Avino (ASM) Q3 2023: Revenue Jumps 35% as Exploration Upside and Cost Pressures Collide
Avino delivered its strongest revenue quarter of 2023, fueled by higher production and standout exploration results, while persistent cost inflation and currency headwinds challenged margin expansion. Management’s focus remains on unlocking La Preciosa and tailings projects, with near-term catalysts tied to permitting and pre-feasibility milestones. Investors face a classic growth-versus-cost tension as Avino's multi-asset strategy enters a critical execution phase.
Summary
- Exploration Upside Surfaces: Record drill intercepts and resource expansion highlight future growth potential.
- Cost Structure Under Strain: Peso appreciation and mining sequence drove elevated unit costs despite higher output.
- Project Milestones Ahead: La Preciosa permitting and tailings pre-feasibility will define capital allocation and timeline clarity.
Business Overview
Avino Silver & Gold Mines (ASM) is a Mexico-focused precious metals producer with operations centered on the Avino mine, producing silver, gold, and copper concentrates. The company generates revenue by selling these concentrates to global metal buyers. Its business model is anchored by three core assets within a 20-kilometer radius: the Avino mine, the La Preciosa development project, and an oxide tailings reprocessing initiative, positioning Avino for organic growth through both mining and resource conversion. Major segments include mining operations, exploration, and project development.
Performance Analysis
Q3 marked a pivotal quarter for Avino, with revenue climbing to $12.3 million, a 35% increase over the prior year’s period, driven by improved production volumes and higher realized metals prices. Gold output surged 73% year-over-year, offsetting lower copper grades and recoveries due to planned mine sequencing. Mine operating income and adjusted earnings both advanced, reflecting operational leverage, though net income remained negative due to persistent non-cash items and foreign exchange effects.
Cost inflation remained a theme, as cash costs per silver equivalent ounce stayed elevated at $16.90, with the all-in sustaining cost (AISC) at $22.69. The main culprits were a strong Mexican peso—up over 15% versus the dollar—and lower recoveries from certain ore zones. Avino’s cash flow from operations before working capital reached $1.8 million, supporting a 62% sequential increase in working capital, now at $7.4 million. Capital expenditures were just under $2 million, focused on equipment upgrades and pre-development at La Preciosa.
- Production Mix Shift: Higher gold output partially offset lower copper grades and recovery rates, stabilizing overall silver equivalent production.
- Peso Headwind Intensifies: Local cost inflation from a stronger peso compressed margins, a trend seen across Mexican producers.
- Stockpile Build: Mining outpaced milling, resulting in a high-grade ore stockpile that is expected to support Q4 grades and cost control.
Operational bottlenecks were addressed with new equipment, and management expects improved grades and recoveries in Q4 as high-grade stockpiles are processed and mill constraints ease. The company’s ability to translate operational momentum into sustainable cash flow will be tested as it ramps up growth projects.
Executive Commentary
"Our Q3 production results were released in mid October and we achieved production results of over 591,000 silver equivalent ounces, which brings the 12 month trailing total to 2.63 million silver equivalent ounces."
David Wolfen, President and CEO
"Q3 was the best performing of 2023 when it comes to revenues, mine operating income, EBITDA adjusted earnings and operating cash flow generated before working capital movements."
Nathan Hart, Chief Financial Officer
Strategic Positioning
1. Multi-Asset Growth Pipeline
Avino’s five-year plan targets a step-change in production—from 2.4-2.7 million to 8-10 million silver equivalent ounces by 2028—anchored by the phased development of La Preciosa and the oxide tailings project. The company’s contiguous land package and existing mill infrastructure offer scale benefits and organic growth leverage, reducing capital intensity compared to greenfield development.
2. Exploration-Led Optionality
Record drill intercepts at the ET area and expansion of the main Avino vein have confirmed both grade and width extensions, with a 57-meter true width intercept grading 296 grams silver equivalent per tonne. These results underpin future mine plan flexibility and resource conversion, with additional upside from the hanging wall breccia and near-surface stockwork zones. World-class geologists have been engaged to refine the geological model and support future resource upgrades.
3. Cost Control and Currency Management
Persistent peso strength and local inflation have driven up both cash and all-in costs, prompting targeted cost reduction measures including haulage rate adjustments and administrative streamlining. Management is evaluating hedging strategies for 2024 to mitigate further currency volatility. Operational improvements, such as new rock breakers and ramp upgrades, are expected to unlock higher grades and recoveries, supporting cost normalization in coming quarters.
4. Project Execution and Permitting
La Preciosa’s advancement remains tied to finalizing community agreements (ejido “social blessing”) and environmental permitting, with management signaling potential resolution by year-end. The oxide tailings pre-feasibility study is on track for Q1 2024, with a process change from heap leach to dynamic leaching expected to lower capital and operating costs. Early-stage development at La Preciosa leverages surface stockpiles and shallow high-grade veins, minimizing upfront capital outlay.
Key Considerations
Q3 crystallized both the upside and friction points in Avino’s growth story, as operational improvements and exploration success were counterbalanced by macro cost headwinds and project timing dependencies.
Key Considerations:
- Exploration Success as Growth Catalyst: High-impact drill results validate resource expansion and future mine plan potential, supporting the long-term production target.
- Margin Sensitivity to Peso Movements: Local currency strength directly impacts cost structure, with hedging under evaluation for 2024.
- La Preciosa Timeline Hinges on Community Agreements: Finalization of the ejido social blessing is the gating item for near-term project mobilization.
- Stockpile Utilization to Support Q4 Grades: High-grade ore stockpiles are expected to improve mill head grades and cost efficiency in the next quarter.
- Capital Allocation Discipline: Cash flow from Avino mine is earmarked for project development, with capital spending to remain flexible pending project milestones.
Risks
Avino faces material execution risk around La Preciosa’s permitting and social license, as delays or unfavorable negotiations could defer growth. Currency volatility remains a core margin risk, given the peso’s recent strength and Avino’s local cost base. Operational risk persists around grade variability, equipment bottlenecks, and recovery rates, while broader metals price fluctuations and Mexican political dynamics add external uncertainty.
Forward Outlook
For Q4, Avino guided to:
- Improved grades and recoveries as high-grade stockpiles are processed
- Continued cost discipline and targeted reductions in haulage and administrative spending
For full-year 2023, management maintained internal production guidance of 2.4-2.7 million silver equivalent ounces.
Management highlighted several factors that will shape the next phase:
- Completion of the oxide tailings pre-feasibility study in Q1 2024, with updated reserves and process flows
- Potential finalization of La Preciosa community agreements before year-end, enabling early-stage development
Takeaways
Avino’s Q3 demonstrated operational progress and exploration-driven resource growth, but also exposed the vulnerability of margins to local cost inflation and currency swings.
- Production and Revenue Upside: Top-line growth was supported by higher output and gold grades, with stockpiles set to benefit Q4 throughput and cost structure.
- Strategic Growth Hinges on Project Milestones: The pace of La Preciosa and oxide tailings development will determine whether Avino can deliver on its multi-year production targets.
- Investors Should Watch Cost Discipline and Project Permitting: Margin normalization and timely permitting are critical to sustaining momentum and unlocking the next leg of growth.
Conclusion
Avino enters Q4 with stronger operational footing and tangible exploration upside, but must navigate persistent cost inflation and critical project milestones. Execution on La Preciosa and tailings projects, as well as effective cost management, will determine whether Avino can bridge from current scale to its ambitious growth targets.
Industry Read-Through
Avino’s experience this quarter mirrors broader trends among Mexican precious metals producers, with local currency appreciation and inflation compressing margins despite robust metals pricing. Exploration-driven resource growth and brownfield expansion remain key levers for sector players seeking to offset grade declines and cost inflation. Permitting timelines and community relations are increasingly central to project execution, highlighting the importance of social license across the industry. Investors should expect continued volatility in cost structures and heightened scrutiny of capital discipline as companies pursue multi-asset growth strategies.