Avino is a mining company that looks great on the surface, but has some serious issue hiding underneath.
Avino Silver & Gold Mines LTD. (NYSE: ASM) looked to be a dark horse within the metals and mining industry, holding key figures such as a debt ratio of 0.0092 and a current ratio of 8.36. These are strong for a mining company, however red flags are raised when looking through their Q1 2021 report which records only $29,000 in revenue made during this quarter.
Stock price fiasco
Over the last 5 years Avino’s share price has decreased from $3.08 to its current price at $1.05. Avino have shown themselves to be an untrustworthy company through their closures throughout Q1 2021, and a lack of production on their Avino Mine throughout 2020 which has cost them dearly.
To make matters worse, Avino’s stock price has operated in a cycle over the last 15 years of high and lows but never has shown a long-term trend. With no general sense of direction, Avino have shown themselves to be vulnerable to general market swings which can exacerbate their own failures.
Mines become ghost towns
Avino mine, along with other mines, were shut down due to the pandemic. To make matters worse, workers had prolonged the effects with a strike that lasted up until October 2020. Upon return from strike, recommencement at the Avino mine during Q1 2021 was delayed for safety checks of equipment. These delays have worsened investor sentiment for Avino.
A report in 2017 for one of Avino’s holdings, Oxide Tailings deposit, stated that the preliminary assessment of the mine is speculative and holds no economic viability as it is not technically a mineral reserve. It is difficult to say what is to come of it and Avino.
Strong revenue streams are important for any company. In 2018 and 2019, Avino made $34 million and $31 million in revenue respectively. This fell by nearly half to $16 million in 2020. This is made worse when seeing that their EBITDA has fallen from $5.7 million in 2018 to $7 million in 2020.
The profitability of Avino has fallen, so 2021 is now a key year for Avino and investors alike. The risk-to-reward ratio for investing in this company has been increasing over the years.
To correct their mistakes, Avino has made two announcements in 2021 to increase capital expenditures and exploration on mining from 12,000 metres to 36,000 metres on the Avino property. With long-term shareholders in mind, this looks attractive and safe, but the fact remains that the downside possibilities are steep. If there’s a lack of resources to be found, Avino are in hot water.
No leg up
Their lack of a competitive moat allows their competitors to always hold an edge on them making progression increasingly difficult. Without this they may not be able to prove themselves as a market contender for growth in the long run, let alone the next quarter.
It is hard to find an advantage Avino holds over the general market and the actions they have taken are hopeful, but it does not overpower what can only be described as a dire situation. With their competitors arching over them and one of their three mines not being economically viable, it is hard to see their growth potential over the long-term.
Due to a combination of results and risks, we consider the stock to be underweight, implying it will underperform the market over the next few years.