Business Context and Reporting Period
Avino Silver & Gold Mines Ltd. filed this Form 20-F annual report for the fiscal year ended December 31, 2018; it is not a standalone fourth-quarter report. The Canadian-based miner produces silver, gold and copper at the Avino and San Gonzalo mines in Durango, Mexico, and is advancing the Bralorne project in British Columbia. Financial statements are prepared under IFRS and presented in U.S. dollars.
Financial and Operating Performance
Amounts below are in U.S. dollars unless noted. The filing reports revenue, profit and cash flow for the full fiscal year, not a separate Q4 result.
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $34.116 million | $33.359 million |
| Cost of sales | $27.850 million | $22.106 million |
| Mine operating income | $6.266 million | $11.253 million |
| Net income | $1.626 million | $2.522 million |
| Basic and diluted EPS | $0.03 | $0.05 |
| Cash from operating activities | $9.224 million | $(2.167) million |
| Cash used in investing activities | $(13.229) million | $(3.135) million |
| Cash at year-end | $3.252 million | $3.420 million |
| Working capital | $13.106 million | $16.403 million |
Revenue rose about 2%, while cost of sales increased about 26%. Mine operating margin declined to approximately 18% from 34%, and net margin to approximately 5% from 8%. Management attributed higher revenue to an 18% increase in silver-equivalent ounces sold, partly offset by a 10% decline in realized silver price. Production costs rose with sales volume; lower share-based payment expense helped reduce administrative expenses.
Operating cash flow improved year over year, but included a $4.999 million favorable change in non-cash working capital. Capital investment included $9.416 million for property and equipment and $5.361 million for exploration and evaluation. Financing activities provided $3.855 million, including share and warrant issuance proceeds; cash declined $168,000 during the year.
At year-end, debt-like balances included a $6.901 million Samsung term facility, $928,000 in equipment loans and $1.819 million in finance lease obligations. Contractual obligations totaled $16.824 million, including accounts payable and accrued liabilities. Total assets were $108.588 million, total liabilities $33.420 million and shareholders’ equity $75.168 million.
Material Changes Versus the Prior Period
- Net income fell $896,000, primarily because mine operating income decreased by $4.987 million; lower income tax expense partly offset the decline.
- San Gonzalo processed 79,140 tonnes versus 81,045 in 2017; its silver-equivalent recovered ounces declined to 592,098 from 789,157. Avino mine mill feed was 426,794 tonnes versus 460,890, with lower silver feed grade.
- Mill Circuit 4, a 1,000-tonne-per-day circuit, was completed in June 2018. It was in startup and commissioning through year-end, processing historic stockpiles; the company reported total plant capacity of 2,650 tonnes per day.
- The company raised $4.619 million gross in a September public offering of shares and warrants, and issued flow-through shares for gross proceeds of $4.667 million. Shares outstanding increased to 63,337,769 from 52,718,153.
- A retrospective accounting-policy change moved the Avino mine’s production commencement date from April 1, 2016 to July 1, 2015. Prior-period statements were adjusted; comparisons should be read on the restated basis.
Outlook, Risks and Unusual Items
- Management estimated San Gonzalo’s remaining mine life at approximately 0.8 years at December 31, 2018, versus 9.5 years for Avino. The company planned further Avino development, including San Luis, and expected Circuit 4 to transition to newly mined San Luis material in 2019.
- Estimated 2019 spending was $38.3 million for mine operating, administrative, capital and exploration activities in the Mexico operations, plus $5.2 million for Bralorne exploration and capital expenditures. The filing says additional capital is required and activities could be curtailed if financing is unavailable.
- The Samsung amendment deferred principal payments for 12 months through September 2019, then scheduled 23 monthly payments of $278,000 from October 2019 through August 2021. The interest rate rises to LIBOR plus 6.75% during the deferral and returns to LIBOR plus 4.75% afterward. Exclusive Avino concentrate sales to Samsung were extended through December 2024.
- The company reported no proven or probable mineral reserves at its properties; its disclosed resources are not reserves and do not demonstrate economic viability. The oxide-tailings preliminary economic assessment is preliminary and includes inferred resources, with no certainty of realization.
- Key risks include volatile silver, gold and copper prices; reliance on external financing; operating and safety hazards; permitting, environmental and reclamation obligations; currency movements; and concentration of concentrate sales among a small number of customers. The company reported two accidental deaths at San Gonzalo in 2016 and does not currently have accident insurance.
- The filing reports an unqualified audit opinion and management’s conclusion that disclosure controls and internal control over financial reporting were effective. The auditor did not provide an internal-controls attestation.
Important Facts for Investors to Verify
- Whether operating cash generation can be sustained, given its reliance in 2018 on favorable working-capital movements and the company’s $3.252 million year-end cash balance.
- Funding availability and expected spending for the 2019 Avino expansion and Bralorne program, including potential dilution from equity financing and outstanding warrants.
- San Gonzalo’s short estimated remaining mine life and the timing and costs of securing replacement mill feed.
- Actual performance, operating costs and recoveries from the new Circuit 4 and the planned San Luis development.
- Whether resource estimates and the oxide-tailings PEA can be advanced through further technical work, permitting and financing; neither establishes reserves.
- Debt repayment terms, Samsung sales concentration and the impact of metal-price and foreign-exchange movements on revenue and liquidity.