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, 2015
Accounting Basis: International Financial Reporting Standards (IFRS)
Currency: Canadian Dollars (CDN$)
Avino is a Canadian-based resource firm focused on the exploration, extraction, and processing of silver, gold, and copper. Its primary operations are located in Durango, Mexico (San Gonzalo and Avino mines) and British Columbia, Canada (Bralorne Mine project). The company transitioned from exploration to production at the San Gonzalo mine in 2012 and resumed underground mining at the Avino Mine in late 2014. The Bralorne property was acquired as a wholly-owned subsidiary in October 2014.
Key Financial Metrics (Year Ended Dec 31, 2015)
| Metric | 2015 (CDN$) | 2014 (CDN$) |
|---|---|---|
| Revenue | $19,082,847 | $19,297,953 |
| Cost of Sales | $10,961,694 | $11,393,404 |
| Mine Operating Income | $8,121,153 | $7,904,549 |
| Net Income (Loss) | $483,424 | $2,514,169 |
| Earnings Per Share (Basic) | $0.01 | $0.08 |
| Cash and Cash Equivalents | $7,475,134 | $4,249,794 |
| Total Assets | $87,341,992 | $61,416,147 |
| Total Liabilities | $35,403,293 | $16,365,756 |
| Shareholders' Equity | $51,938,699 | $45,050,391 |
| Working Capital | $6,003,557 | $6,617,877 |
Debt and Liquidity: The company holds a US$10,000,000 term facility with Samsung C&T U.K. Limited (recorded at CDN$13,840,000) and various equipment loans and finance lease obligations. Cash flow from operating activities was negative at $(2,622,111), while financing activities provided $14,452,849, primarily from the term facility and share issuances.
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased by approximately 81% to $483,424 from $2,514,169 in 2014. This was primarily driven by a foreign exchange loss of $833,822 in 2015 (compared to a gain in 2014) and the utilization of non-capital tax loss carryforwards in Mexico in 2014, which were exhausted in 2015.
- Revenue Stability: Revenue remained relatively flat, decreasing slightly by 1.1% to $19.08 million. The decrease is attributed to lower realized metal prices (silver down ~19%, gold down ~9%) despite increased production volumes.
- Balance Sheet Expansion: Total assets increased by 42% to $87.3 million, driven by the acquisition of Bralorne Gold Mines Ltd. and increased exploration and evaluation assets. Total liabilities more than doubled to $35.4 million, largely due to the new term facility and increased reclamation provisions.
- Reclamation Provision: The reclamation provision increased significantly to $6.05 million (from $2.01 million) due to a new provision recognized for the Bralorne Mine project.
Guidance, Outlook, and Risks
Outlook and Capital Needs: Management anticipates needing to raise approximately $5 million for 2016 operations. The company plans to finalize plans for a new tailings storage facility and activate a new power line in 2016. The Bralorne mill is expected to resume operations in 2016 pending regulatory approval.
Material Risks and Contingencies:
- Internal Controls: Management concluded that internal controls over financial reporting were ineffective as of December 31, 2015. Material weaknesses include inadequate segregation of duties, insufficient written policies, insufficient disaster recovery plans, and limited staff resources.
- Reserve Status: The company has no proven or probable mineral reserves as defined by the SEC. Operations are based on mineral resources and management's determination of technical feasibility and commercial viability without a formal feasibility study for the Avino Mine.
- Financing Risk: The company must raise additional capital to advance its mines. There is no assurance that funds can be raised on commercially reasonable terms.
- Operational Hazards: Mining involves inherent risks including accidents (three accidental deaths occurred at San Gonzalo), geological uncertainties, and environmental liabilities.
- Commodity Price Volatility: Profitability is highly sensitive to fluctuations in silver and gold prices.
Key Facts for Investor Verification
- Reserve Classification: Verify the distinction between "mineral resources" (reported under Canadian NI 43-101) and "mineral reserves" (SEC Guide 7). The company explicitly states it has no SEC-defined reserves.
- Internal Control Remediation: Monitor the company's progress in remediating the identified material weaknesses in internal controls over financial reporting.
- Capital Raising: Track the company's ability to secure the estimated $5 million required for 2016 operations and the $30.9 million in planned capital expenditures.
- Bralorne Operations: Confirm the resumption of milling and mining activities at the Bralorne property, which was suspended in 2015 due to tailings storage facility concerns.
- Debt Obligations: Review the repayment schedule for the US$10 million term facility, with repayments commencing in June 2016.