Avino Silver & Gold Mines Ltd. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report. Financial statements are prepared under IFRS and presented in U.S. dollars unless otherwise noted.
Business context and operating results
Avino produces silver, gold and copper at its Avino mine complex in Durango, Mexico. In December 2019, it sold its Bralorne gold-mine subsidiary in British Columbia, stating that the sale would allow it to focus on Mexico. The filing reports no proven or probable mineral reserves under SEC definitions.
- Revenue was $31.746 million, down 6.9% from $34.116 million in 2018. Management attributed the decline mainly to 11% fewer silver-equivalent ounces sold and lower San Gonzalo output, partly offset by higher realized silver and gold prices.
- Cost of sales was $32.016 million, up from $27.850 million. Mine operating loss was $0.270 million, versus operating income of $6.266 million in 2018; the 2019 mine operating margin was approximately negative 0.9% of revenue.
- Continuing-operations loss was $2.335 million, compared with income of $1.657 million in 2018. Total net loss was $31.461 million, including a $29.126 million loss from discontinued operations and disposal, principally the Bralorne sale. Basic and diluted loss per share were $0.45.
- Operating cash flow was $5.507 million, compared with $9.224 million in 2018. Investing activities used $3.734 million, while financing activities provided $4.970 million. Cash increased to $9.625 million from $3.252 million.
- At year-end, total assets were $72.571 million, liabilities $18.648 million, and shareholders’ equity $53.923 million. Working capital was $13.209 million. The balance sheet showed a $5.897 million Samsung term facility, $0.289 million in equipment loans and $1.134 million in finance lease obligations.
Material changes and unusual items
- San Gonzalo reached the end of its current resources during Q4 2019; mining and processing there stopped. Management reported its remaining mine life as nil. Silver-equivalent output at San Gonzalo fell to about 215,000 ounces from about 592,000 in 2018.
- Avino’s mine processed 427,147 tonnes in 2019, broadly level with 426,794 in 2018, but silver-equivalent production fell to about 1.656 million ounces from 1.847 million. Historic above-ground stockpiles contributed additional production.
- The Bralorne sale consideration included C$8.7 million cash, 12.58 million Talisker shares and 6.29 million warrants. The company recorded a net disposal loss of $28.890 million. A further $2.5 million payment is contingent on commercial production at Bralorne and was assigned no fair value at year-end.
- Year-end long-term investments included $4.311 million of Talisker shares and warrants; a $1.282 million unrealized investment gain contributed to other income. The reclamation provision fell to $1.524 million from $10.799 million, largely because Bralorne’s obligation was disposed of.
- Shares outstanding increased to 76.592 million from 63.338 million, reflecting equity financings and RSU exercises. The company raised $5.2 million gross through a bought-deal financing and $2.9 million through an at-the-market offering.
Outlook, risks and contingencies
- Management estimated 2020 mine operating and administrative expenses of $36.371 million, plus $6.239 million for capital and exploration spending, totaling $42.610 million. The filing says additional capital will be needed and activities may be curtailed if financing is unavailable.
- The company planned to advance Avino operations and evaluate exploration and tailings opportunities. Its 2018 oxide-tailings PEA estimated a post-tax NPV of $22.19 million at an 8% discount rate and a 32% IRR, but was preliminary, included inferred resources, and provided no certainty of realization.
- Key risks include volatile metal prices and exchange rates, financing availability, mining and processing costs, permitting and environmental obligations, and the absence of demonstrated reserves or feasibility studies for the operating mines. The company does not hedge metal-price or foreign-exchange exposure.
- The filing discusses the emerging COVID-19 outbreak and warns that operational disruption, including a possible suspension of mining, could materially adversely affect the business. It also notes prior fatal accidents at the mines and that accident insurance was not in place.
- The Samsung facility carried a floating LIBOR-based rate and required exclusive sale of Avino-mine concentrates to Samsung through December 31, 2024. Contractual obligations included $3.628 million due within one year on the term facility, alongside other near-term payables and lease obligations.
Investor verification priorities
- Confirm whether Avino’s remaining resources support sustainable production and mine-life estimates, especially following San Gonzalo’s shutdown; distinguish Canadian mineral resources from SEC-defined reserves.
- Review the basis and accounting for the $28.890 million Bralorne disposal loss, Talisker investment valuation, and the reduction in reclamation liabilities.
- Assess whether operating cash flow, available cash and financing can fund the stated 2020 budget and scheduled debt, lease and other payments without further dilution.
- Track Avino grades, recoveries, costs and stockpile contribution against the 2019 declines in revenue and mine operating results.
- Evaluate the assumptions, permitting, capital needs and resource classification underlying the oxide-tailings PEA before treating its projected returns as achievable.
Audit and controls: Manning Elliott LLP issued an unqualified opinion on the IFRS financial statements. Management reported effective disclosure controls and internal control over financial reporting at December 31, 2019; the auditor did not attest to internal-control effectiveness.