- Small silver producer in Mexico with significant production growth potential.
- Recently acquired the large La Preciosa silver project from Coeur Mining.
- High costs, but very little debt.
- Highly leveraged towards silver prices.
- Extremely undervalued versus their potential future free cash flow.
- Large resources of 190 million oz. of silver and 290 million oz. of AGEQ.
1-year Chart (May 24, 2022)
|Stock Name||Symbol (US)||Type||Category||Share Price (US)||FD Shares||FD Mkt Cap (5/22/2022)|
|Avino Silver & Gold||ASM||Silver||Emerging Mid-Tier Producer||$.67||135M||$89M|
- Cash: $11 million
- Debt: $5 million
- Current Silver Resources: 190 million oz. (100 gpt)
- Current Silver Production: 2.5 million oz. (AGEQ)
- Current Silver All-in Costs (break-even): $23
- Current FCF Multiple: 10 (based on Q1)
- Estimated Future Silver Resources: 150 million oz.
- Estimated Future Silver Production: 8 million oz.
- Estimated Future Silver All-in Costs (break-even): $12 per oz.
- Estimated Future Gold All-in Costs (break-even): $25 per oz.
- Estimated Future FCF Multiple: 10
About Avino Gold & Silver
Avino Silver & Gold is an emerging mid-tier silver producer in Mexico. They will produce about 2.5 million oz of silver equivalent in 2022 with break-even costs around $23 per oz (free cash flow). We will have to keep an eye on their costs.
They plan to increase production to 3.5 million oz (silver equivalent) from a low CAPEX tailing project. This should reduce costs over the next two years. They have about $11 million in cash and only $5 million in debt.
The recently acquired the La Preciosa project (120 million oz at 180 gpt) from Coeur Mining. La Preciosa is located near the Avino mine, so it is a good fit. The cost was 14 million shares (Coeur now owns 10% of Avino), plus $15 million in cash, plus another $5 million next year, plus a future cost of $8.8 million based on production.
La Preciosa has a historical feasibility study to produce 10 million oz’s a year. That will need to be updated. I’m valuing them as a future 8 million oz. producer, but they could easily exceed that total.
They will likely build a road to connect La Preciosa to their Avino property, which are about 30 miles apart. They will reduce the capex for building the La Preciosa mine, but will likely also reduce production potential. We will need to wait about a year before we know their plans to build the La Preciosa mine. I would expect the road to be expensive to build and take some time.
The combined resource of Avino and La Preciosa is 190 million oz’s of silver and 290 million oz’s of AGEQ. That is a lot of silver for a company with an FD market cap of $89 million.
Don Durrett’s Sorecard
- Properties/Projects: 7/10
- Costs/Grade/Economics: 6/10
- People/Management: 7/10
- Cash/Debt: 7/10
- Location Risk: 7/1O
- Risk-Reward: 8/10
- Upside Potential: 9/10
- Production Growth Potential/Exploration: 8/10
- Overall Rating: 8/10
3 Good Things About Avino
- Significant upside potential.
- Large production growth potential.
- High FCF (free cash flow) potential.
3 Not-so-Good Things About Avino
- Management must prove itself.
- The cost of the road (and further CAPEX) will cause share dilution
- The timeline until production growth is unknown.
Value Estimate (at $75/oz silver)
- Production estimate for the long term: 8 million oz. (AGEQ)
- Cash Costs (conservative): $12 per oz.
- All-In Costs (break-even): 25 per oz.
- 8M oz. x ($75 – $25) = $400 million annual FCF (free cash flow).
- $400 million x 5 (multiplier) = $2 billion
- Current FD market cap: $89 million
Upside potential: 2,000%
Note: I used a $75 silver price to identify their future value because I am a long-term investor who plans to wait for higher silver prices. I feel that $50 is not a high enough target and that $75 is realistic in the next 3 years.
Note: My All-In Costs are the expected costs that will generate FCF (free cash flow).
Note: I used a small FCF multiplier of 5 to adjust for the dilution required to fund the CAPEX. It’s quite possible that the silver miners in Mexico have much higher multiples at higher silver prices.
Don Durrett’s Thesis (in a nutshell)
I’m a fan of chasing FCF, and I prefer undervalued mid-tier producers. They fit in nicely with my investment strategy. Yes, Avino has high costs, but if silver prices trend, they have huge leverage from their high production. There are not very many large silver producers, and I want to own all of them (unless they have too many red flags).
It is cheap today because investors don’t like some of the unknowns. The first is their high costs. The second is the capex, timeline, and economics for La Preciosa. I don’t mind speculating that they will get it into production with huge share dilution. It will take 2-3 years, but the I don’t mind waiting for a potential 10+ bagger.
Thank you for reading, and don’t hesitate to correct me in the comments if you think I’m wrong.
– Don Durrett.
Don Durrett is not an investment advisor. Don Durrett has a high risk appetite. Don Durrett might own, buy, and/or sell shares of companies discussed herein without prior notice. Resource Talks is not receiving financial compensation from Andean Precious Metals for the publication of this article nor discussing this company. Don Durret is receiving financial compensation from Resource Talks for the production of this article. The information provided in this publication – and all other publications by Resource Talks – is impersonal in nature and meant for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple licensed, experienced, and qualified investment advisors. Get numerous opinions before taking your own decision in the end. The minimum risk on any investment mentioned in this publication is 100% loss of capital.
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