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, 2013
Accounting Basis: International Financial Reporting Standards (IFRS)
Currency: Canadian Dollars (CDN$)
Avino is a Canadian-based resource firm focused on the production and sale of silver and gold, primarily from its San Gonzalo mine in Durango, Mexico. The company transitioned from an exploration-stage entity to a production-stage company on October 1, 2012. As of December 31, 2013, the company had 27,488,834 common shares outstanding.
Key Financial Metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $16,094,701 | $2,255,376 |
| Cost of Sales | $8,968,409 | $1,434,569 |
| Mine Operating Income | $7,126,292 | $820,807 |
| Net Income (Loss) | $848,212 | $(1,263,178) |
| Earnings Per Share (Basic) | $0.03 | $(0.05) |
| Cash and Cash Equivalents | $3,839,595 | $4,035,985 |
| Total Assets | $34,552,245 | $26,191,608 |
| Total Liabilities | $10,005,217 | $4,244,230 |
| Shareholders' Equity | $24,547,028 | $21,947,378 |
Production Highlights (2013): The company produced approximately 602,233 ounces of silver and 2,473 ounces of gold from the San Gonzalo mine, plus additional production from historic Avino stockpiles. Average metal prices realized were approximately US$22.59/oz for silver and US$1,342/oz for gold.
Material Changes vs. Prior Period
- Revenue Surge: Revenue increased by approximately 614% year-over-year, driven by full-year production at the San Gonzalo mine and the commencement of processing historic Avino stockpiles in April 2013.
- Profitability: The company reported its first net income since transitioning to production, turning a 2012 loss of $1.26 million into a 2013 profit of $848,212.
- Expense Growth: General and administrative expenses increased by $2.32 million (120%) due to higher salaries, benefits, and a significant increase in share-based payments ($889,954 increase) related to 650,000 options issued.
- Tax Impact: A non-cash deferred income tax expense of $2,518,453 was recorded due to recently enacted changes in Mexican tax laws, including a new Special Mining Duty.
- Balance Sheet: Total liabilities increased significantly, primarily due to a new reclamation provision of $1.5 million and increased finance lease obligations for mining equipment.
Guidance, Outlook, Risks, and Contingencies
Outlook and Operations:
- San Gonzalo Mine: Production continues at levels intended by management. The company is advancing underground development to Level 6.
- Avino Mine: Dewatering operations are ongoing, with the water level receded to Level 9.5. Operations are expected to resume in late 2014 once dewatering reaches Level 11.
- Capital Needs: The company explicitly states it will be required to raise additional capital to further develop the San Gonzalo mine and reopen the Avino mine. In February 2014, the company raised approximately US$10.7 million through public offerings to fund these activities.
Material Risks and Contingencies:
- No Proven Reserves: The company has no proven or probable mineral reserves as defined by the SEC. Production decisions were made without a bankable feasibility study, creating inherent uncertainty regarding economic viability and mine life.
- Internal Controls: Management concluded that internal controls over financial reporting were ineffective as of December 31, 2013, citing material weaknesses in segregation of duties, written policies, and disaster recovery plans.
- Commodity Price Volatility: Revenue and profitability are highly sensitive to fluctuations in silver and gold prices. The company does not employ hedging strategies.
- Regulatory and Tax Changes: New Mexican tax laws enacted in late 2013 increased the corporate tax rate to 30% and introduced new mining duties, impacting future cash flows.
Key Facts for Investor Verification
- Reserve Status: Verify the company's lack of SEC-defined "proven or probable" reserves and the reliance on "mineral resources" (measured, indicated, inferred) under Canadian NI 43-101 standards.
- Internal Control Remediation: Monitor progress on remediation of the identified material weaknesses in internal controls over financial reporting.
- Capital Adequacy: Assess the sufficiency of the US$10.7 million raised in February 2014 against the estimated $23 million in planned expenditures for 2014 (Operating: $13M, Capital: $10M).
- Avino Mine Restart: Track the timeline for the dewatering of the historic Avino mine and the associated capital costs to resume operations.
- Tax Liability: Review the impact of the new Mexican Special Mining Duty (7.5%) and Extraordinary Mining Duty (0.5%) on future net margins.