La Preciosa Development Will Boost Future Production

Key Takeaways

• Underground development at La Preciosa and increased mill throughput are set to drive production growth, boosting future revenue and earnings.
  
• Strong metal prices, efficient cost reductions, and a robust balance sheet support improved profitability and financial flexibility for strategic growth.
  
• Heavy reliance on volatile metal prices and potential cost fluctuations poses risks to margins and future profitability at Avino Silver & Gold Mines.

Catalysts

Engages in the acquisition, exploration, and advancement of mineral properties in Canada.

• Avino Silver & Gold Mines has commenced underground development at La Preciosa, a significant undeveloped silver deposit, which is expected to contribute to the company’s future production growth, impacting revenue and earnings positively.
  
• The company has achieved a substantial increase in mill throughput and gold production due to improvements in operational efficiency and better gold grades, which should help enhance future revenue and net margins.
  
• Higher realized metal prices for silver, gold, and copper have benefited the company’s financial performance, and continued strong metal prices are expected to provide favorable operating and profit margins in the future.
  
• Avino’s strong balance sheet, with no significant debt and improved cash position, provides financial flexibility to execute its 5-year growth strategy, potentially boosting free cash flow and earnings.
  
• The successful implementation of cost-reduction strategies, along with weakening of the Mexican peso against the U.S. dollar, has reduced operational costs, leading to improved net margins and profitability projections.

Avino Silver & Gold Mines Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avino Silver & Gold Mines's revenue will grow by 11.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 21.6% in 3 years time.
• Analysts expect earnings to reach $19.7 million (and earnings per share of $0.14) by about April 2028, up from $8.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, down from 35.5x today. This future PE is greater than the current PE for the US Metals and Mining industry at 14.7x.
• Analysts expect the number of shares outstanding to grow by 5.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

Avino Silver & Gold Mines Future Earnings Per Share Growth

Risks

• The company's performance is heavily reliant on metal prices, which can be volatile and may affect future revenue and margins if prices fall.
  
• The expansion at La Preciosa involves significant capital expenditure with a guidance of $5 to $6 million, which could strain net margins if costs increase unexpectedly or projections are not met.
  
• Operating costs are sensitive to currency fluctuations, particularly with the Mexican peso; adverse changes could impact operating expenses and reduce net income.
  
• Future growth plans depend on accurate execution and successful integration of the La Preciosa mine, with risks of delays or production issues that could affect projected earnings.
  
• Capacity constraints at the mill may require additional investment for expansion to accommodate new production from La Preciosa, potentially impacting future profitability if costs exceed projections.

Valuation

• The analysts have a consensus price target of CA$3.125 for Avino Silver & Gold Mines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$3.5, and the most bearish reporting a price target of just CA$2.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $91.2 million, earnings will come to $19.7 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 6.8%.
• Given the current share price of CA$2.83, the analyst price target of CA$3.12 is 9.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.