Business Context and Reporting Period
Company: Avino Silver & Gold Mines Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2016
Accounting Basis: International Financial Reporting Standards (IFRS)
Operations: The Company is a Canadian-based resource firm engaged in the exploration, extraction, and processing of silver, gold, and copper. Primary operations are located in Durango, Mexico (Avino and San Gonzalo Mines), with exploration activities in British Columbia, Canada (Bralorne Mine project). The Company declared production at levels intended by management at the Avino Mine effective April 1, 2016.
Key Financial Metrics (2016)
| Metric | 2016 (CDN$) | 2015 (CDN$) |
|---|---|---|
| Revenue | $39,895,591 | $19,082,847 |
| Cost of Sales | $25,391,891 | $10,961,694 |
| Mine Operating Income | $14,503,700 | $8,121,153 |
| Net Income | $1,992,479 | $483,424 |
| Earnings Per Share (Basic) | $0.05 | $0.01 |
| Cash and Cash Equivalents | $15,816,628 | $7,475,134 |
| Working Capital | $31,293,019 | $6,003,557 |
| Total Assets | $125,937,065 | $87,341,992 |
| Total Liabilities | $43,419,758 | $35,403,293 |
| Shareholders' Equity | $82,517,307 | $51,938,699 |
Note: All figures are expressed in Canadian Dollars (CDN$) unless otherwise noted.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased by approximately 109% (CDN$20.8 million) compared to 2015. This surge is primarily attributed to the Avino Mine commencing production at levels intended by management on April 1, 2016, allowing concentrate sales to be recognized as revenue rather than capitalized exploration costs.
- Profitability: Net income increased by 312% to CDN$1.99 million. The increase was driven by higher profits from Avino Mine concentrate sales and a foreign exchange gain in 2016, contrasting with a foreign exchange loss in 2015.
- Liquidity: Cash balances more than doubled to CDN$15.8 million, supported by operating cash flow of CDN$6.7 million (compared to a use of CDN$2.6 million in 2015) and significant financing activities including a bought-deal offering and at-the-market sales.
- Capital Structure: Share capital increased significantly due to equity issuances. The Company raised gross proceeds of CDN$15.0 million in a bought-deal offering and CDN$14.7 million in at-the-market offerings during 2016.
Guidance, Outlook, and Risks
Outlook and Management Commentary
- Bralorne Mine: The Company is developing a three-phase strategic operating plan to resume processing at the Bralorne Mine in British Columbia. Phase 1 targets a restart at 100 tonnes per day (tpd) in 2017, with long-term goals of expanding to 300 tpd and eventually 500 tpd. Permit amendments and tailings storage facility upgrades are underway.
- Avino Mine Expansion: Plans are in place to expand mill capacity to 2,800 tpd by adding a fourth mill circuit, with construction commencing in January 2017.
- Capital Requirements: The Company estimates total costs for 2017 (Operating + Capital) at approximately CDN$36.3 million for Mexico operations and CDN$12.4 million for Bralorne. Management states the Company will need to raise additional capital to meet these planned costs.
Risks and Contingencies
- Internal Controls: Management concluded that internal controls over financial reporting were not effective as of December 31, 2016. Material weaknesses include the lack of a formal risk management process and the failure to translate certain policies (including whistleblower programs) into Spanish for Mexican employees. Remediation is planned for Q1 2017.
- Reserve Status: The Company has no proven or probable mineral reserves as defined by the SEC. Production decisions were made based on internal data and resource estimates without a bankable feasibility study, increasing operational and economic risk.
- Operational Hazards: The mining industry involves inherent risks, including accidents. The Company reported two accidental deaths at the San Gonzalo mine in March 2016. The Company currently does not have insurance covering accidents.
- Financing Risk: There is no assurance the Company will be able to raise the necessary capital to fund its 2017 capital program or sustain operations if metal prices decline.
Investor Verification Checklist
- Reserve Classification: Verify the distinction between the Company's "Mineral Resources" (NI 43-101) and the lack of SEC-defined "Mineral Reserves." Confirm the economic viability assumptions used to justify production without a feasibility study.
- Internal Control Remediation: Monitor the Company's progress in addressing the material weaknesses in internal controls identified for 2016, specifically regarding risk management and policy translation.
- Capital Adequacy: Assess the Company's ability to raise the estimated CDN$48.7 million required for 2017 operations and capital expenditures given current market conditions.
- Bralorne Permitting: Track the status of the Permit M-207 amendment and the Interim Closure and Reclamation Plan approval required to resume mining at the Bralorne property.
- Insurance Coverage: Confirm if the Company has secured insurance coverage for mining accidents following the 2016 fatalities at San Gonzalo.