ASM Q1 2023: Silver Equivalent Output Jumps 48% as Resource Base Hits 368M Ounces

May 11, 2023 | By EarningsIQ Research

Avino Silver & Gold Mines (ASM) delivered a production-driven quarter, with silver equivalent output up sharply and a major mineral resource update expanding the company’s long-term growth runway. Cost pressures and lower realized metal prices muted financial results, but operational execution and asset development remain on track for a multi-year scaling plan. All eyes now turn to La Preciosa ramp and tailings project milestones as Avino pursues intermediate producer status by 2028.

Summary

• Resource Expansion Sets Stage: Consolidated mineral resources now total 368 million silver equivalent ounces, supporting multi-asset scaling.
• Production Leverage Evident: Silver equivalent output rose 48%, offsetting weaker pricing and shipment timing.
• Growth Pipeline in Focus: Pre-feasibility on tailings and La Preciosa development are key catalysts for 2023 and beyond.

Business Overview

Avino Silver & Gold Mines (ASM) is a Mexico-focused precious metals producer, generating revenue from the mining and sale of silver, gold, and copper concentrates. Its primary operations center on the Avino mine complex in Durango, with significant development underway at the La Preciosa project and an advancing oxide tailings project. The business model combines operating mining assets with a pipeline of near-term development projects and exploration, aiming to scale output and resource base within a 20-kilometer footprint.

Performance Analysis

Q1 2023 marked a clear operational step-up for Avino, as silver equivalent production surged 48% year-over-year to 678,000 ounces, driven by higher mill throughput and increased gold and silver output. Gold production soared 185%, and copper output rose 15%, supporting the company’s multi-metal leverage. However, financial performance lagged production gains due to lower realized metal prices, a delayed concentrate shipment, and higher overhead from ramped volumes.

Revenue fell to $9.8 million, reflecting both provisional pricing adjustments and shipment timing, while mine operating income and EBITDA were compressed. Operating margins were pressured by higher per-ounce costs, as larger production volumes with lower grade and recoveries diluted profitability. Still, cash cost per ton processed improved, demonstrating operational resilience amid inflationary input pressures. Capital investment was front-loaded in Q1, with $3.8 million spent primarily on mobile equipment for both Avino and La Preciosa.

• Output Acceleration: Production growth outpaced sales due to shipment timing, setting up a Q2 revenue rebound.
• Cost Structure Dynamics: Per-ounce costs rose on overhead and lower recoveries, but per-ton costs fell as throughput scaled.
• Capital Deployment: Front-loaded CapEx reflects proactive asset preparation for upcoming development phases.

Despite a net loss, Avino’s operational progress and resource growth reinforce its transition toward intermediate producer status.

Executive Commentary

Strategic Positioning

1. Multi-Asset Growth Pipeline

Avino’s five-year plan is anchored in sequentially bringing online three core assets: the Avino mine, La Preciosa, and the oxide tailings project. This integrated approach leverages existing infrastructure, water, power, and tailings storage, minimizing capital intensity and maximizing organic growth potential.

2. Resource Base Expansion

The updated mineral resource estimate now totals 368 million silver equivalent ounces, including La Preciosa and new estimates at Guadalupe and La Potosina. This provides long-term visibility and optionality for production scaling and supports Avino’s intermediate producer ambitions.

3. Operational Cost Discipline

Despite inflationary pressures, Avino reduced per-ton processing costs, reflecting strong execution by the Mexico-based operational team. Cost control remains a priority, especially as the company prepares for higher volumes and new project ramp-ups.

4. Community Engagement and ESG

ESG and community investment have increased by multiples over the last five years, as Avino prioritizes local hiring, educational support, and environmental stewardship. Social license is central to La Preciosa’s development, with ongoing engagement in nearby towns and a focus on long-term community benefits.

5. Exploration and Drilling Upside

Active drilling continues at Avino ET, with 3,125 meters drilled in Q1 and results pending on 10 holes. Exploration spend is targeted, supporting near-mine resource conversion and future development optionality.

Key Considerations

This quarter’s results highlight both the opportunities and challenges as Avino transitions from a single-asset operator to a multi-asset growth platform. Investors should weigh the following factors as the company advances its scaling strategy:

• Production Timing Sensitivity: Q1 revenue was impacted by shipment timing, but Q2 is set to benefit from deferred sales and firmer metal prices.
• CapEx Front-Loading: Early-year capital deployment de-risks future development, but compresses near-term free cash flow.
• Currency and Input Cost Exposure: Peso strength and diesel price volatility are monitored, though partial USD cost structure provides some insulation.
• La Preciosa Ramp Timeline: Community engagement and equipment procurement are prerequisites for ore processing, with first test runs targeted for late 2023.
• Regulatory Backdrop: New Mexican mining laws are not expected to have material near-term impact, but remain a watchpoint for long-term planning.

Risks

Key risks include ongoing commodity price volatility, which directly impacts revenue and margins, and the potential for further cost inflation in labor, energy, and consumables. Regulatory changes in Mexico present long-term uncertainty, though Avino’s concessions are currently secure. Execution risk remains around La Preciosa’s community engagement and ramp schedule, as well as successful delivery of the oxide tailings project pre-feasibility study.

Forward Outlook

For Q2 2023, Avino guided to:

• Higher revenue and earnings, reflecting both deferred Q1 shipments and improved gold and silver pricing.
• Continued operational focus on cost control and throughput scaling.

For full-year 2023, management maintained guidance:

• CapEx between $9 to $12 million, with spend weighted to the first half.
• 8,000 meters of drilling, with ongoing assay releases.

Management emphasized operational execution, advancing La Preciosa, and delivery of the oxide tailings project pre-feasibility as top priorities for the balance of the year.

• La Preciosa development to progress toward initial ore processing by early 2024.
• Tailings project pre-feasibility results expected by Q4 2023 or Q1 2024.

Takeaways

Avino’s Q1 performance underscores a pivotal transition phase, with operational momentum and resource growth offsetting near-term margin compression. The company’s multi-asset growth plan and disciplined capital allocation are critical to unlocking intermediate producer scale.

• Production Growth is Outpacing Revenue Recognition: Deferred shipments and pricing volatility masked underlying operational progress, with Q2 set for a catch-up.
• Resource and Asset Development are Central to the Investment Case: The 368 million ounce resource base and advancing La Preciosa and tailings projects provide multi-year growth visibility.
• Investors Should Track Project Milestones and Cost Trends: Execution on La Preciosa ramp, cost containment, and regulatory developments will define value creation in 2023 and beyond.

Conclusion

Avino’s Q1 2023 results highlight robust production growth, a strengthened resource base, and disciplined execution on a multi-asset scaling strategy. While near-term financials were pressured by timing and cost factors, the company’s operational progress and project pipeline position it well for future expansion and margin recovery.

Industry Read-Through

Avino’s experience this quarter reflects broader themes in the silver and gold mining sector: production scaling and resource expansion are increasingly essential as cost inflation and price volatility compress margins. Front-loaded capital investment and proactive community engagement are emerging as best practices for de-risking multi-asset development in Mexico and other resource jurisdictions. Investors in the mining space should closely watch shipment timing, cost discipline, and regulatory adaptation as key differentiators among emerging intermediate producers. The tightening silver-to-gold ratio and industrial demand tailwinds flagged by Avino may also support sector-wide valuation upside if sustained.

ASM Materials Mining Silver Resource Expansion CapEx La Preciosa ESG