Trip report von Mexico mike zu Avino Silver Mines.
Last weekend I flew down to Durango to tour the Avino Silver Mine, majority owned by a company with the same name. Avino is unique in that it was a part owner of the mine about 20 years ago, and has since increased its ownership interest to about 89% of the project, even though the mine itself has been closed for several years. The company is working to restart mining operations, and unlike all the other producing juniors in Mexico, it will not be re-inventing the wheel when the time comes to tackle the learning curve, since they have a large data base from running the mine in the past, and some of the same senior management personnel remain with the company.
It should be noted that the mine was roughly breaking even in 2000, when silver prices were below $5. Now with silver more than triple that price, it is very likely that Avino will be making money when production restarts. Also, there is already extensive infrastructure in place, so getting operations back up and running will be far less expensive than with other similar projects.
The first priority for the company is to outline a larger resource, enough to support production at full capacity. The current mill is designed to run more than 1200 tonnes per day, which would make it one of the larger producers among all active juniors in Mexico. At full capacity, in an average year the company should be processing about 300,000 - 400,000 tonnes of ore per year. So in order to build a mineral inventory to last several years of production, ASM is working on exploration to outline new ore bodies beyond the remaining resources from the last time the mine was running.
A drilling program was underway while I was at the property. I was able to review detailed geological maps going back decades for the project, and there is a very extensive known vein system surrounding the current mine workings. Limited historical drill results from these veins include some high grade assays, but no follow up work was initiated until last year, and it is continuing at the present.
The key to Avino is the concept that the current mine workings are focused on just a small part of the entire mineralized system. An intrusive dome complex may be underlying the south eastern edge of the property area, and this seems to be confirmed by the radial pattern of the known veins that extend outwards from it. If so, then the richest part of the deposit may be located in proximity to the intrusive, and other high grade deposits may be found as the other veins are tested.
So far, that geological model is holding up, as exploration work on the San Gonzalo vein has produced some wide intervals of very high grade silver, along with gold and base metals, near an old mine working. The company has also punched a few holes into some of the other veins and come up with gold and silver, but they are stepping out the drilling to try and find ore shoots that would be productive to mine. There are at least 10 major veins outcropping at surface, and many more defined targets as part of the vein system.
A resource estimate is coming out later this year for the new San Gonzalo discovery, and the company is planning to drive the underground workings about 2km to reach this new deposit area and begin producing. It is likely that the new drift will encounter other veins, some of which may represent entirely new discovery zones. The expense to develop the workings may even become self-funding as the rock that is excavated may have high enough grade mineralization to generate cash flow from processing.
A second drill rig was purchased by the company, and they are refurbishing it so that the intensity of exploration can increase later this year. That is important since the competition to gain access to a drill in Mexico is intense, and many good projects are stalled because they cannot get a drill in place. Also, for a junior like ASM, good results could have an immediate positive effect for the share price. So having two drills turning could help generate investment interest.
I was able to inspect some of the samples at the core shack, and saw wide intervals of sulphides bearing galena, chalcopyrite, argentite, and even native silver. The assay labs are slow right now for every company, but I think we can expect some more good results from the work that Avino is doing.
I did not go into the lower mine workings because they have flooded with ground water. Before this water can be pumped out, the company will have to treat it to remove disolved sulphur and metals. That is not a difficult process but it will add a layer of cost to the recommencement of operations.
There is a large open pit to access the near-surface vein material, and ore dumps remain from the previous operations that could support operations for a few weeks when the mine goes back into production. The pit is noteworthy due to the extremely steep angle of the excavation, with a pit wall probably above 70 degrees. There was very little benching of this wall, and the host rock appears to be very stable. That means a lower strip ratio and therefore lower operating costs. Ore grades run to a few grams of gold and perhaps 100-200 g/t silver, but where offshoot veins intersect the main structure, much larger and richer ore shoots were found. Avino has mapped a few other similar targets that may build additional resources in the pit. I saw plenty of stockwork mineralization across widths of several meters in the pit, and collected a sample with visible native copper which is very rare to find and another testament to the intensity of alteration.
Open pit mining so close to the mill infrastructure should be possible with very low operating costs. Even lower grade ore would generate robust operating profits if the recovery efficiency is at least as high as the previous operation, and with the application of newer technology, one would expect even more efficient results.
Several million tonnes of tailings will also form a resource that can be reprocessed for low cost production. The previous operation was not overly efficient and much of the gold and silver was never recovered, so if metallurgical testing and improved modern technology can demonstrate that the metals in the tailings can be profitably recovered, then it represents one more source of feedstock for the mill. There is no issue with contaminants, pollutants, or toxins from the ore or the tailings.
A new tailings pond is under construction further down the road so that operations can restart with many years of tailings capacity, and the existing tailings from the prior operation can then be reprocessed independantly.
I toured the entire mill and recovery plant. The main equipment is in place and can be restored to operation after minimal refurbishment. A high voltage transformer appeared to be in place and in working condition. The cone crushers have been removed and will have to be replaced. Two ball mills are in place and should be able to operate with minimal maintenance. Much of the plant structure will need a thorough renovation since it has been inactive for about about 7 years, but it is the kind of work that can be done relatively quickly. Flotation cells, reagent and thickening tanks, conveyors, and a fluid recovery circuit were all in place. I think an overhaul of the plant building will be necessary and a thorough cleaning is in order, but its not going to be a major project to get everything back into working condition.
The supporting buildings are in excellent condition, including offices, a medical center, and a brand new core shack. A lab is in place and the company is working to install modern assay equipment for internal monitoring. The company also has a private hotel on site that has many rooms to accomodate staff and supporting personnel.
The mine is located very close to a town and the local population is extremely supportive of restarting the mine, with the prospects for high paying jobs. Road access is excellent. The property area immediately surrounding the mine is controlled by Penoles on one side, and Grupo Meixcio on the other, and it is likely that the vein system extends onto the adjacent property holdings, so it is likely that the two biggest mining companies in Mexico are well aware of the potential for the Avino Property.
Permitting applications have been submitted to allow the mine to commence production. It may take 3-6 months to complete refurbishment of the infrastructure. Operations could begin with processing the ore dumps and then mining from the open pit, while the underground development work is completed. The mill is set up to allow for a smaller 250 tpd circuit to run while the company expands the scale of its operating capacity, hires and trains new employees, secures additional transport and mining equipment, etc.
The most appealing aspect of the company is the remarkably tight share structure, despite the fact that the company has been around for 20 years. There are about 20 million shares outstanding, and at the current market price the market capitalization is in the range of $30 million, which is extremely cheap for a company with ownership of extensive resources, infrastructure, and strong discovery potential. It also means that shareholders have strong upside leverage to earnings once operations restart. Given the large mill on site, I would imagine the company is also very attractive as an acquisition target or a merger candidate.
Avino has about $5 million in cash on hand to fund the current work commitment, but I expect a small financing will be necessary before the company can complete all necessary upgrades before production can commence.
I own a small position in the stock, and have no relationship with the company. I was invited to tour the plant, and my direct travel expenses were paid for, but I did not receive any compensation to present my comments and opinions.
cheers!
mike
