equivalent payable ounces sold, which resulted in mine operating income of 3.9 million for the quarter including non-cash and depreciation and depletion. On a cash basis, mine operating income was $4.4 million. The company was impacted by provisional pricing adjustments by $1.8 million during Q2, with provisional net revenues coming in at $11.2 million before these adjustments. Aveeno reported net income after taxes of $2.3 million, or $0.02 per share, for the second quarter of 2022. As you can see, Q2 continued to build off the strong preceding quarters for Avino, as we continue to demonstrate consistent operating margins well above 40%. This was despite significant inflationary pressures seen around the world, and I want to commend our team in Mexico for their diligent work in keeping our cost structure intact. Earnings before interest, taxes, depreciation, and amortization, EBITDA, was $4.1 million for the quarter, and adjusted earnings was $2.5 million or $0.02 per share. Cash flow from operations before changes in working capital was $2.5 million, or two cents per share on a diluted basis. Capital expenditures for Q2 were $3.4 million on a cash basis, with total additions being approximately $5 million as the company continues to work with our partners to finance equipment at below or at market rates. Capital expenditures for this quarter related to the addition of the new underground mining scoop to assist with the ramp-up of mining operations as well as a dozer for the new dry stack tailings facility and exploration expenditures at La Potosina and below the current mine operations at Aveeno. Also included was additional drilling in our oxide tailings resource as we completed the additional 17 step out holes to increase the footprint of the resource. This project continues to move forward towards the pre-feasibility level in the near term. Rounding out and most importantly, Aveeno generated net income for the third consecutive quarter and $1.2 million in free cash flow, net of CapEx and working capital movements, which brings our total up to $6.2 million in free cash flow generated in the three quarters following the restart of operations in Q3 2022. Cash costs per silver equivalent payable ounce for the second quarter were $8.39, and on an all-in sustaining cash cost basis, they were $15.95. Lower cash and all-in sustaining cash costs were a product of higher production grades and recoveries than in previous quarters, as well as strong cost management by the operational team. With Q2 marking the third quarter of uninterrupted mining operations since 2019, I am pleased to report that the financial outlook for Avino remains very positive. With the strong operating margins and cash on hand of just under $13 million, Following the completed upfront consideration payments to Core Mining, our focus is fully on our Mexican assets and adding value for our shareholders and stakeholders throughout the rest of 2022 and in future years. I will now hand it back to David for a discussion on what Avino is planning for the rest of this year.
spk02: Thank you, Nathan. To recap, we had a busy second quarter with strong operational performance. The quarter was highlighted by encouraging drill results from the Oxide Tailings Project and the ET area of the Aveeno mine. Ongoing optimization from underground processes, continued construction of the dry stack tailings and training programs at site. Activities at the mine site during the third quarter will include continued production ramp up at the Aveeno mine with mine development work on ET to increase throughput. Drysac tailings facility nearing completion with startup around the corner. We currently have drills turning at Aveeno ET below level 17 and at La Potosina. Moving forward with a comprehensive metallurgical test work program on the oxide tailings project to move it to the development stage. Internal mine plans focused on Gloria and Abodancia veins at La Preciosa. Production for the full year is on track between 2.2 and 2.4 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. We are well into the third quarter and excited about all our ongoing projects as well as we continue to advance our growth plans. We would now like to move the call to the question and answer portion. Operator?
spk09: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 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 2. We will pause for a moment as callers join the queue. The first question comes from Jake Sikelski with Alliance Global Partners. Please go ahead.
spk07: Hey, David, Nathan, and team. Thanks for taking the questions. Morning, Jake. Hi. So it seems like the exploration potential at the Aveeno property is really coming to the forefront here. Can you just provide any color on follow-up drill plans, particularly at ET on the back of the success you had down dip in the first half?
spk02: Yeah, we moved the second drill over there because we have got three drills turning on surface. It's never been drilled at depth. So this is all brand new. This is very exciting for us. Never been drilled in over 50 years. So it's open at depth. So we're very, very excited about what the future holds for the company. And it looks like we're following it down. And it's pretty obvious. And look how big it is up near the surface as it goes down. So expect to see some more results in the near future.
spk07: Got it, okay, looking forward to that. And then just on La Preciosa, obviously you're working through integrating the asset now. When do you think you'll be in a position to announce some formal plans going forward there? Is that a second half type event? Do you think we'll see something on that in early 2023?
spk02: No, no, we're working on it. We're hoping to be able to present it at the Denver Gold Forum coming up in September. if it all comes together, but it's a five-year plan, and it looks very, very good. We're excited to roll that out. Got it.
spk07: Okay. That's all for me. Congrats again on a strong quarter. It was good to see costs lower in a tough inflationary environment. Thank you. Thank you.
spk09: The next question comes from Heiko Ehle with HC Wainwright. Please go ahead.
spk05: Hey there. Thanks, David, for taking my questions. Hope everybody is doing well. Thank you. Let's talk about the advancement of the oxide halings project. I mean, you've obviously drilled a lot there, 127 holes, comprehensive metallurgical test work, et cetera, et cetera. Now you're saying that to advance this, you know, Can you maybe provide a little bit of color on your total spend this year? I don't know if there's an intelligent way to break it out. And also, that might be a Nate question, I don't know, an idea of the spend for the remainder of the year?
spk03: Yeah, I'll take this one. So you're talking specifically the spend on the oxide tailings project or on all that for you?
spk05: Correct. No, oxide tailings.
spk03: Okay. Okay. Fairly minimal. The drilling is not very expensive because it's just, you know, we're just only drilling down a few meters and it's all on the surface. I think for the year we really probably spent about half a million dollars on it. And that's actually going back to last year as well, too, on the holes. And then moving forward, we don't have any more drilling to do. So it's a metallurgy program and then a number of studies. And eventually, you know, the plan is a PFS next year. So for the rest of the year, you're talking, again, still half a million total. And then next year, obviously, the cost of the PFS was still being finalized right now. But that's about it.
spk05: Fair enough. And I keep reading on how ET, you're obviously focusing on depth. Great. It just might be a dumb question, but how deep can you realistically and logistically take the site? I mean, at what point in time does the decline... the decline at site become a bit of a bottleneck. I mean, David, you and I went down there a couple of months ago and it took a while to get down, to get up. Any idea or how deep realistically you can go?
spk02: That would probably be a Carlos question, but The decline is actually improving now that we've linked it up and we are developing one-way traffic. We're smoothing it out and trying to keep it dry so then it'll be much quicker to get down there. Carlos, do you have any thoughts on how deep the ramp could go? Are you there, Carlos?
spk01: Yes, David, of course. Yes, Heiko. At the moment, the drilling that we have is about 300 meters below level 17. But in this case, proving all this mineralization, we are planning to do a kind of different mining method or just sink a shaft or something different, because it will be a long, long way from 300 meters to level 17 and then to surface. So we are, you know, at the moment we haven't, you know, final plan for that, but we are planning to put a shaft to mine this future ore.
spk02: Yeah, I can elaborate on that. So we have a service shaft right now to level nine. So we have considered putting in bore raises and shifting services to those raises and possibly expand the current shaft. And then maybe we could consider hoisting from level nine or crushing down below there and hoisting from there. And this is all good news because that would mean we found a lot more ore to justify that.
spk00: Got it.
spk05: Perfect. That's it for me. Thank you so much. Thanks, Eko. Thank you.
spk09: Once again, if you have a question, please press star, then one. The next question comes from Joseph Rieger with Roth Capital Partners. Please go ahead.
spk06: Hey, David and team. Congrats on the strong quarter and the ESG accomplishments. Thank you. So the hot topic this quarter has been inflationary pressures on uh on costs it seems like you guys mitigated it pretty well but you know can you guys quantify what the impact of inflation has been this year versus next and i realize that's a tougher question uh given the mine was shut down most of last year yeah sure you don't know it's obviously a very pertinent question in the industry right now um
spk03: I think we've seen some inflationary pressures across the board, supplies and consumables. In Mexico, diesel and things like that have been mitigated a little bit, but obviously there's been an increase. As you mentioned, it's hard to compare where we were a year ago right as of today. We were just starting back up operations, but I think there's been an increase overall. I can't give you an exact percentage, but we think from what we're seeing, it's not 50%, it's not 40%, it's still close down to the 10% range. And I think we've done a pretty good job at keeping it either at 10% or below. And obviously we had some great help throughout Q2.
spk02: And we saw this coming. So we loaded up on inventory. So hopefully all that equipment lasts until inflation goes back down. But on consumables, yeah, we're seeing the inflation creeping in as we go through our stockpile of consumables.
spk06: Okay, fair enough. And then it looks like you guys had about an almost $2 million build in inventory during the quarter, and I think that held back the revenue a touch. Is that intentional? I know some of your peer group has been holding back sales towards the end of Q2 in particular because of the drop in precious metals prices. I was just wondering if that's a conscious decision or if it's just simply timing.
spk03: It was probably a bit of both, but not for fulsomely a conscious decision. I think it was just the timing of the production and the strong ramp-up we saw in June really accelerated how much concentrate we produced for the month and how many ounces we produced.
spk02: The grade helped produce more concentrate.
spk03: Exactly. We did good grades across the board, especially with copper. We subsequently sold that in July. at slightly better prices than we saw at the end of June. You know, we saw obviously some provisional pricing adjustments in the negative for us. We should see that coming back the other way a little bit. So it was not fully a conscious decision, but I guess we're glad a little bit that we'll recover a bit of that in Q3.
spk06: Okay, fair enough. I'll turn it over. Thanks, guys. Thank you.
spk09: 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.
spk02: Thank you, Operator, and thank you to everyone for their time today. As I said earlier, we have many positives to talk about in Q2. We look forward to the second half of the year. Growth is paramount for our success, and Aveeno has been laying out the groundwork for future growth. We're developing a five-year strategy, which we're going to disclose to everyone coming up in the next quarter. We've been given priority to the most important projects, initiatives to achieve that growth. Unlocking the value of Aveeno property and region has been a priority, and we're looking forward to the next steps of our growth strategy, in turn maximizing value for shareholders and stakeholders. Have a great day. Thank you.
spk09: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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