Avino Silver & Gold Mines Ltd. (ASM) Earnings Call Transcript

Welcome to the Avino Silver & Gold Mines Second Quarter 2026 Financial Results Conference Call and Webcast. [Operator Instructions]. The conference is being recorded. I would now like to turn the conference over to Jennifer North, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our Q2 2026 earnings call and webcast. To join this webcast and call, there is a link in our news release, which was disseminated this morning and can be found on our website under Investor Center, then News and Media. In addition, a link can be found on the homepage of the Avino website. The full financial statements and MD&A are now available on our website under the Investor Center tab then Reports and Financials. In addition, the full statements are available on Avino's profile on SEDAR+ and on EDGAR. Before we get started, I remind you to view our precautionary language regarding forward-looking statements and the risk factors pertaining to these statements and 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. For additional information, we refer you to our detailed cautionary note in the presentation related to this call or on today's press release. On the call today, we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; our Senior Vice President, Technical Services, Peter Latta; and the newest member of the management team, Marc Turcotte, Senior Vice President of Corporate Development. 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 from this conference call and webcast will be available on our website. Please note that all figures stated are in U.S. dollars unless otherwise noted. Thank you. I will now hand over the call to Avino's President and CEO, David Wolfin. David?

Thanks, Jen. Good morning, everyone, and welcome to Avino's Second Quarter 2026 Earnings Call and Webcast. We will cover the highlights of our financial and operating results and then provide an overview of what's coming up in the next quarter, followed by a Q&A session. Once I've gone through the operational highlights and overall progress, I'll turn it over to Nathan Harte, Avino's CFO, to discuss the financial results for the period. Please turn to Slide 5. We continue executing on our growth strategy, advancing Avino from a single mine operator towards a diversified multi-asset mid-tier producer in Mexico. The second quarter marked another significant step forward for Avino. We achieved an important milestone with the announcement of our inaugural mineral reserve and updated mineral resources, providing a strong foundation for our long-term growth strategy. We also continued to make steady progress at La Preciosa, increasing development production as we advance towards commercial mining. Beyond our operations, we strengthened the company through key corporate initiatives, including an announcement of a normal course issuer bid and the appointment of Marc Turcotte as Senior Vice President of Corporate Development. Together, these achievements reflect our continued execution and our commitment to growing Avino. During the quarter, we had meaningful contributions from La Preciosa with a 59% increase in silver production as we continue to move the project forward. Mill performance remained solid during the quarter with tonnes milled exceeding expectations and contributions from La Preciosa development ore continued to increase throughout the quarter. Our strong second quarter performance was driven by several key drivers, including: firstly, our financial discipline and strategic capital allocation played an important role driving improvement across key financial metrics. Quarterly revenue of $26.8 million, cash of $145 million, working capital position of $141 million. Our financial strength enables us to carry out our organic growth plan with a bulletproof balance sheet. Next, we announced the normal course issuer bid in April, and we have repurchased and canceled over 500,000 common shares in the quarter, which in turn decreased the issued and outstanding common shares by that amount. We believe that the NCIB is a flexible tool that is part of our overall capital allocation program, and we remain committed to returning value to shareholders by reducing the number of shares outstanding and increasing the percent of ownership and earnings per share. The next key driver was the completion of a new mineral reserve estimate and updated mineral resource estimate. This was released on April 16. Establishing mineral reserves across all properties is a transformational milestone for Avino. For the first time, we have defined reserves that demonstrate the underlying quality, scale and economic potential of our asset base, further advancing the company towards multi-asset mid-tier producer. The inaugural mineral reserve estimate is 127 million silver equivalent ounces across our three assets. This milestone is complemented by growth in our mineral resource base. This growth was achieved after accounting for depletion from ongoing mining activities, underscoring the strength and continuity of our ore bodies and mineralized systems. Together, these results reinforce the depth of our organic pipeline and positions Avino for continued growth and long-term value creation for shareholders. Next, La Preciosa was an important contributor to our operational progress this quarter. Development mining and haulage rates increased to allow Mill Circuit 2 to switch from ET Ore to La Preciosa development ore and now Mill Circuit 1 and 2 are both processing La Preciosa development ore. In addition, development and mine preparation work is nearly complete on Level 3 of Abundancia and Gloria, allowing for production long-haul mining to begin. This will result in higher grade ore being sent to the mill as compared to development ore processed to date. which is subject to additional mining dilution. Engineering and technical studies are ongoing at the mine level to evaluate optimum mining, hauling and processing rates for long term. Additionally, Avino is currently conducting trade-off studies between hauling and potential of stand-alone processing facility at La Preciosa. The next key factor underpinning our performance is the exploration programs. There are two drills currently turning at La Preciosa with 6,591 meters of drilling completed at the end of Q2 as part of the planned 15,000 meters of exploration for 2026. Drilling has now shifted from infill holes to exploration and step-out holes at high priority targets at vein intersections and projections. It is important to note that none of the infill holes completed to date were included in the mineral reserve update. Furthermore, most of the exploration holes are outside the current resource model. Next, at Avino Mine, we identified some surface mineralization material near its current workings, which was out of the current reserves. Given the ease of accessibility, along with low-cost mining extraction and process flexibility of our four independent mill circuits, Avino elected to mine, haul and process material in one of the large mill circuits. Drilling remains ongoing in the same location as Q1 as we continue to understand the nature of the veining. The first drill was focused in the upper area of the eastern portion of the system. The second drill was focused on extension drilling in the footwall breccia area of the Upper East portion. Avino has been hosting geological consultants that are helping identify key geological features to target areas for resource expansion. Next, 54% of our revenue is from silver ounces sold and 90% of our revenue comes from precious metals, silver and gold. During Q2, precious metal prices were volatile, but remained above historical averages, providing favorable pricing environment that supported our overall financial results. As we continue to execute our transformational growth strategy, we are seeing growing recognition from institutional investment community. New institutional funds and ETFs continue to join our shareholder base, reflecting increased awareness of Avino's growth profile and long-term potential. These achievements demonstrate meaningful progress in advancing Avino's transformational growth strategy while reinforcing the company's investment case. Moving on to Slide 6. We turn to our Q2 production results, which were released on July 22 and reflect steady operational performance. On this slide, we show our production results compared to Q2 2025 and year-to-date 2025 and consolidated production of 535,000 silver equivalent ounces and 185,000 tonnes of total mill feed. On Slide 7, we highlight production by operation, showing contributions from both Avino and La Preciosa for the year. At La Preciosa, development production increased 59% from Q1 2026, contributing just over 100,000 silver equivalent ounces and just shy of 85,000 silver ounces and 182 gold ounces. I was at La Preciosa last week and witnessed the rapid pace of development firsthand. The progress is being supported in part by additional new mining equipment, which is improving development efficiency, increasing productivity and helping the team advance underground development. At this time, I will now hand it over to Nathan Harte, Avino's CFO, to present our financial performance for the second quarter. Nathan?

Thank you, David, and thank you to all of you for taking the time to join us as we recap the financial and operating results for the second quarter. Here on Slide 8, we have an overview of some key financial and operating highlights and the improved balance sheet with a full table on the next slide. In the second quarter, we generated revenues of $26.8 million with 54% of our revenues coming from silver ounces sold at an average realized price of $68.90 per silver ounce. Further, silver and gold sales combined for over 90% of our revenues this quarter. Gross profit margin was 48%, inclusive of noncash items and 54% on a cash basis, excluding depreciation and depletion. Our revenues and gross margin were impacted this quarter by provisional pricing adjustments of $5 million as well as an increased amount of concentrate inventory at quarter end and a weakened U.S. dollar against the Mexican peso. Despite these headwinds, Avino earned $10.9 million in net income after taxes or $0.06 per diluted share, beating Q2 of last year's total of $2.9 million or $0.02 per share. Q2 adjusted earnings were similar at $11.1 million or $0.06 per share compared to $8.8 million or $0.06 per share in Q2 of last year. Operating cash flows and free cash flow both improved compared to Q2 of last year. We generated operating cash flows of $13.3 million and after working capital adjustments, the amount earned was $8.3 million or $0.05 per share. Free cash flow generated was $5.6 million, excluding La Preciosa development costs and all capitalized and expensed exploration costs associated with the 30,000 meters of planned drilling this year. Moving to liquidity and treasury. Our cash position was a record $144 million at the end of the quarter, and working capital was $141 million. Avino has no secured debt other than leases on operating equipment at both Avino and La Preciosa mining operation sites, and we are well positioned to execute on all growth options in front of us. Coming to Slide 9, we see all other financial metrics for the second quarter and year-to-date. As everyone can see, almost all categories saw meaningful increases. Highlighting again the continued cash generation coming from Avino, which is more than covering all cost of development at La Preciosa as we begin to transition to production mining methods. Here on Slide 10, we have an overview of operating results on a per ounce and per tonne basis as well as margins at our operations. As noted previously, provisional pricing adjustments did have a negative impact on our margins, along with the continued Mexican peso strength with the peso averaging between 12% and 15% stronger compared to the U.S. dollar this quarter compared to Q2 of 2025. In the quarter, we did see some increases in cost per ounce and per tonne for a few different reasons. This quarter, we doubled throughput of some La Preciosa development material even compared to Q1. As discussed last quarter, this material is development material running through the mill that at lower prices would have been considered waste material. We are in the unique position that a lot of the development at La Preciosa is in ore and has allowed us to offset the costs associated with development work we would have had to do regardless to get the mine ready for production. These costs for La Preciosa are not indicative of long-term cost per ounce and per tonne expectations. However, at current metal prices, each tonne of development material is being processed at a profit. One other item to highlight is that the movement in silver price did have an impact in their silver equivalent payable ounces sold calculations, which again impacts our cash cost and all-in sustaining cost per ounce numbers. Using the prices from our cost and production guidance at the beginning of 2026, our cash cost per ounce for the second quarter would have come in around $24.07, which is a swing of $4.55 or 16%. On an all-in basis, silver price had a larger impact. Using those same budget prices, our all-in sustaining cash cost per silver equivalent payable ounce would be $30.28, which is a swing of $8.47 or 22%. As mentioned in our production news release, we did change the mine sequence by opening up processing capacity in Mill Circuit 2 for La Preciosa three months ahead of the schedule as well as we mined some other lower grade areas at Avino. We do expect the numbers to normalize back into the range as grade improves in our mine sequence in subsequent quarters. Our consolidated cash cost per tonne figure of $74.72 came in at the high end of our guidance range for 2026. However, year-to-date, we are just under $70 per tonne, which is right around the midpoint. On an all-in basis, we were above our range at $96, again, primarily from the change to more La Preciosa material as costs at Avino were $84 per tonne in the second quarter. Flipping back to the revenue side, here's our expectations for production and revenues by metal moving forward. We expect that the silver portion as it relates to revenue will continue to be higher than the estimated production by metal figure shown here, especially as La Preciosa contributes even more in the second half of the year. At this point, I will now turn it back over to David to run through upcoming activities.

Thanks, Nathan. Moving to Slide 12. As we summarize our key goals for the remainder of 2026, our focus is on strategic exploration and drilling with 15,000 meters of drilling budgeted for both La Preciosa and the Avino mine, as mentioned earlier on this call. We also look to increase production at La Preciosa with a goal of 500 tonnes per day, which we are close to achieving. It is important to reiterate here that we have inaugural mineral reserves and collectively, our assets host proven and probable mineral reserves of 27 million tonnes for 127 million silver equivalent ounces at a grade of 145 grams per tonne as well as measured and indicated mineral resources totaling 67.7 million tonnes and 301 million silver equivalent ounces at a grade of 162 grams per tonne with inferred mineral resources totaling 24.8 million tonnes and 87.6 million silver equivalent ounces at a grade of 123 grams per tonne. Avino is achieving market recognition, institutional buying and ETF inclusion is broadening our investor base. Turning to Slide 13. Alongside our operational and growth initiatives, we continue to advance our corporate social responsibility programs across both Avino Mine and La Preciosa. Over many decades, we have built strong and lasting relationships with our local communities and workforce reflected in our low labor turnover and growing base of skilled employees. Our operations are supported by a workforce of 707 men and women, including 580 unionized workers, employees and contractors at the Avino Mine as well as an additional 127 workers advancing activities at La Preciosa. Our operations continue to make meaningful contributions to the regional economy through local employment, training, procurement and community-based initiatives. We remain committed to supporting the long-term social and economic development of the communities where we operate while fostering sustainable growth for all stakeholders. I'm pleased to announce that our second sustainability report has been completed and is now on our website. Moving to Slide 14. I'd like to highlight again the company's growth strategy. Within a 20-kilometer footprint, we have three key assets, including our operating mill complex, which currently processes material from the Avino Mine and La Preciosa. We have access to water, power and tailings storage, critical infrastructure that supports our ability to expand production efficiently. By leveraging our existing infrastructure, assets and resource base, we believe we are well positioned to execute our growth plans efficiently and effectively. As you can see on this slide, our pathway to 10 million ounces of silver equivalent is supported by these growth initiatives, advancing and scaling up La Preciosa, including the potential for a stand-alone plant and expansion opportunities at the Avino processing plant. Trade-off studies and evaluation is ongoing. We rounded out the quarter with strong financial metrics, which reflect the strength of our strategy and the dedication of our team, both which drive our success as we pursue the next phase of growth. We are focused on the future and advancing our path to transformational growth. With decades of work behind us to build this foundation, we remain disciplined in how we manage our financial strength, making thoughtful and strategic decisions to support long-term value creation. On behalf of our leadership, thank you to our entire team for your efforts and contributions. We'd now like to move the call to the question-and-answer portion. Operator?

[Operator Instructions] And your first question is coming from Heiko Ihle from H.C. Wainwright.

Obviously, congratulations to Mark and Peter on their new appointments there. Of course, a couple of things. So let's start with the drill program for the year. I mean you said you've shifted from the infill holes to exploration step-out holes. The are the obvious questions, what has been found and maybe the depth of the current holes that get drilled? And also maybe a bit of color on when you see new slow that coming along?

Yes. Thanks so much for the question, Heiko. So I mean, we're drilling at La Preciosa and Avino, and both are looking for resource expansion at this point in time. Avino is very wide body, and there's lots of targets. So it's quite easy to hit. So we've been successful there. We hesitate to put out any drill results just because we want to a real comprehensive sort of answer that includes the reserve update. So whether or not we put the drill results out now or we wait until we put out the updated reserve update, which will come out next year because the next question after the results is, well, what does this mean? And so we want to be able to show that reserve growth or resource growth, and we're not yet ready to do that. And then that's the same story at La Preciosa. Obviously, the geology is different and the targets are different. But yes, we definitely are excited from an exploration perspective for both targets for very different reasons. But yes, it's a very exciting time for us.

Yes. because Coeur was focused on preparing a feasibility study for an open pit mine. So they focused on the obvious areas. They didn't do any step-out drilling. So we're drilling it below some of the intercepts where the veins meet. So we're really excited about what we're finding and what the potential is.

And I know you've seen the press releases for the drilling that we have released at La Preciosa. And the key point to take away there is that all of those holes are above the average reserve and resource grade. just to say that, hey, we're going to surprise to the upside, we believe, on that. And we just want to be very, we want to take our time with the results and make sure that we integrate them into that resource and reserve model.

Very good. What are you seeing in regards to costs for drilling compared to, call it, six months and a year ago?

I mean you're seeing cost increase for sure. But I mean, Carlos does a great job keeping a handle on the guys and using a drilling contractor that we have a lot of experience with. And so the availability of drills is a thing as well, more so than, let's say, cost. Sometimes adding an extra drill is difficult because there's a lot of people looking to drill at this time. So we have four drills turning and we're adding a fifth, but that's taking a bit longer than we'd like.

Very good. I wouldn't get you to give me a percentage or a number there. No. No. I mean you're seeing a little bit, but it's not a huge increase. And certainly, Nate can touch a little bit more on the drilling cost, but I don't think we're seeing very substantial increases in drilling costs.

No, nothing significant. We've got a long-term relationship with the contractor we've been working with. So maybe some inflationary standard, a couple of percent here, but nothing beyond that. It's a fair question.

Very good. Nate, earlier on the call, you mentioned that costs on La Preciosa aren't indicative of longer-term costs. And just to confirm, that cost statement is only attributable to the development material. In other words, there's nothing that changed conceptually on as a whole, right?

Yes, that's correct. So obviously, everything we've processed to date and the cost that you've seen to date is from development material. We have not processed anything from the production mining side. And as we get more development done and able to take more tonnage out, obviously, you see some economies of scale as well as we'll get production level grade, which will help everything long term. But yes, again, just we wanted to reiterate that everything we processed to date is not indicative of where we see long-term costs.

Yes. That's what I figured. And then finally, I know I've probably overstated and I'll welcome the question to you here. The 500 tonne per day goal at La Preciosa, the time line to full production maybe by quarters, anything you want to lay out for us for our models?