20-F 1 avino_20f.htm FORM 20-F avino_20f.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

or

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended December 31, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

or

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Date of event requiring this shell company report______________

 

 

 

For the transition period from _______________ to ________________

 

Commission File Number 001-35254

 

AVINO SILVER & GOLD MINES LTD.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

 

British Columbia, Canada

(Jurisdiction of incorporation or organization)

 

570 Granville Street, Suite 900 Vancouver, British Columbia V6C 3P1, Canada

(Address of principal executive offices)

 

 David Wolfin, Chief Executive Officer 570

Granville Street, Suite 900 Vancouver, British Columbia V6C 3P1, Canada,

Tel: 604-682-3701, Email:  dwolfin@avino.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Common Shares, without Par Value

 

ASM

 

NYSE American, LLC 

Title of

Each Class

 

Trading

Symbol

 

Name of Each Exchange on

Which Registered

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

Not Applicable

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

Not Applicable

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

 

 

There were 89,568,682 common shares, without par value, issued and outstanding as of December 31, 2020.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes    ☒ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes    ☒ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes    ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes    ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Emerging Growth Company 

  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP o

International Financial Reporting Standards as issued

 Other o

 

by the International Accounting Standards Board   ☒

 

   

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐   Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐   No ☐

 

 

 

TABLE OF CONTENTS

 

Nomenclature

 

3

 

Forward-looking Statements

 

3

 

Currency

 

3

 

Foreign Private Issuer Filings

 

3

 

Glossary of Mining Terms

 

5

 

 

 

 

 

 

PART I

 

8

 

 

 

 

 

 

Item 1.

Identity of Directors, Senior Management and Advisers

 

8

 

Item 2.

Offer Statistics and Expected Timetable

 

8

 

Item 3.

Key Information

 

8

 

Item 4A.

Unresolved Staff Comments

 

48

 

Item 5.

Operating and Financial Review and Prospects

 

48

 

Item 6.

Directors, Senior Management and Employees

 

59

 

Item 7.

Major Shareholders and Related Party Transactions

 

73

 

Item 8.

Financial Information

 

74

 

Item 9.

The Offer and Listing

 

75

 

Item 10.

Additional Information

 

75

 

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

 

84

 

Item 12.

Description of Securities Other than Equity Securities

 

84

 

 

 

 

 

 

PART II

 

85

 

 

 

 

 

 

Item 13.

 Defaults, Dividend Arrearages and Delinquencies

 

85

 

Item 14.

 Material Modifications to the Rights of Security Holders and Use of Proceeds

 

85

 

Item 15.

 Controls and Procedures

 

85

 

Item 16A.

Audit Committee Financial Expert

 

86

 

Item 16B.

Code of Ethics

 

86

 

Item 16C.

Principal Accountant Fees and Services

 

86

 

Item 16D.

Exemptions from the Listing Standards for Audit Committees

 

87

 

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

87

 

Item 16F.

Changes in Registrant’s Certifying Accountant

 

87

 

Item 16G.

Corporate Governance

 

88

 

Item 16H.

Mine Safety Disclosure

 

88

 

 

 

 

 

 

PART III

 

 

 89

 

 

 

 

 

 

Item 17.

Financial Statements

 

89

 

Item 18.

Financial Statements

 

89

 

Item 19.

Exhibits

 

90

 

 

 
2

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Nomenclature

 

In this Annual Report on Form 20-F, which we refer to as the “Annual Report”, except as otherwise indicated or as the context otherwise requires, the “Company”, “Avino”, “we”, “our” or “us” refers to Avino Silver & Gold Mines Ltd. and its subsidiaries.

 

You should rely only on the information contained in this Annual Report. We have not authorized anyone to provide you with information that is different. The information in this Annual Report may only be accurate on the date of this Annual Report or on or as at any other date provided with respect to specific information.

 

Forward-looking Statements

 

Certain statements contained in this document, other than statements of historical fact, including, without limitation, those concerning the economic outlook for the silver mining industry, expectations regarding silver prices, production (or, “extracting and processing resources”), cash costs and other operating results, growth prospects and outlook of the Company’s operations, individually or in the aggregate, including the commencement of extracting and processing resources at levels intended by management at certain of the Company’s projects, the Company’s liquidity and capital resources and capital expenditures, and the outcome and consequences of any potential or pending litigation or regulatory proceedings, contain forward-looking statements regarding the Company’s operations, economic performance and financial condition.

 

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, amongst other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in silver prices and exchange rates, political changes in Mexico, competition for resource properties and infrastructure in the mineral exploration industry, the Company’s ability to obtain additional financing, and business and operational risk management and other factors as determined in “Item 3.D. Key Information – Risk factors” and elsewhere in this annual report. These factors are not necessarily all of the important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.

 

The Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events, except as may be required by law. All subsequent written or oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements herein.

 

Currency

 

Effective January 1, 2017, the Company changed its presentation currency to US dollars from Canadian dollars. The Company believes that the change in presentation currency will provide shareholders with a better reflection of the Company’s business activities and to enhance the comparability of the Company’s financial information to its peers. All references to dollar amounts are expressed in the lawful currency of the United States of America, unless indicated otherwise.  Per share amounts are expressed in United States dollars, unless indicated otherwise. All references to Canadian dollars will be indicated with a “C$”.

 

Foreign Private Issuer Filings

  

We are considered a "foreign private issuer" pursuant to Rule 405 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

 

 
3

Table of Contents

 

For as long as we are a "foreign private issuer" we intend to file our annual financial statements on Form 20-F and furnish our quarterly financial statements on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. However, the information we file or furnish will not be the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for U.S. domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.

 

We will continue to file our Forms 20-F or 6-K until we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by United States residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are United States citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States. If we lose our "foreign private issuer status" we will be required to comply with Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirement for "foreign private issuers".

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING

TERMINOLOGY OF MINERAL RESERVES AND MINERAL RESOURCES

 

 As a British Columbia corporation, the Company, is subject to certain rules and regulations issued by Canadian Securities Administrators. The Company files an Annual Report on Form 20-F as its Annual Information Form (“AIF”) with the British Columbia via the System for Electronic Document Analysis and Retrieval (“SEDAR”). Under the filing requirements for an AIF, the Company is required to provide detailed information regarding its properties including mineralization, drilling, sampling and analysis, security of samples, and mineral resource and mineral reserve estimates, if any. Further, the Company may describe its properties utilizing terminology such as “Proven Mineral Reserve” or “Probable Mineral Reserve” or “Measured Mineral Resources,” “Indicated Mineral Resources” and “Inferred Mineral Resources” that are permitted by Canadian securities regulations.

 

United States investors are cautioned not to assume that any part of the mineral deposits, if any, in the “Proven Mineral Reserve” or “Probable Mineral Reserve” or “Measured Mineral Resources,” “Indicated Mineral Resources” and “Inferred Mineral Resources” categories, as defined by Canadian Regulations will ever be converted into Mineral Reserves as defined by Regulation S-K. On October 31, 2018, the SEC adopted Item 1300 of Regulation S-K (“Item 1300”) to modernize the property disclosure requirements for mining registrants, and related guidance, under the Securities Act and the Exchange Act. All registrants are required to comply with Item 1300 for fiscal years ending after January 1, 2021. Accordingly, the Company must comply with Item 1300 for its fiscal year ending December 31, 2021, and thereafter. Item 1300 uses the Committee for Mineral Reserves International Reporting Standards (“CRIRSCO”) based classification scheme for mineral resources and mineral reserves, that includes definitions for inferred, indicated, and measured mineral resources.

 

 
4

Table of Contents

 

Glossary of Mining Terms

 

agglomeration

Cementing crushed or ground rock particles together into larger pieces, usually to make them easier to handle; used frequently in heap-leaching operations.

 

 

anomalous

A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set.

 

 

anomaly

Any concentration of metal noticeably above or below the average background concentration.

 

 

assay

An analysis to determine the presence, absence or quantity of one or more components.

 

 

Breccia

A rock in which angular fragments are surrounded by a mass of finer-grained material.

 

 

cretaceous

The geologic period extending from 135 million to 65 million years ago.

 

 

cubic meters or m3

A metric measurement of volume, being a cube one meter in length on each side.

 

 

cyanidation

A method of extracting exposed silver or gold grains from crushed or ground ore by dissolving it in a weak cyanide solution. 

 

 

diamond drill

A rotary type of rock drill that cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter.

 

 

fault

A fracture in a rock where there has been displacement of the two sides.

 

 

grade

The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.

 

 

hectare or ha

An area totaling 10,000 square meters.

 

 

highly anomalous

An anomaly which is 50 to 100 times average background, i.e. it is statistically much greater in amplitude.

 

 

induced polarization (IP)

A method of ground geophysics surveying employing an electrical current to determine indications of mineralization.

 

 

Inferred Mineral Resource

That part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

 

Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure.

 

 

Indicated Mineral Resource

An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation.

 

 
5

Table of Contents

  

Measured Mineral Resource

A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit.

 

Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation.

 

 A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve

 

 

Mineral Reserve

A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction could reasonably be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined.

 

Mineral resources are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve. The term “mineral reserve” need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals.

 

 

Mineral Resource

A concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.

 

A Mineral Resource is an inventory of mineralization that under realistically assumed and justifiable technical and economic conditions might become economically extractable.

 

 

mineralization

Usually implies minerals of value occurring in rocks.

 

 

Modifying Factors

Modifying Factors are considerations used to convert mineral resources to mineral reserves.  These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

 

 

net smelter returns (NSR) royalty

Payment of a percentage of net mining revenue after deducting applicable smelter charges.

 

 

NI 43-101

National Instrument 43-101, Standards of Disclosure for Mineral Projects, adopted by the Canadian Securities Administrators in Canada.

 

 

Oxide

A compound of oxygen and some other element.

 

 

ore

A natural aggregate of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated.

 

 

prefeasibility study and
preliminary feasibility study

Each means a comprehensive study of the viability of a mineral project that has advanced to a stage where mining method, in the case of underground mining, or the pit configuration, in the case of open pit mining, has been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating and economic factors, and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve.

 

 
6

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Probable Mineral Reserve

Is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study.  This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.

 

 

Proven Mineral Reserve

Is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.

 

The term should be restricted to that part of the deposit where production planning is taking place and for which any variation in the estimate would not significantly affect potential economic viability.

 

 

quartz

Silica or SiO2, a common constituent of veins, especially those containing silver and gold mineralization.

 

 

Tailings

Material rejected from a mill after most of the recoverable valuable minerals have been extracted.

 

 

ton

Imperial measurement of weight equivalent to 2,000 pounds.

 

 

Tonne

Metric measurement of weight equivalent to 2,205 pounds (1,000 kg)

 

 

Tpd

Tonnes per day.

 

 

Trench

A long, narrow excavation dug through overburden, or blasted out of rock, to expose a vein or ore structure.

 

 

veins

The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.

 

 
7

Table of Contents

 

PART I

 

Item 1. Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3. Key Information

 

A. Selected financial data

 

The selected historical consolidated financial information set forth below has been derived from our annual audited consolidated financial statements for the year ended December 31, 2020. For the year ended December 31, 2016, the Company’s consolidated financial information was presented in Canadian dollars and has been translated in this Form 20-F into United States dollars using the applicable exchange rates.

 

For the years ended December 31, 2020, 2019, 2018, 2017, and 2016, we have prepared our consolidated financial statements in accordance with IFRS, as issued by the IASB.

 

On December 13, 2019, the Company completed the sale of its 100% wholly-owned subsidiary Bralorne Gold Mines Ltd. (“Bralorne”) to Talisker Resources Ltd. (“Talisker”). The sale includes the Bralorne Gold Mine and is part of the Company’s plan to focus on its core mining operations in Mexico. For more information regarding the sale, please see Item 4.D. Property, plant and equipment, Bralorne Property – British Columbia

 

On July 11, 2018, upon further review of the Company’s experience at the Avino and San Gonzalo mines, the Company concluded to change its accounting policy under IFRS 6 and IAS 16 in accounting for the Company’s Exploration and Evaluation Assets and Development Costs, including our determination that we commenced production at the Avino Mine effective July 1, 2015. The voluntary change in accounting policy was intended to provide investors with a better reflection of the Company’s business activities to enhance the comparability of our financial statements to our peers and to make our financial statements more relevant to the economic decision-making needs of users.

 

As a result of applying the change in accounting policy, we have determined that we would have been deemed to be in the production phase effective July 1, 2015. Accordingly, we have applied this retrospective application of this change in accounting policy for (i) the year ended December 31, 2015; (ii) the year ended December 31, 2016; and (iii) the year ended December 31, 2017, which are reflected in this Annual Report.

 

The selected historical consolidated financial information presented below is condensed and may not contain all of the information that you should consider. This selected financial data should be read in conjunction with our annual audited consolidated financial statements, the notes thereto and the section entitled ‘‘Item 5 — Operating and Financial Review and Prospects.’’

 

 
8

Table of Contents

 

In accordance with IFRS

 

The tables below set forth selected consolidated financial data under IFRS for the years ended, and as at, December 31, 2020, 2019, 2018, 2017, and 2016. Subject to the comments above, the information has been derived from our annual audited consolidated financial statements set forth in ‘‘Item 18 — Financial Statements.’’

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017(1)

 

 

2016(1)

 

Summary of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 16,022,000

 

 

$ 31,746,000

 

 

$ 34,116,000

 

 

$ 33,359,000

 

 

$ 34,692,000

 

Cost of sales

 

 

15,832,000

 

 

 

32,016,000

 

 

 

27,850,000

 

 

 

22,106,000

 

 

 

22,961,000

 

Mine operating income (loss)

 

 

190,000

 

 

 

(270,000 )

 

 

6,266,000

 

 

 

11,253,000

 

 

 

11,731,000

 

Operating expenses

 

 

4,759,000

 

 

 

4,130,000

 

 

 

4,240,000

 

 

 

5,345,000

 

 

 

5,007,000

 

Income (loss) before other items and income taxes

 

 

(4,569,000 )

 

 

(4,400,000 )

 

 

2,026,000

 

 

 

5,908,000

 

 

 

6,724,000

 

Other items

 

 

(4,321,000 )

 

 

1,432,000

 

 

 

38,000

 

 

 

(472,000 )

 

 

(269,000 )

Income (loss) before income taxes

 

 

(8,890,000 )

 

 

(2,968,000 )

 

 

2,064,000

 

 

 

5,436,000

 

 

 

6,455,000

 

Incomes taxes

 

 

1,408,000

 

 

 

633,000

 

 

 

(407,000 )

 

 

(2,771,000 )

 

 

(4,439,000 )

Net income (loss) from continuing operations

 

 

(7,482,000 )

 

 

(2,335,000 )

 

 

1,657,000

 

 

 

2,665,000

 

 

 

2,016,000

 

Net loss from discontinued operations

 

 

(169,000 )

 

 

(29,126,000 )

 

 

(31,000 )

 

 

(143,000 )

 

 

-

 

Net income (loss)

 

 

(7,651,000 )

 

 

(31,461,000 )

 

 

1,626,000

 

 

 

2,522,000

 

 

 

2,016,000

 

Earnings (Loss) per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.09 )

 

$ (0.03 )

 

$ 0.03

 

 

$ 0.05

 

 

$ 0.05

 

Diluted

 

$ (0.09 )

 

$ (0.03 )

 

$ 0.03

 

 

$ 0.05

 

 

$ 0.05

 

Earnings (Loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.09 )

 

$ (0.45 )

 

$ 0.03

 

 

$ 0.05

 

 

$ 0.05

 

Diluted

 

$ (0.09 )

 

$ (0.45 )

 

$ 0.03

 

 

$ 0.05

 

 

$ 0.05

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

83,180,069

 

 

 

69,980,178

 

 

 

56,851,626

 

 

 

52,523,454

 

 

 

42,695,999

 

Diluted

 

 

83,180,069

 

 

 

69,980,178

 

 

 

60,000,637

 

 

 

53,320,009

 

 

 

43,791,451

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017(1)

 

 

2016(1)

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 68,780,000

 

 

$ 72,571,000

 

 

$ 108,588,000

 

 

$ 102,835,000

 

 

$ 94,131,000

 

Cash

 

 

11,713,000

 

 

 

9,625,000

 

 

 

3,252,000

 

 

 

3,420,000

 

 

 

11,780,000

 

Total liabilities

 

 

9,772,000

 

 

 

18,648,000

 

 

 

33,420,000

 

 

 

33,833,000

 

 

 

32,337,000

 

Shareholders’ equity

 

 

59,008,000

 

 

 

53,923,000

 

 

 

75,168,000

 

 

 

69,002,000

 

 

 

61,794,000

 

Share capital

 

 

108,303,000

 

 

 

96,396,000

 

 

 

88,045,000

 

 

 

81,468,000

 

 

 

80,785,000

 

Shares outstanding

 

 

89,568,682

 

 

 

76,592,388

 

 

 

63,337,769

 

 

 

52,718,153

 

 

 

52,431,001

 

____________ 

(1)Financial results for 2017 and 2016 are reflective of the change in retrospective change in accounting policy outlined at the beginning of Item 4-B, and disclosed in the Company’s audited consolidated financial statements.  

 

 
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B. Capitalization and indebtedness

 

Not Applicable.

 

C. Reasons for the offer and use of proceeds

 

Not Applicable.

 

D. Risk factors

 

An investment in our common shares involves a high degree of risk and should be considered speculative. You should carefully consider the following risks set out below and other information before investing in our common shares. If any event arising from these risks occurs, our business, prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of our common shares could decline and all or part of your investment may be lost.

 

Our operations are highly speculative due to the high-risk nature of our business, which include the acquisition, financing, exploration, development of mineral properties and operation of mines. The risks and uncertainties set out below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial, may also impair our operations. If any of the risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common shares could decline, and investors could lose part or all of their investment. Our business is subject to significant risks and past performance is not a guarantee of future performance.

 

Our results of operations, cash flows and the value of our properties are highly dependent on the market prices of silver and gold and certain base metals and these prices can be volatile.

 

The profitability of our silver and gold mining operations and the value of our mining properties are directly related to the market price of silver, and to a lesser extent gold and other base metals. The price of silver may also have a significant influence on the market price of our common shares. The market price of silver historically has fluctuated significantly and is affected by numerous factors beyond our control. These factors include supply and demand fundamentals, global or national political or economic conditions, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and other currencies, interest rates, silver and gold sales and loans by central banks, forward sales by metal producers, accumulation and divestiture by exchange traded funds, and a number of other factors.

 

We derive a significant portion of our revenue from the sale of silver and our results of operations will fluctuate as the prices of this metals change. A period of significant and sustained lower silver prices would materially and adversely affect our results of operations and cash flows. During the past fiscal year, silver prices have decreased and, in the event, mineral prices decline or remain low for prolonged periods of time; we might be unable to develop our existing exploration properties, which may adversely affect our results of operations, financial performance, and cash flows. An asset impairment charge may result from the occurrence of unexpected adverse events that impact our estimates of expected cash flows generated from our producing properties or the market value of our non-producing properties, including a material diminution in the price of silver and/or gold.

 

We may be required to raise additional capital to mine our properties.

 

The Company is currently focusing on further defining plans to mine its Avino mineralized material, as well as further exploration of the Avino properties in Mexico. The Company may be required to raise capital to further advance the Avino Mine and its infrastructure, as well as to explore the Avino properties. Our ability to raise funds will depend on several factors, including, but not limited to, current economic conditions, our perceived value for our properties, our prospects, metal prices, businesses competing for financing and our financial condition. There can be no assurance that we will be able to raise funds, or to raise funds on commercially reasonable terms. Historically, the Company has raised funds through equity financing and the exercise of options and warrants. The raising of capital may have a dilutive effect on the Company’s per share book value.

 

No assurances can be given that our continuing operations will be profitable

 

We began extracting and processing resources at levels intended by management at the San Gonzalo Mine during the fourth quarter of 2012 (ceasing operations in 2019), and at the Avino Mine in the third quarter of 2015. For the year ended December 31, 2020, we incurred net loss from continuing operations of ($7,482,000). For the years ended December 31, 2019, and 2018, we earned net (loss) income from continuing operations of ($2,335,000) and, $1,657,000, respectively. Prior to the 2013 fiscal year, we had not been profitable. There is no assurance that our operations will be profitable in the future.

 

 
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We have no proven or probable mineral reserves, and our decision to commence extracting and processing resources at levels intended by management was not based on a study demonstrating economic recovery of any mineral reserves and is therefore inherently risky.

 

We have not established the presence of any proven or probable mineral reserves at any of our properties. Any mineralized material discovered or produced by us should not be considered proven or probable reserves.

 

In order to demonstrate the existence of proven or probable reserves, it would be necessary for us to perform additional exploration to demonstrate the existence of sufficient mineralized material with satisfactory continuity and obtain a positive feasibility study which demonstrates with reasonable certainty that the deposit can be economically and legally extracted and produced. We have not completed a feasibility study with regard to all or a portion of any of our properties to date. Since we commenced extracting and processing resources of mineralized material at levels intended by management at the Avino Mine without a feasibility study, there is inherent uncertainty as to whether the mineralized material can be economically produced or if so, for what period of time. The absence of proven or probable reserves makes it more likely that our properties may cease to be profitable and that the money we spend on exploration and evaluation may never be recovered.

 

You may experience future dilution as a result of future equity offerings.

 

In order to raise additional capital, we may in the future offer additional shares of our common shares or other securities convertible into or exchangeable for our common shares at prices that may not be the same as the price per share paid by investors. We may sell shares or other securities in any other offering at a price per share that is less than the then current trading price, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common shares, or securities convertible or exchangeable into common shares, in future transactions may be higher or lower than the price per share paid by an investor.

 

Impact of COVID-19 on mining operations.

 

Mexico has been particularly impacted by the COVID-19 pandemic. The Company’s mining operations have been temporarily shut-down since April 2020 first as a result of governmental COVID-19 quarantine and containment measures, and later in July 2020 due to a labour strike, which was resolved in October 2020. The labour settlement agreement must be approved by Mexican governmental labour authority. Although the Company takes appropriate measures and safeguards to protect its staff from infection, these events can result in volatility and disruption to supply chains, operations, transportation, and mobility of people, which are beyond the control of the Company, and which have had and could continue to adversely affect the availability of components, supplies and materials, labour, interest rates, credit ratings, credit risk, inflation, business operations, financial markets, exchange rates, and other factors material to the Company, including in particular, the Company’s revenues and concentrate delivery schedule.

 

In 2012 and 2015, we decided to begin extracting and processing resources at levels intended by management at the San Gonzalo Mine and the Avino Mine, respectively, without preparing a pre-feasibility study or bankable feasibility study which may subject us to more risks.

 

We decided to begin extracting and processing resources at levels intended by management at the San Gonzalo Mine (which ceased operations during 2019) and the Avino Mine without preparing a pre-feasibility study or bankable feasibility study which is a more common practice within the mining industry and therefore may subject us to more business risks. Our decision to begin extracting and processing resources at the San Gonzalo Mine and the Avino Mine were based on limited prior historical information, bulk sample drilling programs, small pilot plant and bench scale testing. Therefore, our decision to begin extracting and processing resources at the San Gonzalo Mine and the Avino Mine were based on limited information which may or may not be representative of information regarding the mines had we otherwise prepared a more comprehensive study. In addition, basing our decision to begin extracting and processing resources on limited information may make us susceptible to risks including:

 

 

·

certain difficulties in obtaining expected metallurgical recoveries when scaling up to extracting and processing activities at levels intended by management from pilot plant scale;

 

·

the inability to predict the amount of minerals within an area to be mine due the limited sample drilling programs which makes it a challenge to predict our revenues;

 

·

the preliminary nature of mine plans and processing concepts and applying them to full scale extracting and processing activities at levels intended by management;

 

·

determining operating/capital cost estimates and possible variances associated with constructing, commissioning and operating the Avino facilities based on limited information;

 

·

that metallurgical flow sheets and recoveries are based on information at the time and may not be representative of results of the Avino Mine; and

 

·

that we may underestimate capital and operating costs without a comprehensive bankable feasibility study.

 

 
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Company has a limited number of customers.

 

The Company produces concentrates containing silver and gold. The Company sells its concentrates to metals traders and smelters. During the year ended December 31, 2020, one customer accounted for more than 75% of revenues. The Company believes that a small number of customers will continue to represent a significant portion of its total revenue. However, the Company does not consider itself economically dependent upon any single customer or combination of customers due to the existence of other potential metals traders or smelters capable of purchasing the Company’s production. There is a risk that the Company could be subject to limited smelter availability and capacity, or it may not be able to maintain its current significant customers or secure significant new customers on similar terms, any of which may have a material adverse effect on the Company’s business, financial condition, operating results and cash flows.

 

Company may be subject to substantial decommissioning and reclamation costs.

 

The Company reviews and reassesses its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. As at December 31, 2020, the Company had a provision of approximately $0.8 million for future reclamation and remediation associated with the expected retirement of its mineral properties, plant, and equipment. The present value of these reclamation provisions may be subject to change as a result of management’s estimates of ultimate decommissioning and reclamation costs, changes in the remediation technology or changes to applicable laws, regulations and interest rates. Such changes will be recorded in the accounts of the Company as they occur.

 

The costs of performing the decommissioning and reclamation must be funded by the Company’s operations. These costs can be significant and are subject to change. The Company cannot predict what level of decommissioning and reclamation may be required in the future by regulators. If the Company is required to comply with significant additional regulations or if the actual cost of future decommissioning and reclamation is significantly higher than current estimates, this could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.

 

Company’s operations are subject to political risk and government regulations

 

The Company’s mining, exploration and development activities are focused in Mexico and Canada, and are subject to national and local laws and regulations, governing prospects, taxes, labour standards, occupational health, land use, environmental protection, mine safety and others which currently or in the future may have a substantial adverse impact on the Company. In order to comply with applicable laws, the Company may be required to incur significant capital or operating expenditures. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditures, restriction and delays in the activities of the Company, the extent of which cannot be reasonably predicted. Violations may require compensation of those suffering loss or damage by reason of the Company’s mining activities, and the Company may be fined if convicted of an offence under such legislation.

 

Mining and exploration activities in Mexico and/or Canada may be affected in varying degrees by political instabilities and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond the Company’s control and may adversely affect the business. Operations may also be affected to varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety. The status of Mexico as a developing country may make it more difficult for the Company to obtain any required financing for projects. The effect of all these factors cannot be accurately predicted. Notwithstanding the progress achieved in improving Mexican political institutions and revitalizing its economy, the present administration, or any successor government, may not be able to sustain the progress achieved. The Company does not carry political risk insurance.

 

 
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Under the Foreign Investment Law of Mexico, there is no limitation on foreign capital participation in mining operations; however, the applicable laws may change in a way which may adversely impact the Company and its ability to repatriate profits. Under Mexican Income Tax Law, dividends are subject to a withholding tax. Corporations with their tax residence in Mexico are taxed on their worldwide income. Mexico levies a value-added tax, known as the IVA, which is an indirect tax levied on the value added to goods and services, and it is imposed on corporations that carry out activities within Mexican territory.

 

During 2013, the Mexico Senate passed tax reform legislation, which took effect on January 1, 2014. The tax reform includes an increase in the corporate tax rate from 28% to 30%, the introduction of a special mining royalty of 7.5% on the profits derived from the sale of minerals, and the introduction of a mining royalty of 0.5% on the gross income derived from the sale of gold, silver and platinum. These changes may have a material impact on the Company’s future earnings and cash flows, and possibly on future capital investment decisions.

 

Exploration and development risks.

 

The business of exploration and development for minerals involves a high degree of risk and few properties become producing mines. Unprofitable efforts result not only from the failure to discover mineral deposits, but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. There is no assurance that the Company’s future exploration and development activities will result in any discoveries of commercial bodies of ore. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of mining facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection, the combination of which factors may result in the Company not receiving an adequate return on invested capital.

 

The mining industry is highly speculative and involves substantial risks.

 

Even when mining is conducted on properties known to contain significant quantities of mineral deposits it is generally accepted in the mining industry that most exploration projects do not result in the discovery of mineable deposits of ore that can be extracted in a commercially economic manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls. Mining activities are subject to substantial operating hazards, some of which are not insurable or may not be insured for economic reasons.

 

The commercial quantities of ore cannot be accurately predicted.

 

Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as minerals prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.

 

There are no assurances that we can produce minerals on a commercially viable basis.

 

The Company’s ability to generate revenue and profit is expected to occur through exploration, evaluation, advancement and operation of its existing properties as well as through acquisitions of interests in new properties. Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining activities by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining activities. The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to refining facilities, and the market price of the minerals at the time of sale. There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.

 

 
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Mining activities and exploration activities are subject to various federal, state, provincial and local laws and regulations.

 

Laws and regulations govern the development, mining, production, importing and exporting of minerals, taxes, labour standards, occupational health, waste disposal, protection of the environment, mine safety, toxic substances, and other matters. In many cases, licenses and permits are required to conduct mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new activity. Under certain circumstances, the Company may be required to suspend an activity once it is started until a particular problem is remedied or to undertake other remedial actions.

 

Mining activities are inherently risky and subject to accidents.

 

Mining activities are risky and heavily regulated. Despite our attempts to minimize accidents through strict safety procedures, individuals may be injured or harmed working in our mines. Should any accidents occur, our mine may be partially or fully shut down to aid regulators in their investigation, even if it is determined we are not at fault for the cause of the accident. In this regard, there were two accidental deaths at the Company's San Gonzalo mine in March 2016, and an accidental death at the Avino Mine complex processing facility in June 2014. We do not believe that we were at fault in these accidents and, unfortunately, believe that the accidents were the result of the employees not following the proper safety protocols. Following the accidents, local authorities allowed us to resume mining activities. Notwithstanding our belief that we were not at fault for the accidents, we may nevertheless be found liable and subject to fines and/or penalties or we may be required to revise and implement new safety procedures that would make it more costly to operate our mines. Currently, we do not have insurance covering accidents, but may obtain insurance in the future.

 

Our concentrates are subject to theft and loss.

 

The concentrates produced by the Company have significant value, and are loaded onto road vehicles for transport to smelters in Mexico or to seaports for export to smelters in foreign markets, such as Europe and Asia, where the metals are extracted. The geographic location of the Company’s operating mines in Mexico and trucking routes taken through the country to the smelters and ports for delivery, give rise to risks including concentrate theft, road blocks and terrorist attacks, losses caused by adverse weather conditions, delays in delivery of shipments, and environmental liabilities in the event of an accident or spill. In addition, the Company may have significant concentrate inventories at its facilities or on consignment at other warehouses awaiting shipment. The Company has taken steps to secure its concentrate, whether in storage or in transit. The Company has insurance coverage for its inventory while in transit; however, recovery of the full market value may not always be possible. Despite these risk mitigation measures, there remains a continued risk that theft of concentrate may have a material impact on the Company’s financial results.

 

Our mining operations are subject to number of risks including uninsured risks which may result in suspension of operations.

 

Mining operations generally involve a high degree of risk which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The business of mining and exploration is subject to a variety of risks including, but not limited to, fires, power outages, labour disruptions, industrial accidents, flooding, explosions, cave-ins, landslides, environmental hazards, technical failures, and the inability to obtain suitable or adequate machinery, equipment or labour. Such occurrences, against which the Company cannot, or may elect not to insure, may delay production, increase production costs or result in liabilities. The payment of such liabilities may have a material adverse effect on the Company’s financial position. The economics of developing mineral properties are affected by such factors as the cost of operations, variations in the grade and metallurgy of the ore mined, fluctuations in mineral markets, costs of processing and equipment, transportation costs, government regulations including regulations relating to royalties, allowable production, importing and exporting of mineral product, and environmental protection rules and regulations.

 

During the period between the end of April to June 2020, the Company was required to shut down operations at the Avino Mine due to COVID-19 pandemic safety measures imposed by the Mexican authorities. In June 2020, mining operations briefly resumed, until a labour strike in July 2020 resulting in a suspension of operations. Although the labour strike was resolved in October 2020, operations at the Avino Mine cannot resume until the labour settlement agreement has been approved by the Mexican labour authority.

 

 
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The exercise of our outstanding warrants, stock options into common shares and issuance of RSUs will result in ownership dilution to our shareholders and could temporary suppress the price of our common shares.

 

At December 31, 2020, we had outstanding warrants to purchase 2,890,774 common shares at a weighted average exercise price of $0.80 per share. At December 31, 2020, there were outstanding share options exercisable into 3,483,000 common shares at a weighted average exercise price of Cdn$1.77 and RSUs outstanding for the issuance of a further 2,874,000 common shares at a weighted average exercise price of Cdn$1.28. If all of these options and warrants are exercised and RSUs are issued, such issuance will cause ownership dilution to our shareholders. The dilution may result in a decline in the market price of our common shares.

 

Market forces may adversely affect the marketability of mineral resources.

 

There is no assurance that, even if commercial quantities of mineral resources are discovered, that these can be sold at a profit. Factors beyond the control of the Company may affect the marketability of any mineral occurrences discovered. The prices of silver, gold and copper have experienced volatile and significant movements over short periods of time, and are affected by numerous factors beyond the control of the Company, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the United States dollar relative to the Canadian dollar and other currencies), interest rates and global or regional consumption patterns (such as the development of gold coin programs), speculative activities and increased production due to improved mining and production methods.

 

The Company is subject to foreign corrupt practices laws.

 

The Company is subject to the Foreign Corrupt Practices Act (the “FCPA”), the Corruption of Foreign Public Officials Act (Canada) (“CFPOA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by persons and issuers as defined by the statutes, for the purpose of obtaining or retaining business. It is our policy to implement safeguards to discourage these practices by our employees; however, our existing safeguards and any future improvements may prove to be ineffective, and our employees, consultants, sales agents or distributors may engage in conduct for which the Company might be held responsible. Violations of the FCPA, CFPOA, and/or other laws may result in criminal or civil sanctions and the Company may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. The Company is also subject to the Extractive Sector Transparency Measures Act (Canada) (“ESTMA”), which requires us to maintain records of specific payments (including taxes, royalties, fees, production entitlements, bonuses, dividends, and infrastructure improvements) to all government entities in Canada and abroad, and to publicly disclose payments of $100,000 or more in any payment category on an annual basis within 150 days of our fiscal year end, to increase transparency and deter corruption in the extractive industry sector.

 

The validity of the title to our mining properties may be challenged.

 

In those jurisdictions where the Company has property interests, the Company undertakes searches of mining records and obtains title opinions from reputable counsel in accordance with mining industry practices to confirm satisfactory title to properties in which it holds or intends to acquire an interest, but the Company does not obtain title insurance with respect to such properties. The possibility exists that title to one or more of its properties, particularly title to undeveloped properties, might be defective because of errors or omissions in the chain of title, including defects in conveyances and defects in locating or maintaining such claims, prior unregistered agreements or transfers, and title may be affected by undetected defects or native land claims. For unsurveyed mineral claims, the location and boundaries of such mining claims may be in doubt. The ownership and validity of mining claims are often uncertain and may be contested. The Company is not aware of any challenges to the location or area of its mineral claims. There is, however, no guarantee that title to the Company’s properties will not be challenged or impugned in the future. The properties may be subject to prior unregistered agreements or transfers.

 

In Mexico and British Columbia legal rights applicable to mining concessions or mineral claims, as applicable, are different and separate from legal rights applicable to surface lands; accordingly, title holders of mining concessions or mineral claims must accommodate and agree with surface land-owners on compensation in respect of mining activities conducted on such land.

 

 
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We do not intend to pay dividends in the foreseeable future.

 

We have never paid, and we do not intend to pay, any cash dividends in the foreseeable future.

 

Certain provisions of organizational documents may discourage takeovers and business combinations that our shareholders may consider in their best interests, which could negatively affect our stock price.

 

Certain provisions of our Articles of Incorporation (“Articles”) may have the effect of delaying or preventing a change in control of our Company or deterring tender offers for our common shares that other shareholders may consider in their best interests.

 

Our Articles authorize us to issue an unlimited number of common shares. Shareholder approval is not necessary to issue our common shares. Issuance of these common shares could have the effect of making it more difficult and more expensive for a person or group to acquire control of us, and could effectively be used as an anti-takeover device.

 

Our Articles provide for an advance notice procedure for shareholders to nominate director candidates for election or to bring business before an annual meeting of shareholders, including proposed nominations of persons for election to our board of directors, and require that special meetings of shareholders be called by the board or shareholders who hold at least 5% of the total issued and outstanding shares.

 

Our business is subject to competition.

 

There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities. Many participants are engaged in the mining business, including large, established mining companies. There can be no assurance that the Company will be able to compete successfully for new mining properties. The resource industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater financial resources and technical facilities than itself. Competition could adversely affect the Company’s ability to acquire suitable producing properties or prospects exploration in the future.

 

Uncertainty of exploration and evaluation programs.

 

The Company’s profitability is significantly affected by the costs and results of its exploration and evaluation programs. As mines have limited lives, the Company actively seeks to expand its mineral resources, primarily through exploration, evaluation and strategic acquisitions. Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful. Among the many uncertainties inherent in any silver, gold, and/or copper exploration and evaluation program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of extracting and processing resources may change. Accordingly, the Company’s exploration and evaluation programs may not result in any new economically viable mining operations or yield new mineral resources to expand current mineral resources.

 

If the Company fails to obtain or maintain the necessary permits, this may adversely affect the Company’s financial condition and business.

 

Existing and possible future environmental legislation, regulations and actions could give rise to additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Regulatory requirements and environmental standards are subject to constant evaluation and may become more restrictive, which could materially affect the business of the Company or its ability to develop its properties. Before production can commence on any of its mineral properties, the Company must obtain regulatory and environmental approvals. There is no assurance that such approvals will be obtained, or if they are obtained, if they will be granted on a timely basis. The cost of compliance with existing and future governmental regulations has the potential to reduce the profitability of operations or preclude entirely the economic development of the Company’s mineral projects and properties.

 

Permitting of exploration programs in Mexico requires the completion of agreements with the indigenous communities in the vicinity of the project. The timing for the completion of such agreements is unpredictable. The process of obtaining such agreements is also affected by the two-year election cycle for the councils of the indigenous communities.

 

 
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Political or economic instability or unexpected regulatory change may adversely affect the Company.

 

The Company is subject to a number of factors beyond its control. Our primary property is located in a foreign country that may be subject to political and economic instability, or unexpected legislative change than is usually the case in certain other countries, provinces and states. Our mineral exploration and mining activities could be adversely affected by:

 

 

·

political instability and violence;

 

·

war and civil disturbances;

 

·

expropriation or nationalization;

 

·

changing fiscal regimes;

 

·

fluctuations in currency exchange rates;

 

·

high rates of inflation;

 

·

underdeveloped industrial and economic infrastructure;

 

·

changes in the regulatory environment governing exploration and evaluation assets; and

 

·

unenforceability of contractual rights, any of which may adversely affect our business in that country.

 

We may be adversely affected by fluctuations in foreign exchange rates.

 

We maintain our bank accounts in Canadian and U.S. Dollars and Mexican pesos. Any appreciation in the currency of Mexico or other countries where we may carry out exploration and mining activities against the Canadian or U.S. Dollar will increase our costs of carrying out operations in such countries. In addition, any increase in the Canadian Dollar against the U.S. Dollar will result in a loss on our financial statements to the extent we hold funds in Canadian Dollars. Copper, gold and silver are typically sold in U.S. dollars. As a result, the Company is subject to foreign exchange risks relating to the relative value of the U.S. dollar as compared to the Canadian dollar and the Mexican peso. To the extent that the Company generates revenues at the Avino Mine, it will be subject to foreign exchange risks as revenues will be received in U.S. dollars while certain operating and capital costs will be incurred primarily in Mexican pesos. A decline in the U.S. dollar would result in a decrease in the Company’s revenues and adversely impact the Company’s financial performance.

 

We may be subject to land reclamation requirements.

 

Although variable, depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration and mining companies, in order to minimize the long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our mineral exploration and mining activities we must allocate financial resources that might otherwise be spent on further exploration or acquisition programs.

 

Acquisitions the Company may undertake may change our business or expose us to risks.

 

The Company undertakes evaluations of opportunities to acquire additional silver and gold mining properties. Any resultant acquisitions may be significant in size, may change the scale of the Company’s business, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks, such as a significant decline in the price of silver or gold, the mineralized material proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the Company’s ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

 

 
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Current global financial conditions may adversely affect the Company’s ability to secure financing.

 

Financial markets globally have been subject to increased volatility. Access to financing has been negatively affected by liquidity crises and uncertainty with respect to sovereign defaults throughout the world. These factors may impact the ability of the Company to obtain loans and other forms of financing in the future and, if obtained, on terms favourable to the Company. If these levels of volatility and market turmoil continue or worsen, the Company may not be able to secure appropriate debt or equity financing when needed, any of which could affect the trading price of the Company’s securities in an adverse manner.

 

There may be potential conflicts of interest between the Company and our directors, officers, affiliates and promoters.

 

There are potential conflicts of interest to which the directors, officers, insiders and promoters of the Company will be subject in connection with the operations of the Company. The directors, officers, insiders and promoters of the Company are engaged in and will continue to be engaged in corporations or businesses which may be in competition with the Company. Accordingly, situations may arise where such directors, officers, insiders and promoters will be in direct competition with the Company. The Company has a process to identify and declare any conflicts. Conflicts, if any, will be subject to the procedures and remedies as provided under the Business Corporations Act of British Columbia.

 

We are dependent on our management.

 

We are dependent on the services of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.

 

We are subject to competition for recruitment and retention of qualified personnel.

 

We compete with other exploration and mining companies, many of which have greater financial resources than us or are further in their advancement, for the recruitment and retention of qualified employees and other personnel. Competition for exploration and mining resources at all levels is highly cyclical and can quickly become very intense, particularly affecting the availability of manpower, drill rigs and supplies. Recruiting and retaining qualified personnel in the future is critical to the Company’s success. As the Company explores its Avino Mine and other properties, the need for skilled labour will increase. The number of persons skilled in the exploration of mining properties is limited and competition for this workforce is intense. The exploration and other initiatives of the Company may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel and/or obtain other exploration and mining resources as and when required.

 

Our common shares are subject to limited and volatile trading volume.

 

Although the Company’s common shares are listed on the NYSE American, the TSX, the Frankfurt Stock Exchange, referred to herein as the “FSE”, and the Berlin Stock Exchange, the volume of trading has been limited and volatile in the past and may likely to continue to be so in the future, reducing the liquidity of an investment in the Company’s common shares and making it difficult for investors to readily sell their common shares in the open market. Without a liquid market for the Company’s common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.

 

Our common shares are subject to volatile share price.

 

In recent years, securities markets in general have experienced a high level of price volatility. The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration and mining companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point. These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria. Significant fluctuation in the Company’s common share price is likely to continue.

 

 
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Difficulty for United States investors to effect services of process against the Company.

 

The Company is incorporated under the laws of the Province of British Columbia, Canada. Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the Exchange Act. The majority of the Company’s directors and officers are residents of Canada and all of the Company’s material assets are located outside of the United States. A judgment of a United States court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.

 

Disruptions to our information technology systems, including future cyber-attacks and security breaches, and the costs of maintaining secure and effective information technology systems could negatively affect our business and results of operations.

 

The efficient operation of our businesses is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems, and continue to invest in maintaining and upgrading these systems and applications to ensure risk is controlled. Regardless of our efforts to maintain and upgrade our cyber security systems, there can be no assurance that we will not suffer an intrusion, that unauthorized parties will not gain access to confidential or personal information, or that any such incident will be discovered promptly. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target, and we may be unable to anticipate these techniques or implement adequate preventative measures. The failure to promptly detect, determine the extent of and appropriately respond to a significant data security breach could have a material adverse impact on our business, financial condition and results of operations. In addition, the unavailability of the information systems or failure of these systems to perform as anticipated for any reason, including a major disaster or business interruption resulting in an inability to access data stored in these systems or sustain the data center systems necessary to support functions to meet our needs, and any inability to respond to, or recover from, such an event, could disrupt our business and could result in decreased performance and increased overhead costs, causing our business and results of operations to suffer.

 

We are a multinational company that faces complex taxation regimes in various jurisdictions. Audits, investigations, and tax proceedings could have a material adverse effect on our business, results of operations, and financial condition.

 

We are subject to income and non-income taxes in numerous jurisdictions. Income tax accounting often involves complex issues, and judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In particular, most of the jurisdictions in which we conduct business have detailed transfer pricing rules, which require that all transactions with non-resident related parties be priced using arm’s length pricing principles within the meaning of such rules. In addition, the application of withholding tax, value added tax, goods and services tax, sales taxes and other non-income taxes is not always clear and we may be subject to tax audits relating to such withholding or non-income taxes. We believe that our tax positions are reasonable and our tax reserves are adequate to cover any potential liability. However, tax authorities in certain jurisdictions may disagree with our position, including the propriety of our related party arm’s length transfer pricing policies and the tax treatment of corresponding expenses and income. If any of these tax authorities were successful in challenging our positions, we may be liable for additional income tax and penalties and interest related thereto in excess of any reserves established therefor, which may have a significant impact on our results and operations and future cash flow.

 

Changes to tax laws in any of the jurisdictions in which we operate or plan to operate in the future could have a material adverse effect on our business, results of operations, and financial condition.

 

We are a multinational company that is subject to complex taxation regimes in numerous jurisdictions. Our future effective tax rates could be affected by changes in tax laws or their interpretation in any of those jurisdictions. Tax laws, including tax rates, in the jurisdictions in which we operate may change as a result of macroeconomic or other factors outside of our control. Changes in tax laws, treaties, or regulations or their interpretation or enforcement are unpredictable. Any of these occurrences could have a material adverse effect on our results of operations and financial condition.

 

 
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Item 4. Information on the Company

 

A. History and development of the Company

 

The Company was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1968, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the Exchange Act, changing its name to Avino Mines & Resources Limited. On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and effected a reverse stock split of one common share for every five common shares outstanding. On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd., its current name, to better reflect the business of the Company of exploring for and mining silver and gold. In January 2008, the Company announced the change of its financial year end from January 31 to December 31. The change was completed in order to align the Company’s financial statement reporting requirements with its Mexico subsidiaries which operate on a calendar fiscal year.

 

The Company is a reporting issuer in all of the Provinces of Canada, except for Quebec, a foreign private issuer in the United States, and is listed on the Toronto Stock Exchange, under the symbol “ASM”, on the NYSE-American under the symbol “ASM”, and on the Berlin and Frankfurt Stock Exchanges under the symbol “GV6”. The principal executive office of the Company is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, and its telephone number is 604-682-3701.

 

The Company is a natural resource company primarily engaged in the extracting and processing of gold, silver, and copper and the acquisition and exploration of natural resource properties. The Company’s principal business activities have been the exploration for and extracting and processing of silver, gold and copper at mineral properties located in the State of Durango, Mexico. The Company also owns other exploration and evaluation assets in British Columbia and the Yukon, Canada.

 

B. Business overview

 

Operations and Principal Activities

 

The Company is a Canadian-based resource firm focused on silver, gold, and copper exploration, extraction and processing. The Company has a long prior history of operation, beginning in 1968 with the development of the Avino Silver Mine, located in the state of Durango, Mexico (the “Avino Mine”). From 1974 to 2001, the Avino Mine produced silver, gold, copper and lead and provided hundreds of jobs for the Durango region before closing due to depressed metal prices and closing of a smelter. Beginning in 2002, the Company re-directed its corporate strategy to focus almost entirely on silver, and the Company began acquiring silver properties in North America. The Company acquired the Eagle Property in Canada’s Yukon, and the Aumax silver and gold property in British Columbia. Each property produced encouraging assays for silver through drilling and sampling, however, in late April 2012, the Company relinquished its interest in the Aumax silver and gold property to focus on its property in Mexico. In October 2014, Avino acquired Bralorne Gold Mines Ltd. (“Bralorne”), a British Columbia company, which owns the past producing Bralorne Gold Mine in British Columbia, as a wholly-owned subsidiary. The Avino Mine in Mexico, the Bralorne Mine in British Columbia, and surrounding mineral leases continue to hold silver and gold potential. On December 13, 2019, the Company completed the sale of Bralorne to Talisker. The sale includes the Bralorne Gold Mine and is part of the Company’s plan to focus on its core mining operations in Mexico. For more information regarding the sale, please see below. The Company also had an option agreement with Alexco Resources Corp. on its wholly-owned Eagle Property located in the Yukon. This option agreement was terminated on January 31, 2019. These properties, along with other silver and gold projects, will remain the Company’s principal focus for the foreseeable future. The Eagle Property is currently inactive.

 

In the second quarter of 2016, the Company declared that effective April 1, 2016 extracting and processing resources at levels intended by management had been achieved at the Avino Mine following an advancement and test period of 19 months. The decision was based on the following criteria:

 

 

·

All critical capital components have been acquired and installed to achieve desired mining and processing results;

 

·

The necessary labor force, including production and development mining contractors, has been secured to mine and process at planned levels of output;

 

·

The mill has consistently processed at levels above design capacity and budgeted production levels of 1,250 tpd with consistent recoveries and grades; and

 

·

The Company entered into a long-term sales agreement with Samsung C&T U.K. Limited (“Samsung"). Further, Samsung has provided Avino with a term facility which has provided capital to facilitate further expansion and development of the Avino Mine.

 

 
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Subsequently, on July 11, 2018, upon further review of the Company’s experience at the Avino and San Gonzalo mines, the Company concluded to change its accounting policy under IFRS 6 and IAS 16 in accounting for the Company’s Exploration and Evaluation Assets and Development Costs, including the determination that the Company commenced production effective July 1, 2015. The voluntary change in accounting policy was intended to provide investors with a better reflection of the Company’s business activities to enhance the comparability of the Company’s financial statements to the Company’s peers and to make the Company’s financial statements more relevant to the economic decision-making needs of users.

 

As a result of applying the change in accounting policy, we have determined that we would have been deemed to be in the production phase effective July 1, 2015. Accordingly, we have applied this retrospective application of this change in accounting policy for (i) the year ended December 31, 2015; (ii) the year ended December 31, 2016; and (iii) the year ended December 31, 2017, which are reflected in this Annual Report.

 

On December 13, 2019 Avino closed an agreement to sell all of the issued and outstanding shares of Bralorne to Talisker for:

 

 

(i)

A cash consideration of C$8.7 million;

 

 

 

 

(ii)

The issuance of 12,580,000 common shares of Talisker (the “Talisker Shares”) which had a trading price of C$0.235 per Talisker Share on the Canadian Securities Exchange as of the date of close;

 

 

 

 

(iii)

The issuance of 6,290,000 share purchase warrants (the “Talisker Warrants”) exercisable at C$0.25 per share for a period of three years after the Closing Date, subject to acceleration in the event the closing price of Talisker’s common shares is greater than C$0.35 per share for 20 or more consecutive trading days at any time following April 14, 2020.

 

In addition, as part of the sale of Bralorne to Talisker, Avino also assigned all of its rights and obligations to the nine BRX mineral claims to Talisker. As a result of the sale, Avino acquired the Talisker Shares, representing 9.9% of the total issued and outstanding shares of Talisker, and the Talisker Shares and Talisker Warrants represent 14.85% of Talisker on a fully diluted basis assuming the exercise of the Talisker Warrants. The Talisker Shares and Talisker Warrants were acquired by Avino for investment purposes.

 

On February 25, 2020 the Company exercised its Talisker Warrant to purchase 6,290,000 common shares. On that same date, the Company sold 3,000,000 common shares of Talisker. As a result of these transactions, the Company holds directly and indirectly, 15,870,000 common shares of Talisker representing approximately 9.6% of Talisker common shares.

 

Avino’s remaining Mexican properties other than San Gonzalo and Avino, as well as its Canadian properties, are all in the exploration stage. In order to determine if a commercially viable mineral deposit exists in any of these properties, further geological work will need to be done, and based upon the results of that work a final evaluation will need to be made to conclude on economic and legal feasibility. The Company is currently focusing on extracting and processing resources at the Avino Mine. The Company’s three other Canadian properties are not deemed to be material and are subject to care and maintenance for further exploration and evaluation, if any.

 

Competition

 

The mining industry in which the Company is engaged is highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold, silver and other base metal properties. In general, properties with a higher grade of recoverable minerals and/or which are more readily mined afford the owners a competitive advantage in that the cost of production of the final mineral product is lower.

 

 
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Seasonality

 

Certain of our exploration properties are located in British Columbia and the Yukon. The weather during the colder seasons in these areas can be extreme and can cause interruptions or delays in our operations. As a result, the preferable time for activities in these regions is spring and summer when costs are more reasonable and access to the properties is easier. In the summer months, however, if the weather has been unusually hot and dry, access to the Company’s properties may be limited as a result of access restrictions being imposed to monitor the risks of forest fires.

 

Governmental Regulation

 

The current and anticipated future operations of the Company, including exploration and evaluation activities and extracting and processing resources on its properties, require permits from various federal, territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that the Company obtain permits from various governmental agencies. The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. There can be no assurance, however, that all permits which the Company may require for construction of mining facilities and conduct of mining activities will be obtainable on reasonable terms or that such laws and regulations, or that new legislation or modifications to existing legislation, would not have an adverse effect on any exploration or mining project which the Company might undertake.

 

The Company believes it has obtained all necessary permits and authorizations required for its current exploration and mining activities. The Company has had no material costs related to compliance and/or permits in recent years, and it anticipates incurring necessary expenditures to maintain compliance in the future. Unfavorable amendments to current laws, regulations and permits governing operations and activities of resource exploration companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.

 

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in exploration and mining activities may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.

 

The enactment of new laws or amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or costs of extracting and processing resources or reductions in levels of extracting and processing resources at its mining properties or require abandonment or delays in the exploration and evaluation of new mining properties.

 

Governmental Regulation - Mexico

 

Mineral exploration and mining in Mexico is covered under the Mining Law as first published in June 1992, and most recently amended in August 2014. Mining activities in Mexico are administered by the Ministry of Economy. Environmental regulations are covered under “Ley General del Equilibrio Ecológio y la Protección al Ambiente” (General Law of Ecological Balance and Environmental Protection) and its regulations. Certain other environmental laws, including “Ley de Aguas Nacionales” (Law of National Waters) and “Ley Forestal” (Forestry Law) and their associated regulations may also cover certain operations. The kind of permits or authorizations required to conduct mining or mineral exploration operations in Mexico depend upon the type of operation. Common exploration activities do not require prior environmental authorization or licenses, but it is advisable to request a confirmation from the National Water Commission that planned operations will not affect the water table. It is also necessary to confirm that any planned operations will not be conducted in protected natural areas.

 

 
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Governmental Regulation - British Columbia

 

Mining activities in British Columbia are subject to the Mines Act and the Health, Safety and Reclamation Code (the “Code”), which are administered by the EMPR, and in particular its Mines and Minerals Resource Division, as well as the Chief Inspector of Mines. Mining permits are issued upon meeting certain conditions, including the provision of a security reclamation bond, and mining activities are regularly inspected for compliance with the Code. At this time, our three properties located in British Columbia are in the care and maintenance phase.

 

C. Organizational structure

 

The Company’s Mexican subsidiaries are the wholly-owned subsidiary Oniva Silver and Gold Mines S.A. de C.V., referred to as “Oniva”, the wholly-owned subsidiary Nueva Vizcaya Mining S.A. de C.V., referred to as “Nueva Vizcaya”, Promotora, in which the Company has direct ownership of 79.09%, and Avino Mexico in which the Company has a 98.45% direct ownership and an additional 1.22% indirect ownership held through Promotora. The Company’s total effective ownership interest in Avino Mexico is 99.67%. All of these subsidiaries are incorporated under the laws of Mexico. The Company also previously owned 100% of Bralorne Gold Mines Ltd., incorporated in British Columbia, Canada which was sold during calendar 2019.

 

D. Property, plant and equipment

 

The Company was extracting resources and processing it to yield a bulk silver/gold concentrate at the San Gonzalo Mine ceasing operations in 2019 and a copper concentrate from the Avino Mine, both of which are located on the Avino property in Durango, Mexico. The Company is also exploring options to re-process a large tailings resource left from past mining on the Avino property.

 

All of the Company’s mineral property interests in Canada are wholly-owned by the Company. In Mexico, the Company has a 99.67% interest in Avino Mexico, a Mexican company which is involved in the mining of commercial resources and resource exploration and evaluation, including the operation of the Avino and San Gonzalo Mines.

 

The Company owns and manages its Canadian properties. Exploration in Canada was previously focused on the Bralorne Mine project in southwest British Columbia which was acquired by the Company in 2014. The Bralorne Mine project was considered in the advanced exploration phase and extracting and processing resources at trial levels took place between 2011 and 2014. In calendar 2019, the Company sold the Bralorne Mine. Avino has in recent years conducted limited prospecting, trenching and drill programs on the Eagle (which was optioned to Alexco Resource Corp. and returned to the Company), Olympic-Kelvin, and Minto properties.

 

The Company uses detailed sampling to provide the basis for quality estimates and grades of its mineral discoveries. Samples are collected under the supervision of a qualified person who then follows procedures for the collection, sample preparation and chain of custody guidelines for the shipment of the samples to a certified commercial laboratory as set out in National Instrument 43-101. These commercial labs have standard Quality Assurance/Quality Control protocols in place for the various assaying methods that are being used on the samples. In addition, blanks, standards and duplicates are generally used to confirm the validity of the results before they are reported.

 

Avino Property, Durango, Mexico

 

Location

 

The property is located in Durango State in North Central Mexico, within the Sierra Madre Silver Belt on the eastern edge of the Sierra Madre Occidental mountain range. The nearest major center is the city of Durango, 82 km to the southwest of the property. The property is within the municipality of Pánuco de Coronado between the towns of Pánuco de Coronado and San José de Avino. The property is located at latitude N 24° 53’, longitude W 104° 31’, 14 km northwest of Highway 40D.

 

 
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The property is situated as illustrated in the figures below:

 

General Property Location Map

 

 

 
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Regional Property Location Map

 

 

Accessibility and Local Resources

 

The property is accessible by road and is an important part of the local community from which skilled workers are available. Access is provided by Highway 40, a four-lane highway leading from Durango, past the airport and on to the city of Torreon in Coahuila. Successive turn-offs for the property are at Francisco I Madero, Ignacio Zaragoza, and San José de Avino. The Avino mineral concessions are covered by a network of dirt roads which provide easy transport access between all areas of interest on the property and the mill at the main Avino Mine.

 

The nearest major city is Durango, with a population of approximately 600,000. Durango is a major mining center in Mexico where experienced labour and services can be obtained. The two towns nearest the mine are Pánuco de Coronado and San José de Avino, where the majority of the employees live while working at the mine. Pánuco de Coronado has a population of approximately 12,000, and San José de Avino is a small center with a population of less than 1,000.

 

 
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Geology and Mineralization

 

The property is located within the Sierra de Gamon, on the east flank of the Sierra Madre Occidental. The area is a geological window into the Lower Volcanic series and consists mainly of volcanic flows, sills, and tuffaceous layers of andesite, rhyolite, and trachyte. Individual rock units vary from 300 to 800 m in thickness. Andesitic rocks outcrop over most of the region with other rock types occurring more sparsely to the north.

 

A large monzonitic intrusion is observed in the region in the form of dykes and small stocks, which appear to be linked to the onset of the Avino vein mineralization. Other post-mineralization dykes of intermediate to felsic composition outcrop in various areas and appear to cause minor structural displacements. Several mafic sills are also found in various parts of the region and are related to recent volcanism.

 

Regionally, the Avino concession is situated within a 12 km north-south by 8.5 km caldera, which hosts numerous low sulphidation epithermal veins, breccias, stockwork and silicified zones. These zones grade into a “near porphyry” environment, particularly in the Avino Mine area. The caldera has been uplifted by regional north trending block faulting (a graben structure), exposing a window of andesitic pyroclastic rocks of the lower volcanic sequence, a favourable host rock, within the caldera. This sequence is overlain by rhyolite to trachytes with extensive ignimbrite layers forming the upper volcanic sequence and is intruded by monzonite bodies. The basal andesite-bearing conglomerate and underlying Paleozoic basement sedimentary rocks (consisting of shales, sandstones and conglomerates) have been identified on the Avino concession in the south-central portion of the caldera, covering the Guadalupe, Santiago, San Jorge, the San Gonzalo Trend, Malinche, Porterito and Yolanda areas. A northerly trending felsic dyke, probably a feeder to the upper volcanic sequence, transects the Property and many of the veins. The Aguila Mexicana low temperature vein system, with significant widths but overall low precious metal values, trends north-northwest, similar to the felsic dyke and with similar continuity across the property. The two structures may occupy deep crustal faults that controlled volcanism and mineralization, with the felsic dyke structure controlling the emplacement of the Avino, Nuestra Senora and El Fuerte-Potosina volcanic centres and the Aguila Mexicana controlling the Cerro San Jose and El Fuerte-Potosina volcanic centres (Paulter 2006).

 

Silver and gold-bearing veins cross-cut the various lithologies, and they are generally oriented north-northwest to south-southeast and northwest to southeast. The rocks have been weathered and leached in the upper sections, as a result of contact with atmospheric waters. The oxide tailings material is primarily from this source, whereas the sulphide tailings are predominantly from material sourced at depth from the underground workings. In Mexico, these types of deposits can have large lateral extents, but can be limited in the vertical continuity of grades.

 

The minerals found during the period of mining of the oxide zone were reported to be argentite, bromargyrite, chalcopyrite, chalcocite, galena, sphalerite, bornite, native silver, gold and native copper. The gangue minerals include hematite, chlorite, quartz, barite, pyrite, arsenopyrite and pyrrhotite. Malachite, anglesite, and limonite are common in the quartz zones of the weathered parts of the oxide material.

 

 
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Perspective View of the Property Looking North and Showing the Three Deposits

 

 

Property Ownership

 

The current Avino property is comprised of 23 mineral concessions, totalling 1,103.934 ha.

 

In 1968, Avino Mines and Resources Ltd. acquired a 49% interest in Avino Mexico and Minera San José de Avino SA, which together held mineral claims totalling 2,626 ha (6,488 ac). Avino Mines and Resources Ltd. retained Vancouver-based Cannon-Hicks & Associates Ltd. (Cannon-Hicks), a mining consulting firm, to conduct the exploration and development of the Property. Cannon-Hicks exploration activities included surface and underground sampling and diamond drilling (VSE 1979).

 

In early 1970, Avino Mines and Resources Ltd. signed a letter of intent with Denison Mines Ltd. for the future development of the Avino Mine. However, a formal agreement was never signed.

 

In May 1970, Avino Mines and Resources Ltd. signed a formal agreement with Selco Mining and Development (Selco), a division of Selection Trust Company. Due to other commitments, Selco abandoned its interest in the Project in 1973 (VSE 1979).

 

In October 1973, Avino Mines and Resources Ltd. signed a new agreement with S.G.L. Ltd. and Sheridan Geophysics Ltd. Under the terms of the agreement, S.G.L. Ltd. was to provide up to $500,000 plus the management to erect a resource processing plant. The agreement provided for the return of the capital from first cash flow, plus a management fee and interest payment together with an option to convert a portion of the advanced funds to common shares. The agreement with S.G.L. Ltd. was terminated in mid-1976.

 

On July 17, 2006, the Company completed the acquisition of Compañía Minera Mexicana de Avino, S.A. de C.V. (“Avino Mexico”), a Mexican corporation, through the acquisition of an additional 39.25% interest in Avino Mexico, which combined with the Company’s pre-existing 49% share of Avino Mexico, brought the Company’s ownership interest in Avino Mexico to 88.25%. The additional 39.25% interest in Avino Mexico was obtained through the acquisition of 79.09% of the common shares of Promotora Avino S.A. de C.V., referred to as “Promotora”, which in turn owns 49.75% of Avino Mexico’s common shares, and the direct acquisition of 1% of the common shares of Avino Mexico.

 

The July 17, 2006, acquisition was accomplished by a share exchange by which the Company issued 3,164,702 shares as consideration, which we refer to as the “Payment Shares”, for the purchase of the additional 39.25% interest in Avino Mexico. The Payment Shares were valued based on the July 17, 2006 closing market price of the Company’s shares on the TSX-V.

 

 
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The Company acquired a further 1.1% interest in Avino Mexico through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate. On December 21, 2007, approval was received and the Company obtained the 1.1% interest from the estate for no additional consideration.

 

On February 16, 2009, the Company converted existing loans advanced to Avino Mexico into new additional shares of Avino Mexico. As a result, the Company’s ownership interest in Avino Mexico increased to 99.28%.

 

On June 4, 2013, the Company converted existing loans advanced to Avino Mexico into new additional shares of Avino Mexico, resulting in the Company’s ownership increasing by 0.38% to an effective 99.67%. The issuance of shares to the Company by Avino Mexico on June 4, 2013 resulted in a reduction in the non-controlling interest from 0.72% to 0.34%.

 

On August 26, 2015, the Company converted existing loans advanced to Avino Mexico into new additional shares, resulting in an increase of the Company’s ownership by 0.01% to an effective 99.67%. The intercompany loans and investments are eliminated upon consolidation of the financial statements. The Company had a pre-existing effective ownership interest of 99.66% in Avino Mexico prior to the 0.01% increase. The issuance of shares to the Company by Avino Mexico on August 26, 2015, resulted in a reduction in the non-controlling interest from 0.34% to 0.33%.

 

Summary of Property Ownership

 

Company

 

Relationship to
Avino Silver & Gold Mines Ltd.

 

 

Effective

Ownership of
Avino Mine Property
(%)

 

Avino Mexico

 

Subsidiary

 

 

 

98.45

 

Promotora Avino, S.A. de C.V.

 

Subsidiary

 

 

 

1.22

 

Total Effective Ownership of Avino Mine Property

 

 

-

 

 

 

99.67

 

Estate of Ysita

 

Non-controlling interest

 

 

 

0.33

 

Total

 

 

-

 

 

 

100.00

 

 

Mineral Concessions and Agreements

 

The current property is comprised of 23 mineral concessions, totalling 1,103.934 ha. Of these, 22 mineral concessions totalling 1,005.104 ha, are held by Avino Mexico, Promotora Avino SA de CV, and Susesion de la Sra. Elena del Hoyo Algara de Ysita. Ownership proportions and mineral concessions are summarized in the tables following the next paragraphs regarding Claim Staking and Mineral Tenure in Mexico.

 

Claim Staking and Mineral Tenure in Mexico

 

In 1992, a new Mining Law was enacted and has been amended from time to time since then. In general, and for North American companies in particular, Mexican law permits direct or indirect 100% foreign ownership of exploration and mining properties. For practical purposes, most foreign companies establish Mexican subsidiaries. Mining companies are subject to the normal corporate income tax rate of 30%. Further, in 2014 the Mexican Government enacted a new tax reform which includes a 7.5% mining royalty calculated as taxable revenues (except interest and inflationary adjustment), less allowable deductions for income tax purposes (excluding interest, inflationary adjustment, mining concessions and depreciation and depletion), less exploration expenses, and a 0.50% mining royalty on the sale of silver and gold.

 

In December 2005, amendments to the mining law eliminated the distinction between “exploration” and “exploitation” concessions. Currently, the mining act and regulations provide solely for mining concessions (Concesiones Mineras), which are issued for a term of fifty years, renewable for an additional term of fifty years.

 

Owners of mining concessions are obliged to:

 

 

·

Execute work under the terms and conditions established in the mining law;

 

·

Pay fees to the Secretaria de Economia on a semi-annual basis;

 

·

Locate on the ground a starting point (mojonera) for the location of the concession, and maintain the mojonera in good condition;

 

·

Begin work on the concession within 90 days of receiving the mining title;

 

·

File annual reports describing the work completed and the amount spent doing the reported work;

 

·

The Direccion General de Minas (“DGM”) has the right to audit the receipts and verify that reported work was completed in the field; and

 

·

Failure to comply with the obligations or to assist the DGM with an audit will result in cancellation of the mining concession.

 

 
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Mineral Concessions – Avino Property

 

Concession
Name

 

Concession
No.

 

 

Claim

Type

 

Location

 

Hectares
(ha)

 

 

Date
Acquired

 

Expiration
Date

 

Cost
(US$/ha)

 

 

Payment
(US$)

 

Agrupamiento San Jose (Purisma Chica)

 

 

155597

 

 

Lode

 

Pánuco

 

 

136.708

 

 

30/09/1971

 

29/09/2021

 

 

124.74

 

 

 

17,052.91

 

Agrupamiento (San Jose)

 

 

164985

 

 

Lode

 

Pánuco

 

 

8

 

 

13/08/1979

 

12/8/2029

 

 

124.74

 

 

 

997.92

 

Agrupamiento San Jose (El Trompo)

 

 

184397

 

 

Lode

 

Pánuco

 

 

81.547

 

 

13/10/1989

 

12/10/2039

 

 

124.74

 

 

 

10,172.12

 

Agrupamiento San Jose (Gran Lucero)

 

 

189477

 

 

Lode

 

Pánuco

 

 

161.468

 

 

5/12/1990

 

4/12/2040

 

 

124.74

 

 

 

20,141.57

 

Agrupamiento San Jose (San Carlos)

 

 

117411

 

 

Lode

 

Pánuco

 

 

4.451

 

 

5/2/1961

 

16/12/2061

 

 

124.74

 

 

 

555.16

 

Agrupamiento San Jose (San Pedro Y San Pablo)

 

 

139615

 

 

Lode

 

Pánuco

 

 

12

 

 

22/06/1959

 

21/06/2061

 

 

124.74

 

 

 

1,496.88

 

Aguila Mexicana

 

 

215733

 

 

Lode

 

Pánuco

 

 

36.768

 

 

12/3/2004

 

29/06/2044

 

 

70.88

 

 

 

2,606.12

 

Ampliacion La Malinche

 

 

204177

 

 

Lode

 

Pánuco

 

 

6.01

 

 

18/12/1996

 

17/12/2046

 

 

124.74

 

 

 

749.72

 

Ampliacion San Gonzalo

 

 

191837

 

 

Lode

 

Pánuco

 

 

5.85

 

 

19/12/1991

 

18/12/2041

 

 

124.74

 

 

 

729.67

 

Avino Grande Ix

 

 

216005

 

 

Lode

 

Pánuco

 

 

19.558

 

 

2/4/2002

 

1/4/2052

 

 

70.88

 

 

 

1,386.24

 

Avino Grande Viii

 

 

215224

 

 

Lode

 

Pánuco

 

 

22.882

 

 

14/02/2002

 

13/02/2052

 

 

70.88

 

 

 

1,621.85

 

El Caracol

 

 

215732

 

 

Lode

 

Pánuco

 

 

102.382

 

 

12/3/2002

 

28/04/2044

 

 

70.88

 

 

 

7,256.84

 

El Potrerito

 

 

185328

 

 

Lode

 

Pánuco

 

 

9

 

 

14/12/1989

 

13/12/2039

 

 

124.74

 

 

 

1,122.66

 

Fernando

 

 

205401

 

 

Lode

 

Pánuco

 

 

72.129

 

 

29/08/1997

 

28/08/2047

 

 

124.74

 

 

 

8,997.33

 

La Estela

 

 

179658

 

 

Lode

 

Pánuco

 

 

14

 

 

11/12/1986

 

12/12/2036

 

 

124.74

 

 

 

1,746.36

 

La Malinche

 

 

203256

 

 

Lode

 

Pánuco

 

 

9

 

 

28/06/1996

 

27/06/2046

 

 

124.74

 

 

 

1,122.66

 

Los Angeles

 

 

154410

 

 

Lode

 

Pánuco

 

 

23.713

 

 

25/03/1971

 

24/03/2021

 

 

124.74

 

 

 

2,957.96

 

Negro Jose

 

 

218252

 

 

Lode

 

Pánuco

 

 

58

 

 

17/10/2002

 

16/10/2052

 

 

70.88

 

 

 

4,111.04

 

San Gonzalo

 

 

190748

 

 

Lode

 

Pánuco

 

 

12

 

 

29/04/1991

 

28/04/2041

 

 

124.74

 

 

 

1,496.88

 

San Martin De Porres

 

 

222909

 

 

Lode

 

Pánuco

 

 

30

 

 

15/09/2004

 

14/09/2054

 

 

70.88

 

 

 

2,126.40

 

Santa Ana

 

 

195678

 

 

Lode

 

Pánuco

 

 

136.182

 

 

14/09/1992

 

13/09/2042

 

 

124.74

 

 

 

16,987.38

 

Yolanda

 

 

191083

 

 

Lode

 

Pánuco

 

 

43.458

 

 

29/04/1991

 

28/04/2041

 

 

124.74

 

 

 

5,420.91

 

Total hectares

 

 

 

 

 

 

 

 

 

 

1,005.106

 

 

 

 

 

 

 

110.29

 

 

 

110,856.58

 

 

Note: Concession “La Platosa” is not included because it is not held by Avino.

 

 
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Table of Contents

 

Map of Avino Mine Property Concessions

 

 

 
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Table of Contents

 

On February 18, 2012, through its subsidiary company Avino Mexico, Avino re-entered into an agreement (the Minerales Agreement) with Minerales de Avino, S.A. de C.V. (“Minerales”), whereby Minerales has indirectly granted to Avino the exclusive mining and occupation rights to the La Platosa concession. The La Platosa concession covers 98.83 ha and hosts the Avino vein and ET Zone.

 

Pursuant to the Minerales Agreement, Avino has the exclusive right to explore and mine the concession for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the grant of these rights, Avino must pay to Minerales the sum of $250,000, by the issuance of common shares of Avino. Avino will have a period of 24 months for the development of mining facilities.

 

Avino has agreed to pay to Minerales a royalty equal to 3.5% of NSRs. If at the commencement of commercial production from the property the monthly processing rate of the mine facilities is less than 15,000 tonnes, then Avino must pay to Minerales in any event a minimum royalty equal to the applicable NSR royalty based on processing at a minimum monthly rate of 15,000 tonnes. In the event of a force majeure, Avino shall pay the minimum royalty as follows:

 

 

·

first quarter: payment of 100% of the minimum royalty;

 

·

second quarter: payment of 75% of the minimum royalty;

 

·

third quarter: payment of 50% of the minimum royalty;

 

·

fourth quarter: payment of 25% of the minimum royalty; and

 

·

in the case of force majeure still in place after one year of payments, payment shall recommence at a rate of 100% of the minimum royalty and shall continue being made as per the quarterly schedule.

 

Minerales has also granted to Avino the exclusive right to purchase a 100% interest in the concession at any time during the term of the Minerales Agreement (or any renewal thereof), upon payment of $8 million within 15 days of Avino’s notice of election to acquire the Property. The purchase would be completed under a separate purchase agreement for the legal transfer of the concession.

 

During the month of May of each year, Avino must file assessment work made on each concession for the immediately preceding calendar year. During the months of January and July of each year, Avino must pay in advance the mining taxes which are based on the surface of the concession and the number of years that have elapsed since it was issued.

 

Consistent with the mining regulations of Mexico, cadastral surveys have been carried out for all the listed mineral concessions as part of the field staking prior to recording. It is believed that all concessions are current and up to date. Mineral concessions in Mexico do not include surface rights. Avino has entered into agreements with communal land owners (Ejidos) of San José de Avino, for the temporary occupation and surface rights of the concessions.

 

Based on a review of documents, issued title certificates and the unhindered residence on the Property, Tetra Tech has verified that Avino owns the concessions through its Mexican subsidiary company, Avino Mexico, and that there is no indication of any encumbrances at the site.

 

History

 

Avino Mine

 

The Avino deposit was originally discovered around 1555 by the Spanish conquistador, Don Francisco de Ibarra. In 1562, Francisco de Ibarra, was appointed governor of the newly formed province of Nueva Vizcaya, in the Viceroyalty of Nueva España (New Spain) and, in 1563, founded the town of Durango. Francisco de Ibarra led several expeditions in search of silver deposits in the region and is recognized as having established Minas de Avino, present day Avino Mine; San Martín, Durango; and Pánuco, Sinaloa. Mining activities at the Avino Mine are said to have commenced in 1562-1563 and continued up to the onset of the War of Independence (1810) when operations were interrupted but later continued through to the Mexican Revolution the early 1900s.

 

In 1880, the mines were taken over by Avino Mines Ltd., a company controlled by American and English interests. With aid of new industrial technology the Avino Mine developed into a more efficient mining operation. By 1908, the Avino Mine was considered one of the largest open pit mines in the world and equipped with one of the largest smelters.

 

During the outbreak of the Mexican Revolution in 1910, proceeds from the mine supplied funds to the revolutionary forces. Since much of the fighting occurred in and around Durango and the risk posed by brigands hiding in the mountains was high, the mine was abandoned in 1912.

 

 
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Between 1912 and 1968, the mine was worked intermittently on a very small scale (Avino Annual Report 1980). There is no known historical record of production from the Avino Mine during this period. The Avino Property was acquired under current ownership in 1968.

 

In 1968, the current operators of the Avino property acquired an initial 49% interest in the property. Initial mining was by open-cut in the oxide material from 1976 until 1992 when the stripping ratio was becoming excessive and sulphide content increasing, at which date the extraction was transferred to underground. This necessitated a mill change from the prior lead concentrate production to one of copper carrying silver and gold. In the 1990s a larger ball mill was installed to increase throughput to 1,000 t/d.

 

During the underground mining period starting in 1992, Trackless mining was adopted, with all underground advancement headings sized at 4m x 4m. Mine access from surface was by a spiral ramp from a portal on the south side of the hill and there is a secondary ramp– Rampo El Trompo – on the north side, close to the maintenance shop.

 

Production was by sub-level stoping with a sub-vertical increment restricted from 11m to 15m to countermine dilution arising from an occasional, semi-incompetent hanging-wall. Stopes were started by raising, and then slashing to the designated width. Blasting was by parallel holes drilled with a traditional drill wagon. Rib and sill pillars were left but are generally considered as non–recoverable.

 

Standard mine development was by using boom jumbo with waste being dumped where possible into old stopes. Ore mucking and haulage was by scoop tram and dumped on surface at the main portal. The ore was then picked up and transferred to the plant ROM hopper about 300 m away.

 

A surface-stacked, downstream tailings-system was adopted with cyclones on the tails discharge line to provide coarse wall-material. Decant water was recovered by a back-slope gradient and pumping, for mill re-circulation. A second, stepped-back bench was created, possibly about 1986 or 1987. A third bench was started, apparently in 1990, with about two years placement of final oxide material then continued with the sulphide tails.

 

The Avino Mine and processing plant were serviced by a heavy equipment repair shop, mechanical and electrical shops, assay office, metallurgical laboratory, warehouse and other auxiliary facilities. Electric power was supplied by the government-owned Federal Electricity Commission.

 

In November 2001, delays in payments, low metals prices and the closure of the toll smelter led to the suspension of mine operations. During the 27-year period of extracting and processing resources starting in 1974, output from the Avino mine totalled approximately 497 tons of silver, three tons of gold, and 11,000 tons of copper. When mining activities stopped, level 12 of the mine had been reached.

 

The property was mainly dormant from 2002 to 2006, largely due to low copper and silver prices.

 

San Gonzalo Mine

 

The history of the San Gonzalo deposit is not well known. Shallow workings from an old mine are present in the San Gonzalo vein, and they consist of small underground workings which were originally accessed by a five-level vertical shaft. These workings were sampled by M. Evans in 1954. The workings are accessible through a raise that was driven in 2012 which is being used for ventilation. No attempts have been made to duplicate the results of the 1954 sampling. The limits of past workings have been taken from old maps but are assumed to be reasonably accurate.

 

Current Condition

 

San Gonzalo Mine

 

Avino gained control of the property in July 2006 and exploration (see exploration section below) resumed that year; this led to the discovery of new mineralization at San Gonzalo.

 

 
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The original underground workings extend over an area approximately 150 m along strike and 136 m in depth. In 2007-08 Avino conducted a 42-hole, 9,204 meter drill program to explore the San Gonzalo deposit. Drilling produced encouraging results which were input into a resource calculation in 2009.

 

Following a 2009 mineral resource estimate, independently verified preliminary metallurgical testing on a composite sample of San Gonzalo material was completed at SGS Minerals Services in Durango, Mexico. The results indicated the silver and gold minerals from the San Gonzalo vein at lower levels would respond favorably to flotation with gold recoveries of 89 to 90% and silver recoveries of 92 to 93%.

 

The San Gonzalo mining activities began in January 2010. DMG, the mining contractor, was contracted to provide this service. Their original scope of work was to drive the main haulage decline to level 2 and to intersect the vein; drift and sample to the east and the west on the vein, and to determine the extent of the mineralized zones and to extract the 10,000 tonne bulk sample for testing as per the recommendations of the Orequest Mineral Resource Estimate Report. A smaller decline to level 1 was also commissioned and its purpose was for ventilation and an escape route once the two levels were connected by raises from level 2 to level 1. This scope of work was extended with the successful completion of the bulk sample program, and mining continued with the aim of developing San Gonzalo to a state whereby it could provide mill feed at the rate of 250 tonnes per day on a sustained basis.

 

Processing of San Gonzalo material began in late November 2010 in the newly refurbished 250 tonne per day bulk flotation circuit. Testing with extracted material was performed initially to ensure the circuit was operating satisfactorily before the bulk sample test with material from the stopes began in January of 2011. The bulk sample test continued until early April 2011 when the limit of 10,000 tonnes was achieved for the independent verification. Processing of the remaining San Gonzalo material on stockpile continued until the middle of May. During this period of November 2010 to May 2011, the plant processed a total of 19,850 tonnes leaving approximately 14,798 tonnes remaining on stockpile in inventory by calculation.

 

The majority of the concentrate processed during the bulk sample test was sold and the assays from the concentrate sale were used to reconcile the mill balance as reported following the verification of the bulk sampling results. All the remaining concentrate processed from the extracted material was shipped and sold early in 2012.

 

Following the completion of the bulk sample which was comprised of material from levels 1 and 2, mine advancement at San Gonzalo has been ongoing. In 2012, the remaining material from the stopes on level 2 was mined and brought to the surface. During 2012, level 3 was the main focus of mining activities with two stopes having been developed and partially extracted by the end of the year. By the end of July, a decline from level 3 to level 4 had been completed and work on the ramp to level 5 had commenced. By year-end, level 5 had been reached and stope advancement on level 4 was underway. Underground advancement for 2012 totaled 2,558 meters consisting of ramp advancement, cross cuts, drifts and raises.

 

During 2013 the extraction of resources came mainly from level 4. Advancement of level 5 was ongoing and by year end a sampling program totaling 440 meters had been completed. The ramp from level 5 to level 6 had been completed by April 2014.

 

During 2014, mine exploration and advancement included the discovery of significant additional mineralization along strike to the southeast while drifting on level 5. These areas had not previously been considered for mining. Following this discovery, the extension of this new mineralized zone was explored on levels 2 through 6. Previous exploration did not encounter this area as the vein had pinched out and an offset of the vein was not considered at that time. During 2014, extraction of resources came primarily from levels 5 and 6 as well as from mined material from the new zone on level 3. Advancement work on level 6 continued throughout the fourth quarter, and by year end the main haulage ramp had progressed past the level 7 elevation of 2,043 meters above sea level towards level 8.

 

During 2015, San Gonzalo mill feed came primarily from stopes on levels 4, 5 and 6. During the second quarter, the ramp advance was deferred (at 70 metres below level 7) in favor of using the mining equipment to advance levels 5, 6 and 6.5 laterally along the San Gonzalo structure to the East and West where the new mineralized zones were identified in 2014.

 

During 2016, San Gonzalo mill feed came from stopes on level 4, 5, 6 and 7 with the bulk of the tonnage coming from stopes 4-050, 5-030, 5-500, 5-600, 6-030, 6-100 and 7-070.

 

In 2017, San Gonzalo mill feed came from stopes on levels 4, 5, 6 and 7 with most of the tonnage coming from stopes 4-020, 6-030, 6.5-070 and 7.5-200. Smaller amounts came from 5-020 and 5-030.

 

 
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Table of Contents

 

In 2018, San Gonzalo mill feed came from stopes on levels 2, 3, 4, 5 and 6 with most of the tonnage coming from stopes 3-020, 4-010, 4-020, 5-010, 6-020 and 6.5-070. Smaller amounts came from 2-380 and 6.5-100.

 

In 2019, San Gonzalo mill feed came from stopes on levels 2, 4 4.5 and 5 of the Santiago and Angelica vein with most of the tonnage coming from stopes 4-400, 4-500, 4.5- 010, 5 -400 and 5-500. These veins are adjacent to San Gonzalo and are accessed via the San Gonzalo underground infrastructure. During the last quarter of the year, San Gonzalo reached the end of its current resources and mining was stopped. It will remain open for continued exploration at different underground levels.

 

Access to the underground at San Gonzalo is via a 4m by 4m decline developed at -12%. The decline is developed at about 20m to 25m from the mineralized material. San Gonzalo is using shrinkage mining for the narrower mineralized material, ~1.4m in width and cut and fill mining for mineralized material wider than 2m.

 

The San Gonzalo Mine has been the subject of four mineral resource estimates, the most recent of which was published on January 13, 2021; please see the section below on Mineral Resource Estimates for more details.

 

Avino Mine

 

In February 2012, a new long-term royalty agreement was signed to grant Avino mining rights to the main Avino vein. At the time of signing this agreement, Avino planned to refurbish the existing 1,000 TPD circuit to process the material from the main Avino vein.

 

To resume underground advancement at the Avino Mine, the existing underground workings had to be de-watered; the dewatering process was completed in May 2014. The process lasted for a total of 482 days, and successfully removed 1,013,069 cubic meters of acidic water which was then treated for the removal of base metals using lime. The treated water, which met agricultural standards for discharge, was used for mill processes and the excess was gravity fed to the Company-built La Caricol dam; sludge from the water treatment plant was disposed of in the tailings storage facility.

 

Following dewatering and rehabilitation of the haulage ramp, underground mining activities re-commenced at the Avino Mine. Full scale mining began at level 11.5 with drifts heading east and west along the vein during the third quarter of 2014. By the end of 2014, a total of 877 metres of underground advancement had taken place on levels 11.0 and 12.0 with the haulage ramp advancing to level 12.5.

 

Initially, new material from underground at Avino was processed on a limited scale using the existing 250 TPD Mill Circuit 2. By year end, rehabilitation of the 1,000 TPD Mill Circuit 3 had been completed and sufficient material had been stockpiled; on January 1, 2015, the Company commenced testing of mining and milling methods at levels anticipated for full-scale activities.

 

During 2015, underground advancement totalled 5,056 metres and took place mainly in levels 12.5 to 14.5 with the ramp advancing to level 15. The breakdown of the advance in 2015 consisted of 2,855 metres of drifts, 785 metres of ramp, 1,050 metres of crosscuts and 366 metres of raises.

 

During 2016, underground advancement totaled 3,901 metres with the ramp advancing to level 16. Breakdown of the advance consisted of 1,489 metres of drifts, 415 metres of ramp 1,609 metres of crosscuts and 390 metres of raises. Production mining with the Trac Drill took place on levels 12, 12.5 and 14.5. Mill feed from development mining came from levels 14.5, 15, 15.5 and the crosscuts towards the hanging wall breccia on levels 12.5 and 14.5 where high gold values were encountered.

 

During 2017, underground advancement totaled 2,905 metres with the ramp advancing to level 16.5. Breakdown of the advance consisted of 961 metres of drifts, 287 metres of ramp, 1,375 metres of crosscuts and 283 metres of raises. Production mining with the Trac Drill took place on all the developed levels up to level 15. Some mill feed from development mining came from levels 15.5 and 16.

 

In 2017, the Company announced plans to increase the throughput capacity of the processing plant by adding an additional 1,000 TPD circuit intended to process mill feed from another area of the Mine known as San Luis. The San Luis area of the Avino Mine was last mined in the 1990’s and is accessed through a separate portal located approximately 2 km from the main entrance of the Avino Mine (Elena Tolosa area). Current resources at San Luis were included in the most recent resource estimate on the Avino property, which can be found in Avino’s news release dated February 21, 2018

 

During 2018 work at San Luis was primarily focused on restoration of the main haulage ramp, which was completed during the third quarter. With the haulage ramp complete, work is underway to begin drifting on levels 6 and 6.5, followed by levels 7, 7.5, 8, 8.5 and 9. Most of these areas were partially developed during the 1980’s and 90’s prior to the mine’s closure. Underground development at San Luis was temporarily reduced to save costs in the third and fourth quarters. Mill feed from the San Luis area was processed using the 250 TPD Mill Circuit 2.

 

 
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Table of Contents

 

During 2018, underground advancement totaled 3,462 metres with the ramp advancing to level 17. Breakdown of the advance consisted of 1,502 metres of drifts, 224 metres of ramp, 1,336 metres of crosscuts and 400 metres of raises. Production mining with the Trac Drill took place on all the developed levels up to level 17. Some mill feed from development mining came from levels 15.5 and 16. The drill results were disclosed as follows:

 

 

·

The Company announced drill results from Avino Open Pit Mine area on its press release dated December 4, 2018 and on Form 6-K with SEC on the same date;

 

·

The Company announced drill results from the El Chirumbo and Guadalupe Area of the Avino Property on its press release dated July 11, 2018 and on Form 6-K with SEC on the same date;

 

·

The Company announced drill results from its current exploration drill program on the El Chirumbo, Guadelupe, and San Juventino Area of the Avino Property on its press release dated February 6, 2018 and on Form 6-K with SEC on the same date.

 

During 2019, underground advancement totaled 3,677 meters. There were no advancements with the ramp as level 17 is the deepest level of the mine currently. Breakdown of the advance consisted of 1578 metres of drifts, 1850 metres of crosscuts and 249 metres of raises. Production mining with the trac drill and jumbo took place on level 11.5, 12, 16.5 and 17 complemented with development mining mill feed from levels 12, 16.5 and 17.

 

A sampling campaign comprising 52 recent and historic holes that were previously drilled in the hanging-wall of the Avino vein stockwork system located on the Avino property. The drill results were disclosed as follows:

 

 

·

The Company announced drills results from the Hanging-Wall Breccia sampling campaign on its press release dated July 23 2019 and on Form 6-K with SEC on the same date;

 

During 2020, underground advancement totaled 1,267 meters. There were no advancements with the ramp as level 17 is the deepest level of the mine currently. Production mining with the trac drill and jumbo took place on level 16.5 and 17.

 

The Avino Mine has been the subject of four mineral resource estimates, the most recent of which was published on January 13, 2021; please see the section below on Mineral Resource Estimates for more details.

 

Tailings Mineral Resource

 

Avino continues to explore options for exploiting the mine's tailings resource left from past mining of the Avino Vein. The tailings are situated approximately 500 m west-southwest of the main shaft to the main Avino mine.

 

This asset includes oxide and sulphide tailings, each requiring separate treatment methods. The tailings mineral resource was created between 1976 and 2001 during Avino's previous operation from both open pit (oxide tailings) then later underground (sulphide tailings) mining. Improved metals markets now potentially enable Avino to process the remaining silver and gold in the tailings.

 

The existing tailings storage facility is presently being used in connection with the operation of Mill Circuits 1, 2, 3 and 4. In 2017-2019, the Company continued to evaluate plans to build a new tailings storage facility and other tailings storage options which is necessary to allow the existing TSF to be decommissioned, which will enable Avino to begin assessing the upper sulphide bench as well as the lower oxide bench in areas that are currently being used to store tailings from our active operations. The assessment work is part of the recommendations contained in a 2013 technical report intended to advance the oxide tailings mineral resource towards a production decision for an agglomerated heap leach Merrill-Crowe precipitation operation.

 

In 2019, the construction of the tailings thickener, which reduces water sent to the tailings facility, was completed and is now in full operation.

 

Also in 2019, a geomembrane was installed in a portion of the old historic open pit to allow for tailings deposition. Tailings were sent to this area starting in October 2019 and will continue into 2020.

 

 
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For longer term tailings storage the Company has been exploring the potential of dry stack tailings for another one of its permitted tailings storage facilities, which we refer to as, TSF#2.

 

For 2020, there were no changes to the tailings storage plans or the oxide tailings resource.

 

The oxide tailings were produced between 1974 and 1993 from open pit mining of the main Avino vein. For further details regarding the oxide tailings, please see the sections below titled: Mineral Resource Estimates and Preliminary Economic Assessment on the Oxide Tailings Resource or the Company’s Technical Report on the Avino Property, dated January 13, 2021.

 

Project Infrastructure

 

The Avino Mine is connected to the local power grid with a line capacity quoted at 4 MW when the mine last operated in 2001. With the shutdown, much of this excess power was diverted to the surrounding towns in the district. Between 2001 and 2016 the powerline provided only 1,000 kW of power with 500 kW servicing the mill, 400 kW for San Gonzalo and the balance for the well at Galeana, the employee accommodation facility and water reclamation from the tailings dam. In 2009 a power line to the San Gonzalo Mine was built to replace the contractor’s diesel generator used during mine advancement.

 

Discussions with CFE, the federal electricity commission in Mexico, on a new 34.5kV power line were completed in 2014 along with a study covering the proposed locations of towers and power poles. Additionally, in October 2014, CFE informed the Company that it had completed internal upgrades to several transformers that would enable CFE to provide Avino with sufficient grid power to operate all three mill circuits and both underground locations in the interim period prior to the commissioning of the new power line. Construction of the new power line was completed in 2015; and energized in June 2016. The new line is now fully functional at the design capacity of 5 megawatts ("MW"). Current power consumption at the mine is approximately 2MW, leaving sufficient additional power for near-term expansion projects that are currently being organized, such as the Oxide Tailings Heap Leach/Merrill-Crowe Precipitation Project (which would require 1 MW) and expansion of the processing plant, which will require a further 1 MW.

 

While water supply was found to be limiting in the past, Avino has taken the necessary steps to secure adequate supply. To supplement the 1 Mm3 dam built by Avino in 1989, a well (Galeana) was drilled to the west of the mine site in 1996 to a depth of 400 m and is reported to have a water level at 40 m below the collar. From this, a pipeline connection has been installed to the mine. Additionally, Avino Mexico, in cooperation with the government, has repaired a government dam (El Caracol) and raised the dam wall by 6 m. A pipeline to the mine has also been installed. This dam is shared with the population of Pánuco de Coronado for their irrigation needs, as 60% for the mine and 40% for the town, with government setting the annual total take to which percent sharing applies. Mine site water use is from a combination of tailings water reclaim, El Caracol, and Galeana with preference given to mine site sources for which no water conservation charge was applicable.

 

Both the San Gonzalo and Avino mines are equipped with two mine dewatering pumps. The pumps at San Gonzalo are each capable of pumping 20L/s to surface via 2 six inch lines. One pump operates 24 hours per day and the other 10 hours per day. At Avino one pump operates constantly with the second on standby. Each pump is capable of handling the entire inflow via a 6 inch line. Water from both mines is pumped to the surface and is sent to the process water tanks in the plant. Any water not used in the plant flows by gravity to the La Caricol Dam for agricultural use.

 

Processing Plant

 

In September 2006, the Company conducted a review of the plant, including the condition of all equipment, capacity of each circuit, and efficiency of the plant. The review was an order of magnitude cost estimate for putting the plant back into operation at the rate of 1,000 tpd, which was approximately $3 million. In the property valuation, the replacement cost of the mill was estimated at roughly $40 million.

 

The Company’s processing plant was built in the 1970’s and was refurbished to accommodate increased capacity in 1993. Most of the infrastructure was in place for two 250 tpd circuits and one 1,000 tpd circuit. At the time of shutdown in 2001 due to low commodity prices and the closure of a smelter, the mill was operating at an average rate of 1,130 tpd.

 

In order to perform the bulk sample program at San Gonzalo, major infrastructure spending and mill repairs were required. Most of these expenditures took place in 2008 and 2009 with additional spending required more recently as further needs arose to meet the demands of mining activities.

 

 
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Beginning in May 2011, when the San Gonzalo stockpiled material was depleted following the bulk sample, the process plant was used to treat old stockpiles from historic extraction at the Avino Mine. These were lower-grade stockpiles which were originally considered marginal or waste due to prevailing metal prices at the time. These stockpiles were processed until underground advancement at San Gonzalo was sufficient to provide mill feed at a sustained rate of 250 tonnes per day. On October 1, 2012, Avino made the transition to San Gonzalo mill feed and declared that resource extraction and processing had reached levels intended by management at San Gonzalo.

 

During the second quarter of 2013, a second 250 tpd circuit (“Mill Circuit 2”) in the mill was commissioned and put into operation for the processing of remaining Avino Mine surface stockpiles. In September 2014, Mill Circuit 2 began processing new mineralized material from the Avino Mine during the mine’s commissioning phase. On January 1, 2015, Mill Circuit 2 transitioned to processing feed material from the San Gonzalo Mine stockpile which continued throughout the first half of 2015 apart from May, when Mill Circuit 2 was once again used to process Avino Mine surface stockpiles. During the second half of 2015, Mill Circuit 2 was used to process mineralized material from the Avino Mine underground in July, August, November and December; and mineralized material from the San Gonzalo Mine during September and October. In 2016, Mill Circuit 2 is expected to primarily process mineralized material from the Avino Mine.

 

In November 2014, Avino completed its Mill Circuit 3 expansion in preparation for the re-opening of the main Avino Mine. The refurbished circuit was initially commissioned using historic above ground Avino Mine stockpiles during November and December of 2014. Mill Circuit 3 began processing new mill feed from underground at the Avino Mine beginning on January 1, 2015. During 2015, Mill Circuit 3 was optimized to process approximately 1,150 tonnes per day. In the second quarter of 2016, the Company declared that effective April 1, 2016, extraction and processing had reached levels intended by management at the Avino Mine.

 

In June 2018, Avino completed its 1,000 TPD Mill Circuit 4 expansion, increasing the plants throughput capacity to 2,650 TPD. During the startup, testing and commissioning phase which lasted through the end of 2018, Mill Circuit 4 processed material from historic above ground Avino Mine stockpiles. Mill Circuit 4 is expected to transition to processing newly mined mill feed from the San Luis area of the Avino Mine in 2019 once sufficient development work is completed to support the 1,000 TPD circuit.

 

For 2020 there have been no material changes to the mill and equipment. The processing configuration is tabulated below

 

Circuit #

 

 

Operating Throughput (TPD)

 

 

Sources of Mill Feed

 

Operating Status

 

1

 

 

 

250

 

 

Avino Mine (“Hanging Wall Breccia”)

 

Online

 

2

 

 

 

250

 

 

Avino Mine (“ET”)

 

Online

 

3

 

 

 

1,050

 

 

Avino Mine (“ET”)

 

Online

 

4

 

 

 

1,050

 

 

Avino Mine (“ET”)

 

Online

 

 

 

·

In 2020 Circuit 1 processed mineralized material from Hanging Wall Breccia (“HWB”) area of the Avino Mine.

 

·

Circuit 2 is expected to continue to process mineralized material from the Elena Tolosa (“ET”) area of the Avino Mine.

 

·

Circuit 3 is expected to continue to process mineralized material from the Elena Tolosa (“ET”) area of the Avino Mine.

 

·

Circuit 4 is expected to process mineralized material from Elena Tolosa (“ET”) area of the Avino Mine.

____________

*No feasibility study or preliminary economic assessment has been carried out on the Avino Mine and San Gonzalo Mine resources. The Company has determined extraction and processing of resources at levels intended by management without undertaking any further formal studies.

 

** The San Luis area of the Avino Mine going forward will be referred to as Avino West.

 

Mining Fleet

 

To operate the Avino and San Gonzalo Mines, Avino’s mining fleet currently consists of 3 front end loaders, a D6R Cat dozer, 12 scoop trams, 6 jumbos, 2 combination backhoe and rock breakers, 3 excavators, a forklift, 2 surface and an underground diamond drill, 2 mini loaders, a CAT grader suitable for both surface and underground, 20 contractor provided haulage trucks, a shotcrete machine, a welding machine, 33 light service passenger vehicles, a contractor provided water truck, a 15 tonne capacity contractor provided truck to distribute explosives and a contractor provided fuel truck, 3 power generators, 7 air compressors, a mobile crane, a mobile crushing plant and an ambulance.

 

 
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Table of Contents

 

Costs Incurred to Date

 

The table below for the years ended December 31, 2016 to December 31, 2020 contains selected financial data prepared in accordance with IFRS derived from our audited consolidated financial statements for the periods ending on such dates.

 

 

 

Exploration and Evaluation Expenditures

 

 

Capital

Expenditures

 

 

Mine Operating Expenditures

 

 

Administrative Expenditures*

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

67,000 (1)

 

 

4,601,000

 

 

 

22,961,000 (1)

 

 

4,940,000

 

 

 

32,569,000

 

2017

 

 

1,055,000

 

 

 

7,560,000

 

 

 

22,106,000

 

 

 

5,329,000

 

 

 

36,050,000

 

2018

 

 

658,000

 

 

 

10,831,000

 

 

 

27,850,000

 

 

 

4,182,000

 

 

 

43,521,000

 

2019

 

 

134,000

 

 

 

3,223,000

 

 

 

32,016,000

 

 

 

4,130,000

 

 

 

39,503,000

 

2020

 

 

223,000

 

 

 

1,460,000

 

 

 

15,832,000

 

 

 

4,759,000

 

 

 

22,274,000

 

_________ 

*Operating and administrative expenses do not reflect other income or expenses or other comprehensive income or loss.

 

(1)Exploration and evaluation and mine operating expenditures for 2017 and 2016 are reflective of the change in retrospective change in accounting policy outlined at the beginning of Item 4-B, and disclosed in the Company’s audited consolidated financial statements.

 

Below is a table summarizing the estimated planned future costs for 2021. The Company will need to raise capital to meet its planned future costs. No assurance can be given that the Company will be able to raise the amounts in the table below or that actual future costs will equal the amounts in the table below. If the Company is unable to raise capital to meet its planned future costs, it may have to curtail planned activities.

 

Year

 

Mine Operating and

Administrative Expenses

 

 

Capital and Exploration and

Evaluation Expenditures

 

 

TOTAL

 

2021

 

$

24,865,000

 

 

$

10,308,000

 

 

$

35,173,000

 

 

Mineral Reserve Estimates

There are currently no mineral reserves on the Property.

 

Mineral Resource Estimates

Below is a summary of current mineral resources at the San Gonzalo and Avino Mines as well as the oxide tailings mineral resource (as reported in the January 13, 2021 Technical Report on the Avino Property, Durango, Mexico) grouped into the measured, indicated and inferred categories (the “Technical Report”). The effective date of the resource estimates is October 31, 2020.

 

The mineral resource estimates were prepared by Michael O’Brien P.Geo., Pr.Sci.Nat., who is a “Qualified Person” within the meaning of National Instrument 43-101 and who is an employee of Red Pennant Geoscience Ltd. (previously, Ausenco Engineering Canada Inc) and independent of Avino, as defined by Section 1.5 of NI 43-101.

 

 
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Table of Contents

 

Avino Mine
Mineral Resources Summary
as at October 31, 2020

Measured & Indicated Mineral Resources

 

 

Grade

 

 

Metal Contents

 

Resource Category

 

Deposit

 

Cut-off
(AgEQ g/t)

 

 

Metric

Tonnes

 

 

AgEQ

g/t

 

 

Ag

g/t

 

 

Au

g/t

 

 

Cu

%

 

 

AgEQ

Million
Tr Oz
*

 

 

Ag
Million
Tr oz

 

 

Au
Thousand
Tr Oz

 

 

Cu

 Tonnes

 

Measured

 

Avino - ET

 

 

60

 

 

 

4,760,000

 

 

 

120

 

 

 

74

 

 

 

0.63

 

 

 

0.55

 

 

 

18.4

 

 

 

11.3

 

 

 

97.0

 

 

 

26,300

 

Measured

 

San Gonzalo System

 

 

130

 

 

 

267,000

 

 

 

356

 

 

 

263

 

 

 

1.36

 

 

 

0.00

 

 

 

3.1

 

 

 

2.3

 

 

 

12.0

 

 

 

0

 

Total Measured

 

All Deposits

 

 

 

 

 

 

5,027,000

 

 

 

133

 

 

 

84

 

 

 

0.67

 

 

 

0.55

 

 

 

21.5

 

 

 

13.6

 

 

 

109

 

 

 

26,300

 

Indicated

 

Avino - ET

 

 

60

 

 

 

13,890,000

 

 

 

107

 

 

 

59

 

 

 

0.68

 

 

 

0.41

 

 

 

47.9

 

 

 

26.5

 

 

 

304

 

 

 

56,700

 

Indicated

 

San Gonzalo System

 

 

130

 

 

 

216,000

 

 

 

304

 

 

 

230

 

 

 

1.09

 

 

 

0.00

 

 

 

2.1

 

 

 

1.6

 

 

 

8.0

 

 

 

0.00

 

Indicated

 

Oxide Tailings

 

 

50

 

 

 

1,120,000

 

 

 

124

 

 

 

89

 

 

 

0.42

 

 

 

0.00

 

 

 

4.5

 

 

 

3.2

 

 

 

15.0

 

 

 

0.00

 

Total Indicated

 

All Deposits

 

 

 

 

 

 

15,226,000

 

 

 

111

 

 

 

64

 

 

 

0.67

 

 

 

0.37

 

 

 

54.5

 

 

 

31.3

 

 

 

327

 

 

 

56,700

 

Total Measured & Indicated

 

 

 

 

 

 

 

 

20,253,000

 

 

 

117

 

 

 

69

 

 

 

0.67

 

 

 

0.41

 

 

 

75.9

 

 

 

44.9

 

 

 

436

 

 

 

83,000

 

Inferred Mineral Resources

Inferred

 

Deposit

 

Cut-off
(AgEQ g/t)

 

 

Metric

tonnes

 

 

AgEQ
g/t

 

 

Ag
g/t

 

 

Au
g/t

 

 

Cu
%

 

 

AgEQ

Million
Tr Oz
*

 

 

Ag
Million
Tr oz

 

 

Au
Thousand
Tr Oz

 

 

Cu T

 

Inferred

 

Avino - ET

 

 

60

 

 

 

5,230,000

 

 

 

95

 

 

 

51

 

 

 

0.64

 

 

 

0.34

 

 

 

16.0

 

 

 

8.5

 

 

 

108

 

 

 

17,700

 

Inferred

 

San Gonzalo System

 

 

130

 

 

 

85,000

 

 

 

298

 

 

 

233

 

 

 

0.96

 

 

 

0.00

 

 

 

0.8

 

 

 

0.6

 

 

 

3.0

 

 

 

0

 

Inferred

 

Oxide Tailings

 

 

50

 

 

 

1,230,000

 

 

 

125

 

 

 

85

 

 

 

0.47

 

 

 

0.00

 

 

 

5.0

 

 

 

3.4

 

 

 

19.0

 

 

 

0

 

Total Inferred

 

All Deposits

 

 

 

 

 

 

6,545,000

 

 

 

103

 

 

 

59

 

 

 

0.61

 

 

 

0.27

 

 

 

21.8

 

 

 

12.5

 

 

 

129.0

 

 

 

17,700

 

  

Notes:

Figures may not add to totals shown due to rounding.

Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

The Mineral Resource estimate is classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum's (CIM) Definition Standards for Mineral Resources and Mineral Reserves incorporated by reference into National Instrument 43-101 (NI 43-101) Standards of Disclosure for Mineral Projects.

Based on recent mining costs (Section 21) Mineral Resources are reported at cut-off grades 60 g/t, 130 g/t, and 50 g/t AgEQ grade for ET, San Gonzalo, and oxide tailings, respectively.

AgEQ or silver equivalent ounces are notational, based on the combined value of metals expressed as silver ounces

Cut-off grades were calculated using the following consensus metal price assumptions: gold price of US$1,875/oz, silver price of US$24.00/oz, and copper price of US$3.10/lb.

Metal recovery is based on operational results and column testing.

The silver equivalent was back calculated using the following formulas: ET AgEQ = Ag + 65.1 * Au + 8.66 * Cu ppm / 10,000 ; SG AgEQ = Ag + 72.54 * Au; Oxide Tailings AgEQ = Ag + 84.55 * Au.

 

Method of Calculation

 

The estimation methods used were substantially the same for all three deposits (Ordinary Kriging), providing a consistent baseline for strategic planning.

 

Mineral resources were estimated by ordinary kriging, optimized using kriging neighborhood analysis and verified by means of nearest neighbor and inverse distance methods, swathplot comparisons of estimates and visual inspections. Block models were created for the San Gonzalo and Avino Vein Systems and the Oxide Tailings deposit and estimates were made utilizing blocks of sizes 20 m easting x 5 m northing x 10 m elevation for Avino (ET Mine), sizes 10 m easting x 5 m northing x10 m elevation for San Gonzalo and 40 m easting x 40 m northing x 2 m elevation for Oxide Tailings.

 

Classification of the mineral resource was based on ‘slope of regression’ as a measure of uncertainty, with adjustment to practical geometries using geological knowledge of the deposit.

 

Fundamental changes since the previous mineral resource estimates are (1) depletion due to mining (over 800 thousand tonnes milled since the beginning of 2017), (2) significant new sampling information (3) changes to cut-off calculations and (4) reclassification of mineral resources in the light of improved understanding of confidence in the deposits from the underground channel samples and drill hole samples.

 

More sampling information does not always lead to direct increases in resource tonnages and contained metal. In some cases, the new information provides improved understanding (developed by variogram modelling and kriging neighborhood analysis) that may demote some portions of mineral resource from high confidence categories, such as measured and indicated, to a lower confidence category such as inferred.

 

Currently, for the San Gonzalo and Avino Vein Systems, estimated blocks more than thirty five metres from sampling are not considered to be of sufficient confidence to be included in the indicated category resources and have been classified as inferred resources.

 

For the Oxide Tailings, estimated blocks more than fifty metres from sampling are not considered to be sufficiently confident to be included in the indicated category resources.

 

Silver equivalent cut-off grades were applied to satisfy the condition of reasonable prospects for eventual economic extraction and were calculated using conversion formulas AgEQ = Ag + 65.1 * Au + 8.66 * Cu for Avino Vein, AgEQ = Ag + 84.55 * Au for oxide tailings and AgEQ = Ag + 72.54 * Au for San Gonzalo vein System.

 

Cut-off grades were calculated using current costs, silver price of US$24.00oz, gold price of US$1,875/oz and copper price of US$3.10/lb.

 

 
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Table of Contents

 

Mineral Resource Discussions

 

Oxide Tailings

 

A mineral resource was estimated for the oxide tailings generated from prior historical mining operations, using ordinary kriging (OK) interpolation and uncapped grades. The assay values for this estimate are based on 28 drill holes, which were completed on the oxide tailings by Compañía Minera Mexicana de Avino, S.A. de C.V. in 1990, and include 407.75 m of drilling and 383 assays of both gold and silver. The oxide tailings are estimated to contain a 2.34 Mt inferred mineral resource at a grade of 91.3 g/t silver and 0.54 g/t gold, with a 50 g/t silver cut-off. The entire resource is classified as an inferred mineral resource, based on the historical nature of the drilling (prior to the institution of NI 43-101 and associated quality assurance/quality control (QA/QC) requirements). Verification samples collected confirmed the presence of gold and silver mineralization at grades similar to those obtained in the original tailings drilling campaign and confirmed that the Mine's lab assays are not materially different from those of external labs. It is Red Pennant Geoscience Ltd.’s opinion that the oxide tailings sampling data are considered sufficient to support the purpose of the Technical Report and a current inferred mineral resource.

 

Mineral Resources

 

The new mineral resource estimates include data from 57 holes drilled during the last two years. Due to closer drill hole spacing, there is sufficient information to justify elevating 1,330,000 tonnes of the previous 2,340,000 tonnes of inferred resources to the indicated category. However, there is still an additional inferred resource of 1,810,000 tonnes in the new estimate. The oxide tailings resource is accessible on surface and contains significant gold and silver grades. The resource estimate used for the oxide tailing resource is outlined in the table above at a cut-off grade of 50 AgEQ g/t. Note on Mineral Resources and Production

 

Mineral resources that are not mineral reserves do not have demonstrated economic viability. No current preliminary economic assessment, pre-feasibility study, or feasibility study has been carried out on the Company’s mineral resources. The Company has determined extraction and processing of its mineral resources at levels intended by management without undertaking any further formal studies.

 

Recommendations

 

The Technical Report contains the following recommendations for further work:

 

Database Management and Underground Sampling

 

It is recommended that tailings sampling and QA/QC data be added to the drillhole and channel sampling database. The underground sampling should be improved by making an advance drift along the footwall side of the Avino Vein system from which fan drilling at 40 metre intervals can be drilled to provide advanced and balanced sample coverage. The Company should develop the database for specific gravity data using drill cores, grab samples from controlled underground exposures, and large samples cut from the faces of the oxide tailings. QA/QC standards and blank submissions should be included in the master database, and bismuth (which is a significant deleterious penalty element) should be assayed at the same rate as copper to provide detailed information for mine planning.

 

Resource Estimation

 

An internal capacity to perform mineral resource estimation using geostatistical methods should be developed.

 

Exploration for the Western Extension of the Avino Vein

 

The known portion of the Avino Vein system west of San Luis terminations on a post-mineralization fault, and it is recommended that the extension to the system be investigated.

 

 
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Table of Contents

 

Long-Term Mine Planning

 

It is recommended that the Company prepare a long-term mine plan based on the resource estimates.

 

Metallurgical Studies

 

It is recommended that the Company further optimize its processing conditions, including metallurgical tests, to improve metallurgical performances for the mill feeds.

 

Oxide and Sulphide Tailings

 

Further tests are recommended to evaluate the metallurgical performances of the tailing samples, including the sulphide tailings samples. The test work should include: head characterization and mineralogical determination; leaching condition optimization, leaching retention time, agglomeration binding material types and dosages; determination of the effect of the particle size distribution on metal extraction and agglomeration; further confirmation of the effect of flotation pre-concentration on improving metal recovery; residual cyanide management tests, and further evaluations to compare heap leach vs. tank leach methods. The potential for handling sulphide tailings as a mineralized material, rather than waste material, should be investigated based on appropriate metallurgical tests, and optimization of the mine plan for the oxide tailings should be conducted.

 

Environmental

 

Government agencies should be consulted prior to the permitting process to determine if current permits for the San Gonzalo Mine can be revised for an oxide tailings project. Permitting costs and the cost of expropriation of agricultural land for the leach pad, and the cost of water which would have to be redirected to the heap leach project, should be investigated, and the cost for monitoring environmental effects post-mine closure needs to be estimated in a detailed study.

 

Qualified Person(s)

 

The Qualified Persons as defined by NI 43-101, who supervised and are responsible for the Technical Report, and have reviewed the scientific, technical and financial content of this Annual Report, are Hassan Ghaffari, MASc., P.Eng., Jianhui Huang, PhD., P.Eng, and Barnard Foo, M.Eng. MBA, P.Eng., all of Tetra Tech Canada Inc., and Michael O’Brien P.Geo., Pr.Sci.Nat., who is an employee of Red Pennant Geoscience Ltd. (previously, Ausenco Engineering Canada Inc.) and independent of Avino, as defined by Section 1.5 of NI 43-101.

 

San Gonzalo Mine – Resource Depletion

 

The mineral resource estimate at San Gonzalo factors in depletion from ongoing mining activities up to the effective date of October 31, 2020. As at December 31, 2019, management had determined that the economic life of the San Gonzalo Mine was Nil, and had stopped the processing of mineralized ore.

 

Avino Mine – Resource Depletion

 

The mineral resource estimate at Avino factors in depletion from ongoing mining activities up to the effective date of October 31, 2020.

 

Exploration - Avino Vein

 

Early Drilling (Prior to Mine Closure), 1968 to 2001

 

Between 1968 and 2001, at least 25 diamond drill holes, ranging in length from 132 to 575 m, are reported to have been drilled from surface into the Avino vein. Included in this total are 10 holes that were drilled by Selco in 1970 when they were re-habilitating some of the old underground workings to provide access for sampling. No further information on these drill holes was available to Tetra Tech and they are not included in the resource estimate for the Avino vein.

 

 
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Oxide Tailings, 1990 to 1991

 

Between November 10 and December 5, 1990, and March 8 and May 30, 1991, Avino completed six trenches and 28 vertical drill holes in the tailings along 7 fences at a spacing of roughly 50 m by 50 m (Benitez Sanchez 1991). Drilling was completed transversely to the drainage pattern of the tailings. Cut at 1 m vertical increments, 461 samples were assayed for silver and gold at the mine assay lab and occasional moisture contents were reported. Assay results from these drill holes have been previously reported (Tetra Tech 2013).

 

Recent Drilling (Post Mine Closure), 2001 to Present

 

A total of 156 surface and underground drill holes have been completed on the Avino and San Gonzalo veins, totalling 35,846.5 m. Additional exploration holes have been drilled elsewhere on the Property, but those drilling results are not considered material. Most holes were surveyed down hole using a Tropari single-shot magnetic instrument. Of those holes for which down hole surveys were completed, the majority contain three or fewer measurements, typically at the collar and near the end of hole, and sometimes part-way down the hole. Many holes were not surveyed to within 10 m of the end of the hole.

 

Geophysical Surveys: Induced Polarization (IP)

 

In December 2006, Avino conducted an 80 km line deep penetrating IP survey at the property. IP geophysics helps identify drill targets. The IP survey was completed in 2007. Avino did follow-up soil geochemical, satellite imagery and other surveys to better define targets in the covered areas.

 

Avino Vein (including ET Zone) and Nearby Veins

 

Since 2001, Avino has drilled 34 holes below Level 12, where mining ceased, for a total of 11,523.2 m. Drilling has targeted the ET Zone in particular. There were 5 holes completed in 2006 (2,166.85 m), 12 holes in 2007 (3,906.5 m), 8 holes in 2008 (2,186.7 m), and 9 holes in 2012 (3,263.15 m).

 

In September 2016, Avino began an exploration diamond drilling program between the San Luis Mine, which was last mined in the 1990’s, and the ET Mine, which is the area of current production; both areas are part of the Avino Mine. The area between the two mines is approximately 300 metres long and 220 metres deep and was recently the subject of a geological review where it was determined that the main Avino vein showed economically viable values, was open at depth and was largely underexplored. The 22-hole program, comprising approximately 3,374 metres, was extended from the original 18-hole program to fully evaluate the tonnage and the grade of the new area of the Avino Vein System and was completed in August 2017. The drill results support the continuation of the extensive Avino vein system. This new area is close to surface and accessible from the existing Avino Mine underground workings.

 

Additional drilling around the Avino Vein in 2017 and 2018 was focused on the El Chirumbo and San Juventino areas. The historic El Chirumbo area is located at the east end of Avino vein and was previously mined prior to 1940 and is characterized by gold rich mineralization in narrow veins. In 2017 and 2018, 10 diamond drill holes were completed totalling approximately 2,240 metres. An additional five holes totalling 1,300 metres were drilled at the San Juventino area which is located where the Avino-San Juventino and Footwall Breccia intersect north of the main Avino Vein system.

 

During 2019 a sampling campaign comprising 52 recent and historic holes that were previously drilled in the hanging-wall of the Avino vein stockwork system located on the Avino property. The relogging and sampling by the mine geology team of intervals previously regarded as not of economic interest has revealed extensive Hanging-wall Breccia (“HWB”) material with significant and consistent metal grades and wide vein widths. The HWB material has not yet been exploited and is close to the existing development levels 6 and 9 where services such as compressed air, water and electricity can be accessed swiftly if mineability is confirmed. At the time of the drilling, the main Avino vein structure was the target and the potential of the HWB was unknown, therefore the spacing in the vein intercepts which were recently sampled was is 30 to 70 metres apart.

 

Since the Avino deposit strikes approximately east-west and dips at 60° to 70° to the south, holes are generally oriented from south to north at various bearings and dip angles in order to intersect the structure at a target depth. Holes were drilled using Avino’s Longyear 44 core rig at thin wall NQ diameter.

 

In 2020, no new holes were drilled.

 

 
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Table of Contents

 

San Gonzalo and Nearby Veins

 

At San Gonzalo, Avino drilled 40 holes in 2007 (9,222.9 m), 6 in 2008 (1,782.65 m), 18 in 2011 (3,618.57 m), 15 in 2014 (3,631.93 m), and 25 in 2015 (3,197.60m) for a total of 104 drill holes and 21,453.65 m. All holes were of thin wall NQ size core diameter and were completed using Avino’s Longyear 44 core rig with the exception of 6 underground holes in 2014 and 14 in 2015. Additional holes also explored the nearby Guadalupe, San Juventino, San Lucerno, Mercedes, San Jorge, and Yolanda veins.

 

The collars for 2007 and 2008 drill holes were marked by concrete monuments and the collars have been surveyed. A check of the coordinates with a handheld global positioning system (GPS) revealed a possible 10 m constant error which may simply mean that all of the mine coordinates are not precisely Universal Transverse Mercator (UTM). However, this could also indicate the existence of a small surveying error on the Property.

 

In 2011, 69 holes totalling 9,862.97 m were drilled principally in the following locations: San Gonzalo (18 holes, as above), Aguila Mexicana (2 holes), Guadalupe (25 holes), La Potosina (9 holes), Mercedes (1 hole), San Jorge (3 holes), San Juventino (3 holes), San Lucero (5 holes), Tucero (1 hole), and Yolanda (2 holes). With the exception of the San Gonzalo vein, all of these locations are considered targets for further exploration.

 

In 2014, Avino undertook a 15 hole (3,631.93 m) surface and underground definition drill program to test the San Gonzalo vein at depth. In April 2014, a 70 meter cross cut was completed on level 6, and the underground drill program started on May 2. Three holes were drilled from the cross cut (SG-14-01 through SG-14-03).

 

Surface drill holes SG-14-04 through SG-14-10 were drilled between June and October 2014. Hole SG-14-11 was an underground hole drilled in October 2014 from the end of the San Gonzalo level 6 crosscut (same location as SG-14-01 through SG-14-03).

 

Holes SG-14-12 and SG-14-13 were drilled during October and November 2014 from the end of a crosscut on level 7. A sudden inflow of water on November 17, 2014 caused hole SG-14-13 to be terminated. Surface drilling later resumed and holes SG-14-14 and SG-14-15 were drilled by December 31, 2014.

 

In 2015, the Company continued its definition drill program intended to define the boundaries of the San Gonzalo structure. In total, 25 holes were completed totaling 3,197.60m metres. From January 2015, through the end of April, 19 holes were drilled of which 5 were from surface and 14 were underground holes (SG-15-1 through SG-15-16). Drilling resumed in September 2015 with Hole CH-07-01 which was the deepening of a hole drilled in 2007 on the Chihuahua vein, which is an extension of the San Gonzalo structure. Drilling then resumed at San Gonzalo to test the southeast extension of the structure; drilling for the year concluded in November with the completion of hole SG-15-24. No holes were drilled at San Gonzalo in 2016.

 

In 2017 and 2018, eleven holes were drilled at the Guadalupe area totalling 2,020 metres. The Guadalupe area is located on surface at the west end of the San Gonzalo mine.

 

In 2020, there were no current exploration program and active mining has ceased at the San Gonzalo mine.

 

Reclamation

 

The Company has mine closure and reclamation plans for the Avino and San Gonzalo Mines and has estimated the undiscounted value of reclamation at approximately $1.2 million for the Avino Mine and approximately $0.1 million for the San Gonzalo Mine as at December 31, 2020.

 

As per Federal Mexican regulations (LGEEPA), both the SEMARNAT and PROFEPA ministries require Avino to present in its first semi-annual report a “General Plan to Remediate the Site” including dates, activities, techniques, and costs that will ensure restoration of affected areas, considering complete reforestation of impacted sites, removal of foundations and infrastructure that are no longer useful, roads that no longer have any use, removal and proper disposal of all rubbish, closing off adits that are no longer needed and restoration of the tailings facility at the end of its operational life. Avino will also need to present a reforestation program for the entire surface area affected during mining activities. This program will include caveats to safeguard flora and fauna.

 

 
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Table of Contents

 

Avino Property Activity Summary

 

The table below presents material mined, material processed, concentrate produced, concentrate sold, and average realized concentrate pricing for each of the San Gonzalo Mine, the historic Avino stockpiles, and the Avino Mine.

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

Avino Historic Above Ground Stockpiles

 

 

Avino

Mine

 

 

San Gonzalo

 

 

Avino Historic Above Ground Stockpiles

 

 

Avino

Mine

 

 

San Gonzalo

 

 

Avino Historic Above Ground Stockpiles

 

 

Avino Mine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes

 

 

4,711

 

 

 

199,575

 

 

 

56,179

 

 

 

306,334

 

 

 

427,147

 

 

 

79,140

 

 

 

202,830

 

 

 

426,794

 

Grade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold (g/t)

 

 

0.31

 

 

 

0.40

 

 

 

0.46

 

 

 

0.36

 

 

 

0.45

 

 

 

1.03

 

 

 

0.41

 

 

 

0.49

 

Silver (g/t)

 

 

59

 

 

 

54

 

 

 

118

 

 

 

55

 

 

 

44

 

 

 

222

 

 

 

58

 

 

 

53

 

Copper (%)

 

 

N/A

 

 

 

0.58

 

 

 

N/A

 

 

 

0.18

 

 

 

0.56

 

 

 

N/A

 

 

 

0.2

 

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concentrate Produced

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tonnes

 

 

33

 

 

 

4,911

 

 

 

1,442

 

 

 

2,737

 

 

 

10,075

 

 

 

3,174

 

 

 

1,890

 

 

 

9,395

 

Grade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold (g/t)

 

 

17.73

 

 

 

13.03

 

 

 

11.79

 

 

 

21.12

 

 

 

14.26

 

 

 

19.15

 

 

 

22.99

 

 

 

15.31

 

Silver (g/t)

 

 

4,214

 

 

 

2,014

 

 

 

3,185

 

 

 

3,355

 

 

 

1,576

 

 

 

4,250

 

 

 

3,540

 

 

 

2,030

 

Copper (%)

 

 

6.66

 

 

 

20.38

 

 

 

N/A

 

 

 

6.75

 

 

 

20.23

 

 

 

N/A

 

 

 

6.53

 

 

 

21.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concentrate Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tonnes

 

 

528

 

 

 

6,955

 

 

 

1,741

 

 

 

4,483

 

 

 

9,366

 

 

 

4,052

 

 

 

1,818

 

 

 

8,315

 

Grade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold (g/t)

 

 

15.16

 

 

 

11.55

 

 

 

18.56

 

 

 

17.46

 

 

 

12.41

 

 

 

20.08

 

 

 

22.48

 

 

 

14.75

 

Silver (g/t)

 

 

2,015.93

 

 

 

1,392

 

 

 

2,725

 

 

 

2,100

 

 

 

1,339

 

 

 

3,451

 

 

 

2,582

 

 

 

2,015

 

Copper (%)

 

 

N/A

 

 

 

20.57

 

 

 

N/A

 

 

 

8.13

 

 

 

20.82

 

 

 

N/A

 

 

 

6.84

 

 

 

23.11

 

Average Realized Pricing (US$/oz)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ($/oz)

 

 

1,640.43

 

 

 

1,745.82

 

 

 

1,367.80

 

 

 

1,407.41

 

 

 

1,403.98

 

 

 

1,251.07

 

 

 

1,259.82

 

 

 

1,254.78

 

Silver ($/oz)

 

 

14.98

 

 

 

18.37

 

 

 

15.50

 

 

 

16.18

 

 

 

16.18

 

 

 

15.44

 

 

 

15.41

 

 

 

15.33

 

Copper ($/lb)

 

 

N/A

 

 

 

2.60

 

 

 

N/A

 

 

 

2.70

 

 

 

2.70

 

 

 

N/A

 

 

 

2.94

 

 

 

2.92

 

 

 
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Table of Contents

 

Eagle Property – Not Active

 

Ownership. The wholly-owned Eagle property was acquired in 2003 when Avino purchased a 100% interest in 14 quartz leases by issuing 200,000 common shares at a price of C$0.50 per share for total consideration of C$100,000. The property was written down to a nominal value of $1 in fiscal 2006 and currently has a deferred value of $1.

 

In July 2017, an option agreement was signed between Avino and Alexco Resource Corp. (“Alexco”), granting Alexco the right to acquire a 65% interest in the Eagle Property. To exercise the option, Alexco must pay Avino a total of C$70,000 in instalments over 4 years, issue Avino a total of 70,000 Alexco common shares in instalments over 4 years, incur C$550,000 in exploration work by the second anniversary of the option agreement date, and a further C$2.2 million in exploration work on the Eagle Property by the fourth anniversary of the option agreement date. Avino received the first anniversary payment of C$10,000 and 10,000 common shares from Alexco in 2018.

 

In the event that Alexco earns its 65% interest in the Eagle Property, Alexco and Avino will form a joint venture for the future exploration and development of the Eagle Property, and may contribute towards expenditures in proportion to their interests (65% Alexco / 35% Avino). If either company elects to not contribute its share of costs, then its interest will be diluted. If either company’s joint venture interest is diluted to less than 10%, its interest will convert to a 5.0% net smelter returns royalty, subject to the other’s right to buy-down the royalty to 2.0% for $2.5 million.

 

The option agreement was terminated on January 31, 2019.

 

Property Description and Location. The 516 ha property is located in the Yukon roughly 38 kilometres northeast of Mayo and 350 kilometres due north of the capital of Whitehorse. It is currently in its Phase I stage of exploration. The property is accessed by a road. Whitehorse, the nearest major city, is approximately 380 kilometres to the south of the village of Mayo. The village of Mayo is 60 kilometers to the southeast of Keno City. The Eagle property lies on the south-east facing slope of Galena Hill where the elevations range from about 1350 m to 1540 m. Permafrost, while thin to non-existent in places, is reported to be found under accumulations of surface rubble left from glaciation.

 

Proposed Work Program. No further work is proposed by Avino at this time.

 

Olympic-Kelvin Property – Not Active

 

Ownership. The Olympic-Kelvin property is wholly-owned by the Company and was acquired in 1987 when it acquired a 100% interest in 20 reverted Crown-granted mineral claims, one located mineral claim and three fractions located in the Lillooet Mining Division of British Columbia. The property was written down entirely in fiscal 2002. During the fiscal year ended January 31, 2007, these original mineral claims and fractions were converted into six claims encompassing all of the original claims. The Company recommenced exploration of the property in fiscal 2004 and ceased exploration activities in fiscal 2006. During the fiscal year ended December 31, 2009, the Company wrote down the value of these exploration costs to a nominal value of $1. The Company will maintain these claims in good standing and may decide to commence exploration again on the Olympic-Kelvin Property.

 

Property Description and Location. The Olympic-Kelvin property totals approximately 662.5 hectares and is located on the south side of Carpenter Lake, five kilometers northeast of Gold Bridge in the Lillooet Mining Division, British Columbia.

 

The Olympic-Kelvin property is easily accessible by the all-weather, publicly maintained, Gray Rock logging road which runs northeast from Gold Bridge. Access on the Olympic-Kelvin property is possible on a number of cat trails built by the Company and previous operators.

 

The Olympic-Kelvin property covers rocks of the Pioneer Formation and Bridge River Terrane. These rocks are cut by northwest trending regional scale structures sub-parallel to the Ferguson and Cadwallader Structures. The structures on the Olympic-Kelvin property are roughly the same distance from the Upper Cretaceous-Tertiary granitic Bendor Intrusions as the Bralorne/Pioneer mines. A similar flexure is present in the northwest trending structures on the Olympic-Kelvin property. These structures on the property are mineralized with silver and gold and have received considerable past work, including at least four adits.

 

Proposed Work Program. No further work is proposed at this time.

 

 
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Minto Property – Not Active

 

Ownership. The Minto Property is wholly-owned by the Company and was acquired in early 1985 when it acquired its 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim, situated in the Lillooet Mining Division of British Columbia. During the January 31, 2007 year end these mineral claims were converted into one claim encompassing all of the original claims. The property was written down to a nominal value of $1 in fiscal 2002. The Company recommenced exploration of the property in fiscal 2006 and ceased exploration activities in fiscal 2007 and during the 2009 year end wrote down the value to a nominal amount of $1. The Company will maintain these claims in good standing and may decide to commence exploration again on the Minto Property.

 

Property Description and Location. The Minto Property is situated about ten kilometers east of Gold Bridge in the Bridge River gold district of British Columbia and adjoins the Olympic-Kelvin Property. The property covers approximately 204 hectares. The claims occupy the lake bed and north side of Carpenter Lake. Access from Gold Bridge is made via an all-weather gravel road which skirts the north shore of Carpenter Lake.

 

Gold Bridge can be reached from Vancouver via Hope and Lillooet, a distance of 445 kilometers, or via Pemberton using the four-wheel-drive Hurley Pass route, a distance of 225 km.

 

The terrain is rugged, typical of the eastern margin of the Coast Range Mountains. The claim group ranges in elevation from 650 meters on Carpenter Lake to a maximum of 1020 meters.

 

The climate of the Bridge River District is transitional between humid coastal belt and more arid interior plateau. Annual precipitation is modest with a significant proportion falling as snow in the winter. Summers tend to be warm to hot depending on the altitude, and winters are moderately cold.

 

Proposed Work Program. No further work is proposed at this time.

 

El Laberinto Property – Not Active

 

Ownership. Avino is, directly or through its wholly-owned Mexican subsidiary Compañía Minera Mexicana de Avino, S.A. de C.V., a Mexican corporation, the sole legal and beneficial owner of 100% of the rights, title and interest in and to the El Laberinto Property located in Durango State, Mexico.

 

Property Description and Location. The El Laberinto property is situated 60 kilometres NE of Durango, Mexico and 25 kilometres west of Avino’s main mine. It occurs in the Sierra La Silla (hills) which form part of a large volcanic caldera which also contains Avino’s main holdings. The Sierra La Silla area contains many silver, gold, lead, zinc and copper veins similar to those at Avino which are also situated in the lower volcanic Andesite sequence.

 

History. El Laberinto is a small property today and is a remnant of a much larger land package in the area once controlled by Avino.

 

During 1995 Avino mapped the La Silla area and sampled the principal veins. Avino had assembled the land package in the district in search of another Avino main vein.

 

Avino drove an adit on the Veta Grande (“Big Vein”) in late 1995. Values of silver and gold were sub-economic. The adit was stopped at a length of approximately 300 meters before it reached the main shoot described in the 1995 report. Three holes were drilled below the adit, for which assays are unavailable.

 

Avino does not consider that the Big Vein has been adequately explored to date. Although the adit showed low values, it did not reach the principal shoot and was likely too high on the vein structure.

 

In July 2012, the Company entered into an option and joint venture agreement with Endeavour Silver Corp. (“Endeavour”), whereby Endeavour was granted the option to acquire up to a 75% interest in the El Laberinto property, consisting of approximately 91.7 hectares. In order to exercise the option, Endeavour must pay up to $200,000 in annual installments over 4 years to Avino in option payments, and incur up to $3 million in exploration work on the El Laberinto property over the next 4 years.

 

 
46

Table of Contents

 

In July 2014, the Company’s option and joint venture agreement with Endeavour Silver Corp. was terminated. Up to the termination date, Endeavour had met its obligations by incurring exploration expenditures of at least $300,000 and making option payments of $50,000.

 

In August 2020, the Company optioned “El Laberinto Property” and “Ana Maria Property” to Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.). Please see “Option of Ana Maria and El Laberinto Properties” below.

 

Proposed Work Program. No further work is proposed at this time.

 

Other Properties (Durango, Mexico) – Not Active

 

Avino also has mineral rights for 5 other properties in the Durango State of Mexico, described below:

 

The Ana Maria property, located near Gomez Palacio, consists of 9 adjoining concessions and covers approximately 2,545 hectares. Avino assembled the land package in 2001 and 2002. In August 2020, the Company optioned “El Laberinto Property” and “Ana Maria Property” to Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.). Please see “Option of Ana Maria and El Laberinto Properties” below.

 

The El Hueco property, located near Silver Standard’s Pitarilla mine close to the town of Santiago Papasquiaro is comprised of 5 adjoining concessions and covers approximately 1,312.42 hectares. Avino assembled the land package between 1999 and 2005.

 

The La Potosina, El Fuerte, and Aranjuez concessions, used to be contiguous with the Avino Mine property where the bulk of the work has been taking place, but claims in between these mining concessions and the Avino Mine property have been dropped.

 

Avino considers these properties to be of merit, however, has no current plans for exploration and evaluation at this time.

 

Option of Ana Maria and El Laberinto Properties

 

By an option agreement dated August 12, 2020 (the “Option Agreement”), Avino has optioned to Silver Wolf Exploration Ltd. (“Silver Wolf”; formerly, Gray Rock Resources Ltd.), or its assign, the right to purchase the Ana Maria and El Laberinto Properties, consisting of ten (10) mining concessions comprising a total area pf 2,640.7 ha, located in the State of Durango, Mexico. Silver Wolf is a reporting issuer in British Columbia and Alberta, whose common shares are listed for trading on the TSX Venture Exchange (“TSXV”).

 

Under the terms of the Option Agreement, to exercise the option to purchase the properties, Silver Wolf must:

 

 

(a)

Issue to Avino share purchase warrants to purchase up to 300,000 common shares at an exercise price of C$0.20 per share, exercisable for a period of three (3) years from the date of acceptance of the Option Agreement by the TSXV (the “Approval Date”);

 

(b)

Issue to Avino C$50,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 250,000 shares);

 

(c)

Pay C$50,000 in cash to Avino, or issue to Avino C$50,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 250,000 shares) on or before the first anniversary of the Approval Date;

 

(d)

Pay C$100,000 in cash to Avino, or issue to Avino C$100,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 500,000 shares) on or before the second anniversary of the Approval Date;

 

(e)

Pay C$200,000 in cash to Avino, or issue to Avino C$200,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 1,000,000 shares) on or before the third anniversary of the Approval Date;

 

(f)

Pay C$200,000 in cash to Avino, or issue to Avino C$200,000 worth of Silver Wolf’s common shares at the volume weighted average price of such shares for the ten (10) trading days immediately following the Approval Date, subject to a minimum of C$0.20 per share (or a maximum of 1,000,000 shares) on or before the fourth anniversary of the Approval Date; and

 

(g)

Assume liability for and pay the semi-annual assessment fees to the Mexican government to maintain the properties in good standing during the term of the Option Agreement.

 

 
47

Table of Contents

 

Further, Silver Wolf must incur a total of C$750,000 in exploration expenditures on the properties, as follows:

 

 

(a)

C$50,000 on or before the first anniversary of the Approval Date;

 

(b)

A further C$100,000 on or before the second anniversary of the Approval Date; and

 

(c)

A further C$600,000 on or before the fourth anniversary of the Approval Date.

 

There has been no material exploration work conducted on the Ana Maria or El Laberinto Properties by Avino, and these properties are not material to its current operations in Mexico.

 

There is one director in common to both Avino and Silver Wolf, namely, David Wolfin, who is also the control person of Silver Wolf. The two companies also share the same Chief Financial Officer and Corporate Secretary. Independent special committees of the boards of directors of each of the parties negotiated and recommended the transaction to their respective board of directors, and Mr. Wolfin abstained from voting thereon.

 

The Option Agreement has been accepted for filing by the TSXV for Silver Wolf.

 

Item 4A. Unresolved Staff Comments

 

None

 

Item 5. Operating and Financial Review and Prospects

 

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the information contained in the Company’s annual audited consolidated financial statements and the notes thereto for the years ended December 31, 2020, 2019 and 2018 included in this annual report on Form 20-F. Such discussion and analysis is based upon our annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) for the years ended December 31, 2020, 2019 and 2018.

 

For all periods up to and including the year ended December 31, 2010, we prepared our consolidated financial statements in accordance with Canadian generally accepted accounting principles (‘‘Canadian GAAP’’). The annual audited consolidated financial statements for the year ended December 31, 2011 were our first annual consolidated financial statements that were prepared in accordance with IFRS as issued by the International Accounting Standards Board (‘‘IASB’’).

 

A. Operating results

 

San Gonzalo Mine

 

The fiscal year ended December 31, 2012 saw Avino transition from exploration activities to extraction and processing of resources at levels intended by management in addition to exploration activities. On October 1, 2012, the Company declared extracting and processing resources at levels intended by management had been achieved at the San Gonzalo mine. The mine continued to operate in this manner through to the fourth quarter of 2019 when the mine reached the end of its current resources and mining was halted.

 

 
48

Table of Contents

 

The operating results for the San Gonzalo Mine for the most recent 3 fiscal years are as follows:

 

 

 

2018

Total

 

 

2019

Total

 

 

2020

Total

 

Total Mill Feed (dry tonnes)

 

 

79,140

 

 

 

56,179

 

 

 

-

 

Feed Grade Silver (g/t)

 

 

222

 

 

 

118

 

 

 

-

 

Feed Grade Gold (g/t)

 

 

1.03

 

 

 

0.46

 

 

 

-

 

Bulk Concentrate (dry tonnes)

 

 

3,174

 

 

 

1,442

 

 

 

-

 

Bulk Concentrate Grade Silver (kg/t)

 

 

4.25

 

 

 

3.18

 

 

 

-

 

Bulk Concentrate Grade Gold (g/t)

 

 

19.15

 

 

 

11.79

 

 

 

-

 

Recovery Silver (%)

 

 

77

 

 

 

69

 

 

 

-

 

Recovery Gold (%)

 

 

75

 

 

 

66

 

 

 

-

 

Mill Availability (%)

 

 

95.5

 

 

 

 

 

 

 

-

 

Total Silver Recovered (kg)

 

 

13,500

 

 

 

4,591

 

 

 

-

 

Total Gold Recovered (g)

 

 

60,800

 

 

 

17,003

 

 

 

-

 

Total Silver Recovered (oz) calculated

 

 

434,020

 

 

 

153,372

 

 

 

-

 

Total Gold Recovered (oz) calculated

 

 

1,955

 

 

 

581

 

 

 

-

 

Total Silver Equivalent Recovered (oz) calculated*

 

 

592,098

 

 

 

215,148

 

 

 

-

 

____________ 

* Metal production is expressed in terms of silver equivalent ounces (oz Ag Eq),

* In 2020, AgEq was calculated using metals prices of $20.55 oz Ag, $1,769 oz Au and $2.80 lb Cu. In 2019, AgEq was calculated using metals prices of$16.20 oz Ag, $1,393 oz Au and $2.72 lb Cu.

 

Avino Mine

 

In the fourth quarter of 2014 the Company completed its Avino Mine and mill expansion. Initially, new material from underground at Avino was processed on a limited scale using the existing 250 TPD Mill Circuit 2. By year end, rehabilitation of the 1,000 TPD Mill Circuit 3 had been completed and sufficient material had been stockpiled; on January 1, 2015, full scale testing of both material and equipment commenced.

 

During 2015, newly mined underground material from the Avino Mine was processed primarily using Mill Circuit 3. During the months of July, August, November and December, Mill Circuit 2 was also used to process new material from the Avino Mine. Additionally, during the month of May, above ground stockpiles left from past mining of the Avino vein were processed using Mill Circuit 2; production from Mill Circuit 2 during the months listed above is reflected in the production figures in the following table. In 2016 and 2017 Mill Circuits 2 and 3 were used to process mill feed from the Avino Mine.

 

In the second quarter of 2018, the Company completed its Mill Circuit 4 expansion. During the testing and commissioning phase which lasted through the end of 2018, Mill Circuit 2 was used to process new material from the newly developed San Luis area of the Avino Mine while Mill Circuit 4 was used to process Avino Historic Above Ground Stockpiles (“AHAGS”).

 

In the first quarter of 2019, Mill Circuit 1 processed material from San Gonzalo, Mill Circuit 2 processed material from San Luis, Mill Circuit 3 processed material from Elena Tolosa, and Mill Circuit 4 processed material from the AHAGS. This configuration continued throughout 2019, other than when the Company stopped processing San Gonzalo material in Mill Circuit 1 during Q4 2019, and began processing from the Hanging Wall Breccia area of the Avino Mine.

 

 
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Year-end totals for 2018 through 2020 from the Avino Mine and AHAG’s Operations are reported as follows:

 

Avino Mine Production Totals

 

 

 

2018

Totals

 

 

2019

Totals

 

 

2020

Totals

 

Tonnes Mined

 

 

428,075

 

 

 

456,100

 

 

 

190,061

 

Underground Advancement(m)

 

 

3,804

 

 

 

3,835

 

 

 

1,792

 

Total Mill Feed (dry tonnes)

 

 

426,794

 

 

 

427,147

 

 

 

199,575

 

Feed Grade Silver (g/t)

 

 

53

 

 

 

44

 

 

 

54

 

Feed Grade Gold (g/t)

 

 

0.49

 

 

 

0.45

 

 

 

0.40

 

Feed Grade Copper (%)

 

 

0.55

 

 

 

0.56

 

 

 

0.58

 

Copper Concentrate (dry tonnes)

 

 

9,395

 

 

 

10,075

 

 

 

4,911

 

Copper Concentrate Grade Silver (kg/t)

 

 

2.03

 

 

 

1.58

 

 

 

2.01

 

Copper Concentrate Grade Gold (g/t)

 

 

15.31

 

 

 

14.26

 

 

 

13.03

 

Copper Concentrate Grade Copper (%)

 

 

21.96

 

 

 

20.23

 

 

 

20.38

 

Recovery Silver (%)

 

 

84

 

 

 

85

 

 

 

90

 

Recovery Gold (%)

 

 

69

 

 

 

73

 

 

 

75

 

Recovery Copper (%)

 

 

87

 

 

 

86

 

 

 

88

 

Total Silver Recovered (kg)

 

 

19,109

 

 

 

15,871

 

 

 

9,730

 

Total Gold Recovered (g)

 

 

143,843

 

 

 

139,131

 

 

 

59,584

 

Total Copper Recovered (kg)

 

 

2,062,465

 

 

 

2,069,833

 

 

 

1,026,518

 

Total Silver Recovered (oz) calculated

 

 

614,361

 

 

 

510,270

 

 

 

312,819

 

Total Gold Recovered (oz) calculated

 

 

4,625

 

 

 

4,473

 

 

 

1,916

 

Total Copper Recovered (lbs) calculated

 

 

4,546,952

 

 

 

4,563,195

 

 

 

2,263,082

 

Total Ag Eq. (oz) calculated*

 

 

1,847,303

 

 

 

1,656,091

 

 

 

835,370

 

___________ 

* Metal production is expressed in terms of silver equivalent ounces (oz Ag Eq),

* In 2020, AgEq was calculated using metals prices of $20.55 oz Ag, $1,769 oz Au and $2.80 lb Cu. In 2019, AgEq was calculated using metals prices of$16.20 oz Ag, $1,393 oz Au and $2.72 lb Cu.

 

 
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Table of Contents

 

Historic Avino Mine Stockpile Production Totals

 

 

 

2018

Totals

 

 

2019

Totals

 

 

2020

Totals

 

Total Mill Feed (dry tonnes)

 

 

202,830

 

 

 

306,334

 

 

 

4,711

 

Feed Grade Silver (g/t)

 

 

58

 

 

 

55

 

 

 

59

 

Feed Grade Gold (g/t)

 

 

0.41

 

 

 

0.36

 

 

 

0.31

 

Feed Grade Copper (%)

 

 

0.16

 

 

 

0.18

 

 

 

0.15

 

Bulk Concentrate (dry tonnes)

 

 

1,890

 

 

 

2,737

 

 

 

33

 

Bulk Concentrate Grade Silver (kg/t)

 

 

3.54

 

 

 

3.36

 

 

 

4.21

 

Bulk Concentrate Grade Gold (g/t)

 

 

22.99

 

 

 

21.12

 

 

 

17.73

 

Bulk Concentrate Grade Copper (%)

 

 

6.53

 

 

 

6.75

 

 

 

6.66

 

Recovery Silver (%)

 

 

57

 

 

 

54

 

 

 

50

 

Recovery Gold (%)

 

 

52

 

 

 

53

 

 

 

41

 

Recovery Copper (%)

 

 

38

 

 

 

35

 

 

 

31

 

Total Silver Recovered (kg)

 

 

6,697

 

 

 

9,181

 

 

 

139

 

Total Gold Recovered (g)

 

 

43,454

 

 

 

57,809

 

 

 

586

 

Total Copper Recovered (kg)

 

 

123,409

 

 

 

184,639

 

 

 

2,203

 

Total Silver Recovered (oz) calculated

 

 

215,312

 

 

 

295,169

 

 

 

4,481

 

Total Gold Recovered (oz) calculated

 

 

1,397

 

 

 

1,859

 

 

 

19

 

Total Copper Recovered (lbs) calculated

 

 

272,070

 

 

 

407,059

 

 

 

4,857

 

Total Ag Eq. (oz) calculated*

 

 

380,766

 

 

 

525,803

 

 

 

6,860

 

_____________ 

* Metal production is expressed in terms of silver equivalent ounces (oz Ag Eq),

* In 2020, AgEq was calculated using metals prices of $20.55 oz Ag, $1,769 oz Au and $2.80 lb Cu. In 2019, AgEq was calculated using metals prices of$16.20 oz Ag, $1,393 oz Au and $2.72 lb Cu.

 

 
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Table of Contents

 

Results of Operations

 

Twelve months ended December 31, 2020 compared with twelve months ended December 31, 2019

 

Revenues

 

Revenues for the year ended December 31, 2020 were $16,022,000. Revenues relate to the sale of bulk silver and gold concentrate produced from the San Gonzalo Mine, bulk copper, silver and gold concentrates produced from the Avino Mine, and bulk copper, silver and gold concentrates from the Avino Historical Above Ground Stockpiles. Revenues for the comparable year were $31,746,000. The decrease in revenues of $15,724,000 in the current year can be attributed to a decrease in the number of AgEq oz. sold by 54% due to the temporary mine closures during 2020 described below, and was partially offset by an increase in the average realized price of silver by 10%, compared to the year ended December 31, 2019.

 

Revenues decreased for the year ended December 31, 2020, compared to December 31, 2019, mainly due to lower ounces sold as a result of a planned reduction in monthly sales due to the temporary shutdown due to COVID-19. Revenues also decreased due to the unplanned temporary stoppage to mining operations caused by a strike action from the Company’s unionized workers at the Avino Mine during the second half of 2020.

 

The lower revenues were partially offset by an increase in average realized metal prices in the latter part of Q2 2020, specifically in June, as well as in July & August of 2020.

 

Metal prices for revenues recognized during the year ended December 31, 2020, averaged $18.03 per ounce of silver, $1,737 per ounce of gold, and $5,724 per tonne of copper, compared to $16.06, $1,399, and $5,961, respectively, in 2019.

 

Operating and administrative expenses

 

Operating expenses, or cost of sales, includes production costs from mining operations and depreciation and depletion. Production costs for the year ended December 31, 2020 were $15,832,000 compared to $32,016,000 for the year ended December 31, 2019, a decrease of $16,184,000. As a result of the temporary shutdown due to COVID-19 and temporary mine operations stoppage caused by company’s unionized workers strike during second half 2020, costs were lower overall due to lower than anticipated tonnes mined and processed, as well as sales initiatives to maximize realized prices per ounce, partly offset by lower silver equivalent ounces sold from 1.07 million AgEq oz. in 2020, a decrease of 1.27 million, or 54%, from 2.35 million AgEq oz. sold in 2019.

 

Administrative expenses include management, consulting, and director fees, salaries, office expenses, investor relations, travel, and promotion, as well as share-based payments, and were $4,759,000 for the year ended December 31, 2020, compared to $4,130,000 for the year ended December 31, 2019, an increase of $629,000. Operating and administrative expenses increased compared to the year ended December 31, 2019, mainly due to an increase to share-based payments are a result of the vesting of stock options and RSUs at higher valuations during the year ended December 31, 2020, compared to the same period in 2019, this is a result of the increase in the Company’s share price from January 1 to December 31, 2020, as there were RSU and option grants during both Q3 2020 and Q3 2019. This was partly offset by slightly decreased in general and administrative expenses which reflects costs reduction initiatives made by management to maintain operations in good standing during the difficult market conditions.

 

Other items

 

Others items includes interest and other income, unrealized gain/loss on long-term investments, fair value adjustments on warrant liability, realized loss on exercise of warrants, unrealized foreign exchange gain/loss, finance costs, accretion of reclamation provision, and interest expense, and totalled loss of $4,321,000 for the year ended December 31, 2020, compared to income of $1,432,000 for the year ended December 31, 2019, an decrease of $5,753,000.

 

Other items decreased due to during the year ended December 31, 2020, 4,195,072 warrants were exercised resulting in a non-cash realized loss on exercise of warrants of $2,733,000, fair value adjustment on the Company’s warrant liability decrease by $1,170,000 resulting in loss compared with a gain during 2019, as the Company’s share price increased, there was an unrealized, non-cash fair value loss during the year, unrealized gain (loss) on long-term investments decrease by $1,406,000 resulting in a loss compared with a gain during 2019 due to the fair value recognition of the acquired common shares and share purchase warrants of Talisker Resources Inc. decreases to interest and other income of $213,000 as a result of the recognition of IFRS 9 and the impact on the Company’s term facility, further increases were a result of a increase unrealized foreign exchange loss of $148,000, due to minor fluctuations between the US dollar and Mexican Peso throughout 2020, as well as increases in finance costs of $127,000.

 

 
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Table of Contents

  

Income taxes

 

Current income tax expenses for the year ended December 31, 2020 were $161,000 compared to $327,000 during the year ended December 31, 2019, a decrease of $166,000. The change in current income taxes is a result of decrease in profits in Mexico in 2020, as a result of the COVID-19 shutdown and the mine stoppage.

 

Deferred income tax recoveries for the year ended December 31, 2019 were $1,569,000 compared to $960,000 during the year ended 2019, an increase of $609,000. The increase in deferred income tax recoveries is a result of a decrease in the liability associated temporary differences arising from the carrying value of plant, equipment and mining properties, and the provision that future expected profits will be offset by current period operating losses that were recognized in Mexico for 2020.

 

Earnings or losses after taxes for the year

 

The loss for continuing operations for the year ended December 31, 2020 was $7,482,000 compared to a loss of $2,335,000 for the year ended December 31, 2019, an increase of $5,147,000. The change is a result of the factors noted in the “Revenues” and “Operating and administrative expenses” sections above, as well as the income tax movements outlined in the “Income taxes” section above.

 

Loss from discontinued operations for the year ended December 31, 2020 was $169,000 compared to a loss of $29,126,000 for the year ended December 31, 2019. The change, and all discontinued operations, relates to the sale of Bralorne during the year ended December 31, 2019, as outlined below in the “Earnings or losses after taxes for the year” section under the “Twelve months ended December 31, 2019 compared with twelve months ended December 31, 2018” section below.

 

Overall, the increase in net income in 2020 compared to 2019 was primarily due to the decreases in loss from discontinued operation due to the disposal of Bralorne in 2019, with no comparable transaction in 2020, as well as increases in overall income tax recoveries for 2020 compared to 2019. These were partially offset by significant decreases in other items income or losses resulting in loss during 2020 compared to a gain in 2019, which are mentioned above in the “Other items” section.

 

Twelve months ended December 31, 2019 compared with twelve months ended December 31, 2018

 

Revenues

 

Revenues for the year ended December 31, 2019 were $31,746,000. Revenues relate to the sale of bulk silver and gold concentrate produced from the San Gonzalo Mine, bulk copper, silver and gold concentrates produced from the Avino Mine, and bulk copper, silver and gold concentrates from the Avino Historical Above Ground Stockpiles. Revenues for the comparable year were $34,116,000. The decrease in revenues of $2,370,000 in the current year can be attributed to a decrease in the number of AgEq oz. sold by 11%, and was partially offset by an increase in the average realized price of silver by 5%, compared to the year ended December 31, 2018. Revenues also declined compared to the previous year as a result of the planned shutdown of San Gonzalo. The overall silver and gold feed grades at San Gonzalo declined for the year ended December 31, 2019 by 47% and 55%, respectively, combined with a decrease in both silver and gold recovery lead to San Gonzalo producing 66% fewer silver equivalent ounces on a year over year comparison basis.

 

During the year ended December 31, 2019 the Company produced 10,075 tonnes of bulk copper/silver/gold concentrate from its Avino Mine, 2,737 tonnes of bulk copper/silver/gold concentrate from its Avino Historical Above Ground Stockpiles, and 1,765 tonnes of bulk silver/gold concentrate from its San Gonzalo Mine. The Company recognized revenues of $19,945,000 on sales from the Avino Mine, $8,702,000 on sales from the Avino Historical Above Ground Stockpiles, and $3,099,000 on sales from the San Gonzalo Mine.

 

Metal prices for revenues recognized during the year ended December 31, 2019, weighted by dollar of revenue recognized, averaged $16.06 per ounce of silver, $1,399 per ounce of gold, and $5,961 per tonne of copper, Compared to metal prices for revenues recognized in the year ended December 31, 2018 averaged $15.32 per ounce of silver, $1,249 per ounce of gold and $6,392 per tonne of copper., this represents a increase of 5%, increase of 12%, and an decrease of 7%, respectively.

 

 
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Table of Contents

 

Operating and administrative expenses

 

Operating expenses, or cost of sales, includes production costs from mining operations and depreciation and depletion. Production costs for the year ended December 31, 2019 were $32,016,000 compared to $27,850,000 for the year ended December 31, 2019, an increase of $4,166,000. The increase is primarily due to an increase in higher production costs mainly attributable to increase in tonnes produced resulting in higher overall mining material and labour cost. Further, there were increases to non-cash depletion and depreciation expenses as a result of San Gonzalo mine reaching the end of its economic life and prospective change in policy for depreciation, partly offset by lower silver equivalent ounces sold from 2.35 million AgEq oz. in 2019, a decrease of 0.29 million, or 11%, from 2.64 million AgEq oz. sold in 2018.

 

Administrative expenses include management, consulting, and director fees, salaries, office expenses, investor relations, travel, and promotion, as well as share-based payments, and were $4,130,000 for the year ended December 31, 2019, compared to $4,240,000 for the year ended December 31, 2018, a decrease of $110,000. Operating and administrative expenses slightly decreased compared to the year ended December 31, 2018, which reflects reduction initiatives made by management in the current year to maintain operations in good standing during the difficult market conditions in the beginning of the year.

 

Other items

 

Others items includes interest and other income, unrealized gain/loss on long-term investments, fair value adjustments on warrant liability, unrealized foreign exchange gain/loss, finance costs, accretion of reclamation provision, and interest expense, and totalled income of $1,432,000 for the year ended December 31, 2019, compared to income of $38,000 for the year ended December 31, 2018, an increase of $1,394,000.

 

Income from other items increased due to increases to interest and other income of $330,000 as a result of the recognition of IFRS 9 and the impact on the Company’s term facility, increases in the unrealized gain on long-term investments of $1,287,000 due to the recognition of the acquired common shares and share purchase warrants of Talisker Resources Inc. and subsequent fair value adjustment to reflect the fair value at December 31, 2019. Further increases were a result of a reduced unrealized foreign exchange loss of $138,000, due to minor fluctuations between the US dollar and Mexican Peso throughout 2019, as well as reductions in finance costs of $360,000.

 

These increases were offset by lower income from fair value adjustment on warrant liability of $784,000. The fair value adjustment on the Company’s warrant liability relates to the issuance of US dollar denominated warrants, which are re-valued each reporting period, and the value fluctuates with changes in the US-Canadian dollar exchange rate, and in the variables used in the valuation model, such as the Company’s US share price, and expected share price volatility. The remaining differences of $63,000 relate to movements in the accretion of the Company’s reclamation provision and interest expense from 2019 compared to 2018.

 

Income taxes

 

Current income tax expenses for the year ended December 31, 2019 were $327,000 compared to $1,052,000 during the year ended December 31, 2018, a decrease of $725,000. The change in current income taxes is a result of decrease mine operating income in 2019, which was loss of $270,000 compared to income of $6,266,000 in 2018.

 

Deferred income tax recoveries for the year ended December 31, 2019 were $960,000 compared to $645,000 during the year ended 2018, an increase of $315,000. The increase in deferred income tax recoveries is a result of a decrease in the liability associated temporary differences arising from the carrying value of plant, equipment and mining properties.

 

Earnings or losses after taxes for the year

 

The loss for continuing operations for the year ended December 31, 2019 was $2,335,000 compared to income of $1,657,000 for the year ended December 31, 2018, a decrease of $3,992,000. The change is a result of the factors noted in the “Revenues” and “Operating and administrative expenses” sections above, as well as the income tax movements outlined in the “Income taxes” section above.

 

Loss from discontinued operations for the year ended December 31, 2019 was $29,126,000 compared to a loss of $31,000 for the year ended December 31, 2018. The change, and all discontinued operations, relates to the sale of Bralorne during the year ended December 31, 2019, as outlined below:

 

On December 13, 2019, the Company completed the sale of its 100% wholly-owned subsidiary Bralorne Gold Mines Ltd. (“Bralorne”) to Talisker Resources Ltd. (“Talisker”). The sale includes the Bralorne Gold Mine and is part of the Company’s plan to focus on its core mining operations in Mexico.

 

 
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The consideration includes:

 

 

·

C$8.7 million (translated to $6,599) in cash

 

·

The issuance of 12,580,000 common shares of Talisker, representing 9.9% on a pro-forma basis following the close of the transaction and subsequent financing by Talisker;

 

·

The issuance of 6,290,000 share purchase warrants exercisable at C$0.25 per share for a period of three years after the closing, subject to acceleration in the event the closing price of Talisker’s common shares is great than C$0.35 per share for 20 or more consecutive trading days at any time following April 14, 2020;

  

The sale includes the Bralorne claims, as well as nine mineral claims covering approximately 2,114 hectares in the Lillooet Mining Division of British Columbia, known as the BRX Property.

 

The Company also received future consideration of a $2.5 million cash payment, contingent upon the commencement of commercial production at the Bralorne Mine, for which a fair value has been determined to be Nil at this time.

 

The Company recognized a loss on disposition, net of tax, calculated as follows:

 

Cash proceeds

 

$ 6,599

 

Talisker shares

 

 

2,243

 

Talisker warrants

 

 

716

 

Total proceeds

 

$ 9,558

 

Net assets sold and derecognized:

 

 

 

 

Cash

 

 

1,495

 

Other current assets

 

 

242

 

Exploration and evaluation assets

 

 

45,613

 

Plant and equipment

 

 

1,745

 

Other long-term assets

 

 

19

 

Current portion of finance lease obligations and equipment loans

 

 

(175 )

Non-current portion of finance lease obligations and equipment loans

 

 

(111 )

Site restoration obligation

 

 

(10,828 )

Foreign currency translation adjustments

 

 

(42 )

 

 

 

37,958

 

Loss on disposition before selling costs

 

 

(28,400 )

Selling costs

 

 

(490 )

Loss on disposition, net

 

 

(28,890 )

 

As a result of the sale, the comparative net income (loss) for the current period, as well as previous two years, have been reclassified from continuing operations to discontinued operations:

 

 

 

2019

 

 

2018

 

 

2017

 

Revenue from mining operations

 

$ -

 

 

$ -

 

 

$ -

 

Cost of sales

 

 

-

 

 

 

-

 

 

 

-

 

Mine operating income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (income)

 

 

16

 

 

 

(45 )

 

 

(14 )

Accretion of reclamation provision

 

 

217

 

 

 

256

 

 

 

154

 

Gain on sale of assets

 

 

2

 

 

 

(175 )

 

 

-

 

Other items

 

 

1

 

 

 

(5 )

 

 

3

 

Loss on disposition

 

 

28,890

 

 

 

-

 

 

 

-

 

Net loss before income taxes

 

 

(29,126 )

 

 

(31 )

 

 

(143 )

Income taxes

 

 

-

 

 

 

-

 

 

 

-

 

Net loss from discontinued operations and on disposal

 

$ (29,126 )

 

$ (31 )

 

$ (143 )

 

 
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Table of Contents

 

The results of discontinued operations included in the consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017, are as follows:

 

Cash generated by (used in):

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

Cash flow used in operating activities

 

$ (19 )

 

$ (7 )

 

$ 12

 

Cash flow used in financing activities

 

 

(258 )

 

 

(590 )

 

 

(871 )

Cash flow used in investing activities

 

 

(5,583 )

 

 

(4,178 )

 

 

(5,270 )

Net cash decrease from discontinued operations

 

$ (5,860 )

 

$ (4,775 )

 

$ (6,129 )

 

Overall, the decrease in net loss in 2020 compared to 2019 was primarily due to the increase in mine operating income (loss) mentioned above, decreases in loss from discontinued operation from the disposal of Bralorne in 2019 mentioned above, increases in overall income tax expenses, and such increases in net income, were partially offset by significant decreases in other items income (loss) resulting in loss during 2020 compared with a gain in 2019 mentioned above.

 

B. Liquidity and capital resources

 

The Company’s ability to generate sufficient amounts of cash and cash equivalents, in both the short term and the long-term, to maintain existing capacity and to fund ongoing exploration is dependent upon the discovery of economically recoverable reserves or resources and the ability of the Company to obtain the financing necessary to generate and sustain profitable operations.

 

Management expects that the Company’s ongoing liquidity requirements will be funded from cash and cash equivalents generated from current operations and from further financing as required in order to fund ongoing exploration activities and meet its objectives, including ongoing advancement at the Avino Mine. The Company continues to evaluate financing opportunities to advance its projects. The Company’s ability to secure adequate financing is in part dependent on overall market conditions, the prices of silver, gold, and copper, and other factors outside the Company’s control, and there is no guarantee the Company will be able to secure any or all necessary financing in the future.

 

During 2020, the Company received gross proceeds of $4,685,000 in connection with a brokered at-the-market offering issued under prospectus supplements.

 

During the year ended December 31, 2020, 4,195,072 warrants were exercised resulting in gross proceeds of $3,356,000.

 

Discussion and analysis relating to our liquidity as at December 31, 2020 and December 31, 2019 is as follows:

 

Statement of Financial Position

 

December 31,

2020

 

 

December 31,

2019

 

Cash

 

$ 11,713,000

 

 

$ 9,625,000

 

Working Capital

 

 

14,680,000

 

 

 

13,209,000

 

Accumulated Deficit

 

 

54,339,000

 

 

 

47,204,000

 

 

Cash comprises cash at banks and on hand, and short-term deposits with an original maturity of three months or less which are readily convertible into a known amount of cash.

 

At December 31, 2020, $2,062,000 of the $11,713,000 of cash was held by our Mexican subsidiaries. If these funds were needed for our operations in Canada, we would be required to accrue and pay Canadian taxes (to the extent we no longer had Canadian tax loss carry forwards available) to repatriate these funds. However, our intent is to permanently reinvest these funds back into our Mexican subsidiaries and our current plans do not demonstrate a need to repatriate them to fund our Canadian operations.

 

Cash Flow

 

December 31,

2020

 

 

December 31,

2019

 

Cash generated by (used in) operating activities

 

$ 72,000

 

 

$ 5,507,000

 

Cash generated by (used in) financing activities

 

 

4,203,000

 

 

 

4,970,000

 

Cash used in investing activities

 

 

(2,167,000 )

 

 

(3,734,000 )

Change in cash

 

 

2,108,000

 

 

 

6,743,000

 

Effect of exchange rate changes on cash

 

 

(20,000 )

 

 

(370,000 )

Cash, beginning of the year

 

 

9,625,000

 

 

 

3,252,000

 

Cash, end of year

 

$ 11,713,000

 

 

$ 9,625,000

 

 

 
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Table of Contents

 

Operating Activities

 

Cash generated by operating activities for the year ended December 31, 2020, was $72,000 compared to operating activities of $5,507,000 million for the year ended December 31, 2019. Cash generated by or used in operating activities can fluctuate with changes in net income, non-cash items, such as foreign exchange and deferred income tax expenses, and working capital.

 

Financing Activities

 

Cash generated by in financing activities was $4,203,000 for the year ended December 31, 2020, compared to $4,970,000 million for the year ended December 31, 2019. Cash generated by financing activities for the year ended December 31, 2020, relates to the issuance of shares for cash, by way of at-the-market sales and the exercise of warrants. Cash used in financing activities relates to the repayment of the term facility, as well as on its existing equipment loans and finance leases for mining equipment. During the year ended December 31, 2020, the Company received net proceeds from issuance of shares for cash of $4,685,000 (December 31, 2019 - $7,283,000), received proceeds from warrants exercise by $3,679,000 (December 31, 2019 - $Nil). The Company also made term facility repayments of $3,333,000 (December 31, 2019 - $833,000) and made finance lease and equipment loan payments totalling $857,000 (December 31, 2019 - $1,459,000).

 

Investing Activities

 

Cash used in investing activities for the year ended December 31, 2020, was $2,167,000 compared to $3,734,000 for the year ended December 31, 2018. Cash generated by financing activities for the year ended December 31, 2020, relates to the issuance of shares for cash, by way of at-the-market sales and the exercise of warrants. Cash generated from the proceeds of sale of common shares in Talisker totalled $1.3 million (December 31, 2019 - $Nil). Proceeds were re-invested through the exercise of share purchase warrants in Talisker, totalling $1,176,000 million (December 31, 2019 - $Nil).

 

Other financing activities the year ended December 31, 2020, includes cash capital expenditures of $2,014,000 (December 31, 2019 - $3,276,000 million) mainly due to the acquisition of filter press for plant. During the year ended December 31, 2020, the Company also incurred cash capital expenditures of $231,000 (December 31, 2019 - $5,723,000) on exploration and evaluation activities including drilling expenditures.

 

C. Research and development, patents and licenses, etc.

 

As the Company is a mining and exploration company with no research and development, the information required by this section is not applicable.

 

D. Trend information

 

As at the time of filing this Annual Report and as otherwise disclosed in this Annual Report, the Company is not aware of any specific trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. However, it should be noted that future required capital expenditures at the Avino Mine would likely have positive and negative impact, respectively, on future cash flows after 2020. Many factors that are beyond the control of the Company can affect the Company’s operations, including, but not limited to, the price of minerals, the economy on a global scale, land and exploration permitting, and the appeal of investments in mining companies. The appeal of mining companies as investment alternatives could affect the liquidity of the Company and thus future exploration and evaluation, extracting and processing activities, and financial conditions of the Company. Other factors such as retaining qualified mining personnel and contractor availability and costs could also impact the Company’s operations.

 

 
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E. Off-balance sheet arrangements

 

The Company has no off-balance sheet arrangements.

 

F. Tabular disclosure of contractual obligations

 

As at December 31, 2020, the Company had the following contractual obligations:

 

 

 

Payment due by period

 

 

 

Total

 

 

<1 year

 

 

1-3 Years

 

 

3-5 Years

 

 

More than 5 years

 

Accounts payable and accrued liabilities

 

$ 2,068,000

 

 

$ 2,068,000

 

 

$ -

 

 

$ -

 

 

$ -

 

Due to related parties

 

 

154,000

 

 

 

154,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Minimum rental and lease payments

 

 

26,000

 

 

 

7,000

 

 

 

10,000

 

 

 

6,000

 

 

 

3,000

 

Term facility

 

 

2,552,000

 

 

 

2,552,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Deferred income tax liabilities

 

 

1,369,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,369,000

 

Equipment loan

 

 

72,000

 

 

 

72,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Finance lease obligations

 

 

514,000

 

 

 

213,000

 

 

 

180,000

 

 

 

121,000

 

 

 

-

 

Total

 

$ 6,755,000

 

 

$ 5,066,000

 

 

$ 190,000

 

 

$ 127,000

 

 

$ 1,372,000

 

 

G. Safe harbor

 

Certain statements in this Annual Report, including those appearing under this Item 5E and 5F, constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology used such as “plans”, “expects”, “estimates”, “budgets”, “intends”, “anticipates”, “believes”, “projects”, “indicates”, “targets”, “objective”, “could”, “may”, or other similar words.

 

The forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for metals; the results of exploration and evaluation drilling and related activities; economic conditions in the countries and provinces in which we carry on business, especially economic slowdown; actions by governmental authorities including increases in taxes, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflict; the negotiation and closing of material contracts; and the other factors discussed in Item 3.D.: Key Information – Risk factors, and in other documents that we file with the SEC. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors; our course of action would depend upon our assessment of the future considering all information then available. In that regard, any statements as to future levels of extracting and processing resources; capital expenditures; the allocation of capital expenditures to exploration and evaluation activities; sources of funding of our capital program; drilling; expenditures and allowances relating to environmental matters; dates by which certain areas will be available for extraction and processing or will come on-stream; expected exploration and evaluation costs; future rates of extracting and processing resources; ultimate recoverability of reserves; dates by which transactions are expected to close; cash flows; uses of cash flows; collectability of receivables; availability of trade credit; expected operating costs; expenditures and allowances relating to environmental matters; debt levels; and changes in any of the foregoing are forward-looking statements, and there can be no assurances that the expectations conveyed by such forward-looking statements will, in fact, be realized.

 

Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.

 

Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

 

 
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Item 6. Directors, Senior Management and Employees

 

A. Directors and senior management

 

The following is a list of the Company’s directors and senior management as at March 18, 2021. The directors are elected for a term of one year at the annual meeting of shareholders. This year’s annual meeting will be held on May 27, 2021.

 

Name and Present Position with the Company

 

Principal Occupation

 

Director/Officer Since

Gary Robertson
Director

 

Certified Financial Planner; Director and Chairman of Avino Silver & Gold Mines Ltd.

 

August 2005

 

 

 

 

 

David Wolfin

Director/President/CEO

 

Director, President and CEO of Avino Silver & Gold Mines Ltd., and Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.)

 

October 1995

 

 

 

 

 

Peter Bojtos

Director

 

Professional Engineer and Director of Avino Silver & Gold Mines Ltd..

 

June 2018

 

 

 

 

 

Jasman Yee
Director

 

Professional Engineer and Metallurgist

 

January 2011

 

 

 

 

 

Ronald Andrews

Director

 

Director of Bonner Mall Partnership. Owner and operator of Andrews Orchards

 

May 2019

 

 

 

 

 

J.C. Rodríguez

Chief Operating Officer

 

Geology Professional

 

December 2012

 

 

 

 

 

Dorothy Chin

Corporate Secretary

 

Corporate Secretary of Avino Silver & Gold Mines Ltd., and Silver Wolf Exploration (formerly, Gray Rock Resources Ltd.)

 

September 2008

 

 

 

 

 

Nathan Harte

Chief Financial Officer

 

CPA, Chief Financial Officer of Avino Silver & Gold Mines Ltd, , and Silver Wolf Exploration Ltd. (formerly, Gray Rock Resources Ltd.)

 

November 2018

 

 

 

 

 

Peter Latta

VP Technical Services

 

Professional Engineer, Director and President of Silver Wolf Exploration Ltd.

 

October 2020

 

B. Compensation

 

During the last completed fiscal year, the Company had four executive officers, namely, David Wolfin, Chief Executive Officer; Nathan Harte, Chief Financial Officer, J.C. Rodríguez, Chief Operating Officer and Peter Latta, VP Technical Services.

 

·

Compensation Discussion and Analysis

 

The executive compensation program is comprised of fixed and variable elements of compensation; base salary, discretionary bonus, and equity based incentive awards in the form of stock options and Restricted Share Units (“RSUs”) to its executive officers. The Company recognizes the need to provide a compensation package that will attract and retain qualified and experienced executives, as well as align the compensation level of each executive to that executive’s level of responsibility. The three components of the compensation package are included to enable the Company to meet different objectives.

 

 
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The objectives of base salary are to recognize market pay and acknowledge the competencies and skills of individuals. The objective of discretionary bonuses (paid in the form of cash payments) is to add a variable component of compensation to recognize corporate and individual performances for executive officers and employees. The objectives of equity based incentive award are to align the interest of executive officers with that of Shareholders by encouraging equity ownership through awards of stock options and RSUs, to motivate executive and other key employees to contribute and increase in corporate performance and shareholder value, and to attract talented individuals and reward achievement of long-term financial and operating performance and focus on key activities and achievements critical to the ongoing success of the Company. Implementation of incentive stock options and RSUs plans and amendments thereto are the responsibility of the Company’s Compensation Committee.

 

The compensation of the executive officers is reviewed and recommended for Board approval by the Company’s Compensation Committee. Although the Board has not formally evaluated the risks associated with the Company’s compensation policies and practices, the Board has no reason to believe that any risks that arise from the Company’s compensation policies and practices are reasonably likely to have a material impact on the Company.

 

The members of the Compensation Committee are Peter Bojtos (Chair), Ronald Andrews, and Gary Robertson, all of whom are independent.

 

The general objectives of the Company’s compensation strategy are to:

 

 

(a)

compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value;

 

 

 

 

(b)

align management’s interests with the long-term interests of shareholders;

 

 

 

 

(c)

provide a compensation package that is commensurate with other comparable companies to enable the Company to attract and retain talent; and

 

 

 

 

(d)

ensure that the total compensation package is designed in a manner that takes into account the Company’s present stage of exploration, evaluation, extraction, and processing activities and its available financial resources. The Company’s compensation packages have been designed to provide a blend of a non-cash stock option component and a reasonable salary. In addition, extraordinary efforts which enhance shareholder value are rewarded with cash bonuses.

 

Other than discussed above, the Company has no other forms of compensation. Payments may be made from time to time to individuals or companies that they control for the provision of consulting services which may be deemed a form of compensation. Such consulting services are paid for by the Company at competitive industry rates for work of a similar nature by reputable arm’s length services providers.

 

Actual compensation will vary based on the performance of the executives relative to the achievement of goals and the price of the Company’s securities.

 

Compensation Element

Description

Compensation Objectives

Annual Base Salary

Salary is market-competitive, fixed level of compensation

Retain qualified leaders, motivate strong business performance.

Incentive Bonuses

Discretionary cash payment

Reward individual performance in achieving corporate goals

Equity Based Incentive Awards

Equity-based incentive awards are made in the form of incentive stock options and Restricted Share Units (“RSU”). The amount of each grant will be dependent on individual and corporate performance.

Reward long-term financial and operating performance and align interests of key employees with those of shareholders

 

The Company relies on the discretion and judgment of the directors in establishing and amending contracts for all forms of compensation, including stock options and RSUs to be granted to the CEO and the directors, and for reviewing the CEO’s recommendations respecting compensation of the other officers of the Company, to ensure such arrangements reflect the responsibilities and risks associated with each position. There is no formal process using objectives, criteria, or analysis, for determining compensation. However, the Compensation Committee considers a number of key factors (including cash cost per ounce of silver equivalent, all-in sustaining cost per ounce of silver equivalent, operating margin and net income, share price relative to a competitive set of silver producers, safety and environmental issues, changes in amounts and categories of reserves and resources, total silver equivalent ounces produced and sold, investor and community relations, exploration results, financings, etc.), and considers these in comparison to other similar silver producers (that have comparable market capitalizations, revenues, and total assets). When determining the compensation of its officers, the Compensation Committee and the Board are guided by the general objectives of the Company’s compensation strategy as set out above.

 

 
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·

Summary Compensation Table

 

The following table sets forth particulars concerning the compensation paid or accrued for services rendered to the Company in all capacities during the most recently completed financial year ended December 31, 2020 of the Company to its executive officers:

 

Name and principal position

 

Year

 

Salary

($)

 

 

Share-based awards

($)(1)

 

 

Option-based awards

($)(2)

 

 

Non-equity incentive plan compensation

($)(3)

 

 

Pension value

($)(4)

 

 

All other compensation

($)(5)

 

 

Total compensation

($)

 

David Wolfin(6) (8)

 

2020

 

 

223,680

 

 

 

361,117

 

 

 

137,090

 

 

 

NIL

 

 

 

NIL

 

 

 

NIL

 

 

 

731,887

 

President,

 

2019

 

 

226,108

 

 

 

336,177

 

 

NIL

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

562,285

 

CEO and Director

 

2018

 

 

231,535

 

 

 

227,875

 

 

NIL

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

459,410

 

Nathan Harte

 

2020

 

 

73,557

 

 

 

68,086

 

 

 

73,338

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

214,981

 

CFO(8)

 

2019

 

 

58,865

 

 

 

21,396

 

 

 

19,429

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

99,690

 

 

 

2018

 

 

5,981

 

 

 

4,201

 

 

 

11,016

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

21,199

 

J.C. Rodríguez

 

2020

 

 

215,022

 

 

 

172,225

 

 

 

91,394

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

478,641

 

COO(7)

 

2019

 

 

202,441

 

 

 

117,866

 

 

NIL

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

320,307

 

 

 

2018

 

 

170,563

 

 

 

72,172

 

 

NIL

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

242,735

 

Peter Latta VP-Technical Services

 

2020

 

 

111,840

 

 

 

44,724

 

 

 

50,489

 

 

NIL

 

 

NIL

 

 

NIL

 

 

 

207,053

 

___________________

(1)

The “2018 RSU Plan was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2020, a total of 4,293,000 RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,238,610 were vested and 260,890 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2020. The closing market price on September 20, 2020 was C$1.41 per common share, the closing market price on August 28, 2020 was C$1.555 per common share, and the closing market price on August 21, 2020 was C$1.54 per common share.

(2)

The methodology used to calculate the grant-date fair value is based on the Black-Scholes Option Pricing Model. During the year ended December 31, 2020, 1,700,000 new option-based awards were granted to officers, directors, employees, and consultants. The fair value was estimated using the following weighted-average assumptions: risk-free interest rate of 0.30%, expected dividend yield of 0%, expected option life of 5 years, and expected share price volatility of 66.09%.

(3)

The Company does not have a non-equity incentive plan.

(4)

The Company does not have any pension plans.

(5)

Discretionary cash payment of incentive bonuses.

(6)

Mr. David Wolfin was appointed CEO on June 24, 2010. Mr. Wolfin’s salary was paid to Intermark Capital Corp., a private BC corporation controlled by Mr. Wolfin.

(7)

Mr. Rodríguez receives his salary in Mexican Pesos (“MXP”). For 2020, Mr. Rodriguez’ salary of MXP 4,624,119, was converted into US dollars by applying an exchange rate of 1MXP = US$0.0465.

(8)

All compensation to Mr. David Wolfin, Mr. Nathan Harte and Mr. Peter Latta are paid in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412 for 2020, US$1.00 = C$1.3268 for 2019, and US$1.00 = C$1.2957 for 2018, based on the average exchange rate for the year quoted by the Bank of Canada.

(9)

Mr. Peter Latta was appointed VP- Technical Services in 2020.

 

·

Annual Base Salary

 

Base Salary for the executive officers is determined by the Board based upon the recommendation of the Compensation Committee and its recommendations are reached primarily by comparison of the remuneration paid by other reporting issuers similar in size and within the industry and review of other publicly available information on remuneration that the Compensation Committee feels is suitable.

 

The Annual Base Salary paid to the executive officers is, for the purpose of establishing appropriate increases, reviewed annually by the Board upon the recommendation of the Compensation Committee as part of the annual review of executive officers. The decision on whether to grant an increase to the executive’s base salary and the amount of any such increase is in the sole discretion of the Board and Compensation Committee.

 

 
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·

Non-Equity Incentive Plan Compensation

 

One of the three components of the Company’s compensation package is a discretionary annual cash bonus, paid to recognize individual performance in attaining corporate goals and objectives. The Company does not have a long-term incentive plan.

 

·

Equity-Based Incentive Awards

 

Equity-based incentive awards are in the form of the grant of incentive stock options and RSUs. The objective of the equity-based incentive award is to reward executive officers, employees, and directors’ individual performance at the discretion of the Board upon the recommendation of the Compensation Committee.

 

The Company currently maintains a Stock Option and an RSU Plan (the “Plans”), under which stock options have been granted and may be granted to purchase a number equal to up to 10% of the Company’s issued capital from time to time. The RSU Plan (the “2018 RSU Plan”) was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2020, a total 4,293,000 RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,238,610 were vested and 260,890 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, until fully vested from the date of the awards, and provided that these designated persons are continuously employed with or providing services to Avino.

 

All Plans are administered by the Compensation Committee. The process the Company uses to grant equity based incentive awards is upon the recommendations of the Compensation Committee.

 

The role of the Compensation Committee is to recommend to the Board the compensation of the Company’s directors and the executive officers which the Committee feels is suitable. All previous grants of equity-based incentive awards are taken into account when considering new grants.

 

·

Outstanding share-based awards and option-based awards

 

The following table sets forth the options and RSUs granted to the executive officers to purchase or acquire securities of the Company outstanding at December 31, 2020:

 

 

 

Option-based Awards

 

 

Share-based Awards

 

Name

 

Number of securities underlying unexercised options

(#)

 

 

Option exercise price

(C$)(3)

 

 

Option expiration date

 

Value of unexercised in-the-money options

($)(1)(4)

 

 

Share grant date

 

Number of shares or units of shares that have not vested

(#)(2)

 

 

Market or payout value of share-based awards that have not vested

($)(2)(4)

 

 

Market or payout value of vested share-based awards not paid out or distributed

($)(2) (4)

 

David Wolfin

 

 

25,000

 

 

$ 2.95

 

 

Sept 2, 2021

 

Nil

 

 

Aug 28, 2018

 

 

135,000

 

 

 

131,860

 

 

Nil

 

President, CEO and Director

 

 

250,000

 

 

$ 1.98

 

 

Sept. 20, 2022

 

Nil

 

 

Aug 21, 2019

 

 

440,000

 

 

 

259,171

 

 

Nil

 

 

 

300,000

 

 

 

1.64

 

 

Aug 4, 2025

 

 

2,237

 

 

Aug 4, 2020

 

 

300,000

 

 

 

366,836

 

 

Nil

 

Nathan Harte,

 

 

25,000

 

 

$ 1.98

 

 

Sept 20, 2022

 

Nil

 

 

Aug 28, 2018

 

 

8,500

 

 

 

8,302

 

 

Nil

 

CFO

 

 

50,000

 

 

$ 1.30

 

 

Aug 28, 2023

 

 

13,048

 

 

Aug 21, 2019

 

 

40,000

 

 

 

23,561

 

 

Nil

 

 

 

 

48,000

 

 

$ 0.79

 

 

Aug 21, 2024

 

 

32,061

 

 

Aug 4, 2020

 

 

150,000

 

 

 

183,418

 

 

Nil

 

 

 

 

150,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

1,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J.C. Rodríguez

 

 

50,000

 

 

$ 2.95

 

 

Sept 2, 2021

 

Nil

 

 

Aug 28, 2018

 

 

42,000

 

 

 

41,023

 

 

Nil

 

COO

 

 

125,000

 

 

$ 1.98

 

 

Sept 20, 2022

 

Nil

 

 

Aug 21, 2019

 

 

200,000

 

 

 

117,805

 

 

Nil

 

 

 

 

200,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

1,491

 

 

Aug 4, 2020

 

 

200,000

 

 

 

244,557

 

 

Nil

 

Peter Latta

 

 

50,000

 

 

$ 1.30

 

 

Aug 28, 2023

 

 

13,048

 

 

Aug 28, 2018

 

 

8,500

 

 

 

8,302

 

 

Nil

 

VP-Technical Services

 

 

100,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

746

 

 

Aug 21, 2019

 

 

20,000

 

 

 

11,780

 

 

Nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aug 4, 2020

 

 

102,000

 

 

 

124,724

 

 

Nil

 

__________________

(1)

In-the-Money Options are the difference between the market value of the underlying securities at December 31, 2020 and the exercise price of the option. The closing Toronto Stock Exchange share price for the Company's common shares as at December 31, 2020 was C$1.65 per common share.

(2)

Share Based Awards are in the form of RSU Plan. The 2018 RSU Plan (the “2018 RSU Plan”) was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2020, a total of 4,293,000 RSUs were granted under the 2018 RSU Plan to officers, directors, employees and consultants and 1,238,610 were vested and 260,890 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2020. The closing market price on September 20, 2020 was C$1.41 per common share, the closing market price on August 28, 2020 was C$1.555 per common share, and the closing market price on August 21, 2020 was C$1.54 per common share.

(3)

The option exercise price is quoted in Canadian dollars as they relate specifically to the Canadian dollar share price as quoted on the Toronto Stock Exchange.

(4)

The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412, which represents the average exchange rate for the year 2020 quoted by the Bank of Canada.

 

 
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Incentive plan awards – value vested or earned during the year

 

An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period. An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.

 

The following table sets forth the value vested or earned during the year of option-based awards, share-based awards and non-equity incentive plan compensation paid to executive officers during the most recently completed financial year ended December 31, 2020:

 

Name

 

Option-based awards – Value vested during the year

($) (1)(3)

 

 

Share-based awards – Value vested during the year

($) (2)(3)

 

 

Non-equity incentive plan compensation – Value earned during the year

($)(3)

 

David Wolfin

President, CEO and Director

 

Nil

 

 

 

413,686

 

 

Nil

 

Nathan Harte, CFO

 

 

7,605

 

 

 

53,187

 

 

Nil

 

J.C. Rodríguez

COO

 

Nil

 

 

 

166,146

 

 

Nil

 

Peter Latta

VP-Technical Services

 

 

4,753

 

 

 

21,337

 

 

Nil

 

________________

(1)

The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date.

(2)

The RSU Vesting prices were C$1.41, C$1.555, and C$1.54 which represent the share prices on September 20, 2020, August 28, 2020, and August 21, 2020, the dates in which the RSUs vested.

(3)

The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412 which represents the average exchange rate for the year 2020 as quoted by the Bank of Canada.

 

 
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·

Pension Plan Benefits

 

No pension plan or retirement benefit plans have been instituted by the Company and none are proposed at this time.

 

·

Use of Financial Instruments

 

The Company does not have in place policies which restrict the ability of directors or executive officers to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by a director or executive officers. However, any such purchases would be subject to applicable insider reporting requirements.

 

·

Termination and Change of Control Benefits

 

On January 1, 2016, the Company entered into a consulting agreement with Intermark Capital Corporation, a company owned by David Wolfin, and on March 23, 2016 the Company further amended the consulting agreement which contains certain provisions in connection with termination of employment or change of control. The consulting agreement was renewed for a period of three years on January 1, 2019 with the same terms and conditions.

 

This Agreement can be terminated at any time as follows:

 

 

(a)

by the Consultant electing to give the Company not less than 3 months prior notice of such termination;

 

 

 

 

(b)

by the Company electing to give the Consultant 3 months prior notice of such termination along with a termination payment equal to the annual Consulting Fee; and

 

 

 

 

(c)

by the Consultant electing to give the Company notice, in the event that there occurs a Change of Control (as defined below) within six (6) months of the effective date of such Change of Control, and if the Consultant so elects to terminate this Agreement, then the Consultant will be immediately entitled to a termination payment equal to C$2 million.

 

On May 30, 2019, the Company entered into a Change of Control Agreement with Nathan Harte, the named executive officer of the Company. If a Change of Control occurs, and the Executive’s employment is terminated by the Company for any reason, except excluding a termination for just cause, within six (6) months of the date of the Change of Control, or the Executive resigns from his employment for Good Reason during such six (6) month period, then the Executive shall be entitled to receive from the Company an amount equal to the Executive current monthly base salary multiplied by twelve (12) months which Executive will be paid his salary, accrued bonuses, if any, and vacation earned and other amounts due to him up to the termination date; which amount is to be paid in a lump sum within 10 business days of the Change in Control termination date.

 

On May 30, 2019, the Company entered into a Change of Control Agreement with Peter Latta, the named executive officer of the Company. If a Change of Control occurs, and the Executive’s employment is terminated by the Company for any reason, except excluding a termination for just cause, within six (6) months of the date of the Change of Control, or the Executive resigns from his employment for Good Reason during such six (6) month period, then the Executive shall be entitled to receive from the Company an amount equal to the Executive current monthly base salary multiplied by twelve (12) months which Executive will be paid his salary, accrued bonuses, if any, and vacation earned and other amounts due to him up to the termination date; which amount is to be paid in a lump sum within 10 business days of the Change in Control termination date.

 

On July 1, 2013, the Company entered into an employment agreement with J.C. Rodríguez, the named executive officer of the Company. The employment agreement was further amended on April 14, 2014.

 

 

(a)

by the Employee electing to give the Employer not less than 3 months prior notice of such termination;

 

 

 

 

(b)

by the Employer electing to give the Employee 3 months prior notice of such termination along with a termination payment equal to the sum of Employee’s Fee earned pursuant to Section TEN during the preceding 12 months prior to the month notice of termination was given plus any unpaid vacation and other amounts due to him up to the termination; and

 

 

 

 

(c)

(1) by the Employee electing to give the Employer notice, in the event that there occurs a Change of Control (as defined below) within 6 months of the effective date of such Change of Control, and if the Employee so elects to terminate this Agreement, or (2) by the Employer upon notice to the Employee within 3 months prior to or within 6 months after a Change of Control is announced by the Employer, or its parent, then the Employer will be entitled to a termination payment equal to 3 times the sum of Employee’s Fee earned pursuant to Section Ten of the employment agreement during the preceding 12 months prior to the month notice of termination was given, plus any accrued vacation and other amounts due to him up to the termination.

 

 
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A Change of Control shall be deemed to have occurred when:

 

 

(i)

any person, entity or group becomes the beneficial owner of 20% or more of the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors, and such person, entity or group uses such effective voting control to change a majority of the Board of Directors of the Company, either all at once or through any series of elections and appointments when considered together; or

 

 

 

 

(ii)

completion of the sale or other disposition by the Company of all or substantially all of the Company's assets or a reorganization or merger or consolidation of the Company with any other entity or corporation, other than:

 

 

(A)

a reorganization or merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of another entity, more than 50.1% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such reorganization or merger or consolidation; or

 

 

 

 

(B)

a reorganization or merger or consolidation effected to implement a recapitalization or reincorporation of the Company (or similar transaction) that does not result in a material change in beneficial ownership of the voting securities of the Company or its successor.

 

·

Director Compensation

 

The following table sets forth the value of all compensation paid or accrued to the directors, excluding Mr. Wolfin who is paid as an officer and not as a director, in their capacity as directors for the year ended December 31, 2020:

 

Name

 

Fees earned(5)

($)

 

 

Share-based awards(1) (5)

($)

 

 

Option-based awards(2)(5)

($)

 

 

Non-equity incentive plan compensation(3)(5)

($)

 

Pension value(4)(6)

($)

 

All other compensation(5)

($)

 

Total(5)

($)

 

Gary Robertson*

 

 

53,683

 

 

 

72,434

 

 

 

45,696

 

 

Nil

 

Nil

 

Nil

 

 

171,814

 

Jasman

Yee

 

 

31,315

 

 

 

58,940

 

 

 

45,696

 

 

Nil

 

Nil

 

 

 

 

135,951

 

Peter

Bojtos*

 

 

43,245

 

 

 

52,487

 

 

 

45,696

 

 

Nil

 

Nil

 

Nil

 

 

141,248

 

Ronald

Andrews*(6)

 

 

43,245

 

 

 

48,349

 

 

 

45,696

 

 

Nil

 

Nil

 

Nil

 

 

137,290

 

_______________

*

Independent and Non-Employee Directors

(1)

Share Based Awards are in the form of RSU Plan. The “2018 RSU Plan” was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2020, a total of 4,373,500 RSUs were granted under the 2018 RSU Plan to officers, directors, employees, and consultants, and 1,238,610 were vested and 260,890 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2020. The closing market price on September 20, 2020 was C$1.41 per common share, the closing market price on August 28, 2020 was C$1.555 per common share, and the closing market price on August 21, 2020 was C$1.54 per common share.

(2)

The methodology used to calculate the grant-date fair value is based on the Black-Scholes Option Pricing Model. During the year ended December 31, 2020, 1,700,000 new option-based awards were granted to officers, directors, employees, and consultants. The fair value was estimated using the following weighted-average assumptions: risk-free interest rate of 0.30%, expected dividend yield of 0%, expected option life of 5 years, and expected share price volatility of 66.09%.

(3)

The Company does not have any non-equity incentive plans.

(4)

The Company does not have any pension plans.

(5)

All director compensation is paid in Canadian dollars and is converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412, which represents the average exchange rate for the year 2020 as quoted by the Bank of Canada.

(6)

Mr. Ronald Andrews was appointed on May 30, 2019.

 

 
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The Board, on recommendation of the Compensation Committee, determines director compensation. The objective in determining such director compensation is to ensure that the Company can attract and retain experienced and qualified individuals to serve as directors. The Company compensates its non-executive directors through the payment of directors’ fees, plus annual retainer for board and committee chair, and per meeting fees, and through the grant of incentive stock options and RSUs. All retainers are paid pro rata on a quarterly basis. The non-executive directors receive the following annual retainers and other fees for their services as directors:

 

Annual Retainer per Director

 

$ 22,368 *

Annual Retainer for Board Chair

 

$ 22,368 *

Annual Retainer for Audit Committee Chair

 

$ 5,965 *

Annual Retainer for Compensation Committee Chair

 

$ 3,728 *

Annual Retainer for Governance & Nominating Committee Chair

 

$ 3,728 *

Meeting Attendance Fee per Meeting

 

$ 746 *

_______________ 

*All director compensation is paid in Canadian dollars and is converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412, which represents the average exchange rate for the year 2020 as quoted by the Bank of Canada

 

The Company may grant incentive stock options and RSUs to Directors of the Company from time to time pursuant to the Stock Option and RSU Plans of the Company and in accordance with the policies of the Toronto Stock Exchange (the “TSX”).

 

Outstanding share-based awards and option-based awards

 

The following table sets forth the options and RSUs granted to the directors to purchase or acquire securities of the Company outstanding at December 31, 2020:

 

 

 

Option-based Awards

 

 

Share-based Awards

 

Name (1)

 

Number of securities underlying unexercised options

(#)

 

 

Option exercise price

(C$)

 

 

Option expiration date

 

Value of unexercised in-the-money options

($)(2)(4)

 

 

Share grant date

 

Number of shares or units of shares that have not vested

(#)(3)

 

 

Market or payout value of share-based awards that have not vested

($)(3)(4)

 

 

Market or payout value of share-based awards not paid out or distributed

($)(3)(4)

 

Gary Robertson

 

 

100,000

 

 

$ 2.95

 

 

Sept 2, 2021

 

Nil

 

 

Aug 28, 2018

 

 

25,000

 

 

 

24,418

 

 

Nil

 

 

 

 

150,000

 

 

$ 1.98

 

 

Sept 20, 2022

 

Nil

 

 

Aug 21 2019

 

 

90,000

 

 

 

53,012

 

 

Nil

 

 

 

 

100,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

746

 

 

Aug 4, 2020

 

 

60,000

 

 

 

73,367

 

 

Nil

 

Jasman Yee

 

 

50,000

 

 

$ 2.95

 

 

Sept 2, 2021

 

Nil

 

 

Aug 28, 2018

 

 

17,000

 

 

 

16,605

 

 

Nil

 

 

 

 

125,000

 

 

$ 1.98

 

 

Sept 20, 2022

 

Nil

 

 

Aug 21, 2019

 

 

70,000

 

 

 

41,232

 

 

Nil

 

 

 

 

100,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

746

 

 

Aug 4, 2020

 

 

60,000

 

 

 

73,367

 

 

Nil

 

Ronald Andrews (5)

 

 

100,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

746

 

 

Aug 21, 2019

 

 

70,000

 

 

 

41,232

 

 

Nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aug 4, 2020

 

 

60,000

 

 

 

73,367

 

 

Nil

 

Peter Bojtos

 

 

50,000

 

 

$ 1.30

 

 

Aug. 28, 2023

 

 

13,048

 

 

Aug 28, 2018

 

 

7,000

 

 

 

6,837

 

 

Nil

 

 

 

 

100,000

 

 

$ 1.64

 

 

Aug 4, 2025

 

 

746

 

 

Aug 21, 2019

 

 

70,000

 

 

 

41,232

 

 

Nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aug 4, 2020

 

 

60,000

 

 

 

73,367

 

 

Nil

 

________________

(1)

For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above.

(2)

In-the-Money Options are the difference between the market value of the underlying securities at December 31, 2020 and the exercise price of the option. The closing Toronto Stock Exchange share price for the Company's common shares as at December 31, 2020 was C$1.65 per common share.

(3)

Share Based Awards are in the form of RSU Plan. The “2018 RSU Plan” was approved by the shareholders on May 24, 2018, and the maximum number of RSU shares issuable under this Plan shall not, together with all other security-based compensation arrangements of the Corporation exceed 10% of the issued and outstanding Common Shares as at the date of such Grant on a non-diluted basis. As of December 31, 2020, a total of 4,373,500 RSUs were granted under the 2018 RSU Plan to officers, directors, employees, and consultants, and 1,238,610 were vested and 260,890 were cancelled. The value of the RSUs is based on the closing price of the Common Shares on the vesting date. The RSUs will vest one-third annually over three years, and the amount above reflects the accrual for unvested share-based awards issued in the current and previous years, as at December 31, 2020. The closing market price on September 20, 2020 was C$1.41 per common share, the closing market price on August 28, 2020 was C$1.555 per common share, and the closing market price on August 21, 2020 was C$1.54 per common share.

(4)

The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412 which represents the average exchange rate for the year 2020 as quoted by the Bank of Canada.

(5)

Mr. Ronald Andrews was appointed on May 30, 2019.

 

 
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Incentive plan awards – value vested or earned during the year

 

An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period.

 

An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.

 

The following table sets forth the value vested or earned during the year of option-based awards, share-based awards and non-equity incentive plan compensation paid to directors during the year ended December 31, 2020:

 

Name (1)

 

Option-based awards – Value vested during the year

($)(2)(4)

 

Share-based awards – Value vested during the year

($)(3)(4)

 

 

Non-equity incentive plan compensation – Value earned during the year

($)(4)

 

Gary Robertson

 

Nil

 

 

84,160

 

 

Nil

 

Jasman Yee

 

Nil

 

 

62,526

 

 

Nil

 

Ronald Andrews (5)

 

Nil

 

 

40,188

 

 

Nil

 

Peter Bojtos

 

Nil

 

 

48,304

 

 

Nil

 

__________________

(1)

For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above.

(2)

The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date.

(3)

The RSU Vesting prices were C$1.41 on September 20, 2020, C$1.555 on August 28, 2020, and C$1.54 on August 21, 2020 per common share.

(4)

The Awards are calculated in Canadian dollars and are converted into US dollars by applying an exchange rate of US$1.00 = C$1.3412, which represents the average exchange rate for the year quoted by the Bank of Canada.

(5)

Mr. Ronald Andrews was appointed on May 30, 2019.

 

Termination of Employment, Changes in Responsibilities and Employment Contracts

 

On January 1, 2016, the Company entered into a consulting agreement with Intermark Capital Corporation, a company wholly-owned by David Wolfin, the named executive officer of the Company. The consulting agreement was further amended on March 23, 2016. On January 1, 2019, the Company renewed the consulting agreement with Intermark Capital Corporation for a period of three years with the same terms and conditions.

 

On May 30, 2019, the Company entered into a Change of Control Agreement with Nathan Harte, and Peter Latta, both who are named executive officers of the Company.

 

On July 1, 2013, the Company entered into an employment agreement with J.C. Rodríguez, the named executive officer of the Company. The employment agreement was further amended on April 14, 2014.

 

Please see “Termination and Change of Control Benefits” above for details.

 

C. Board practices

 

The Board is currently comprised of five directors. The size and experience of the Board is important for providing the Company with effective governance