ASM Q4 2023: Cash Margin Rises to 29% as La Preciosa Permitting Sets 2024 Growth Catalyst
Aveeno Silver and Gold Mines (ASM) exited 2023 with its highest quarterly revenue of the year and a 29% cash operating margin, despite full-year revenue flatlining versus 2022. The company’s operational and financial discipline, paired with new land agreements and permitting progress at La Preciosa, position ASM for a step-change in production mix and cost structure. With permitting and bulk sample processing at La Preciosa expected to drive incremental output, ASM’s five-year plan to triple silver equivalent production is taking shape, but execution risk and FX headwinds remain key watchpoints.
Summary
- Margin Expansion: Cost containment and improved recovery rates lifted cash operating margins in Q4.
- La Preciosa Ramp: Land use agreement and permitting progress unlock a near-term growth lever.
- Cost Structure Reset: Higher-grade feed and economies of scale could lower per-ounce costs by 2025.
Business Overview
Aveeno Silver and Gold Mines (ASM) is a precious metals producer operating in Durango, Mexico. The company generates revenue by mining, processing, and selling silver, gold, and copper concentrates. Its core assets include the operating Avino mine, the development-stage La Preciosa project, and an oxide tailings project. ASM’s business model is anchored in expanding resource extraction and mill throughput, with a focus on organic growth and operational leverage across its contiguous assets.
Performance Analysis
ASM’s Q4 2023 marked a return to margin expansion, posting its strongest quarterly revenue of the year and a 29% cash operating margin from the Avino mine. Revenue for the full year held steady at just under $44 million, essentially flat versus 2022, as lower grades and recovery rates earlier in the year were offset by operational improvements in the second half. Net income for Q4 was $0.6 million, and adjusted earnings rose to $2 million, reflecting both cost discipline and a stabilization in operational performance.
Cost metrics showed sequential improvement, with cash costs per silver equivalent ounce dropping to $15 in Q4, down from $16.90 in Q3. All-in sustaining costs (AISC) followed suit, reflecting early benefits from haulage rate reductions and tighter alignment of mining and milling rates. Working capital nearly doubled from mid-year to $10 million, providing liquidity to support near-term development. However, the impact of a stronger Mexican peso, which appreciated 15-20% YoY, continued to pressure the cost base, highlighting the company’s exposure to FX volatility given its Mexico-centric operations.
- Operational Leverage: Q4 delivered the highest revenue of 2023, despite YoY declines from 2022’s record quarter.
- Cost Stabilization: Cash costs and AISC per ounce trended lower sequentially, aided by haulage and labor efficiencies.
- Production Mix: 2023 silver equivalent output reached 2.4 million ounces, with a 2024 target of 2.5-2.8 million ounces as La Preciosa stockpiles are introduced.
ASM’s operational reset in Q4 sets the stage for a 2024 inflection, but sustaining margin gains will depend on successful ramp and grade improvement at both Avino and La Preciosa.
Executive Commentary
"December production saw a noticeable increase in grade and recovery, and the trend has continued into Q1 2024...Our five-year growth plan takes us from production of 2.5 to 2.8 million ounces of silver equivalent in 2024 to between 8 and 10 million ounces of silver equivalent by 2029."
David Wolfen, President & CEO
"Cash costs and all-in sustaining cash costs decreasing compared to Q3 and Q2, and we continued to generate additional operating cash flow from operations. Most importantly, our working capital position has improved significantly with working capital up to around $10 million at the end of the year, almost doubling from where we were at the end of the second quarter."
Nathan Hart, Chief Financial Officer
Strategic Positioning
1. La Preciosa Acceleration
The long-term land use agreement and environmental permitting at La Preciosa unlock a new phase for ASM’s growth. With surface stockpiles already being hauled for processing, 2024 will see bulk sampling and, potentially, the first fresh ore production if permitting proceeds as planned. Management has not budgeted for fresh La Preciosa ore in 2024, so any upside is incremental, providing flexibility and potential upside to guidance.
2. Cost Structure Realignment
Cost reduction initiatives, including haulage and labor rationalization, have already shown results in Q4. The introduction of higher-grade La Preciosa feed is expected to further lower per-ounce costs and drive economies of scale. Management expects consolidated costs to fall over the next two to three years as production mix shifts and throughput expands.
3. Organic Growth Platform
ASM’s contiguous asset base—a mill complex, three mine sites, and infrastructure— is designed to enable organic scale-up without major new capital requirements. The five-year plan targets a tripling of silver equivalent production, leveraging infrastructure and resource optionality across Avino, La Preciosa, and the oxide tailings project.
4. ESG and Community Integration
Community engagement and ESG programs have been central to ASM’s ability to secure permits and maintain local support. The company’s initiatives in education, infrastructure, and environmental stewardship have translated into social license, a critical differentiator in the Mexican mining context.
Key Considerations
ASM’s Q4 and 2023 results highlight a business in operational transition, with near-term catalysts and execution risks tightly interwoven. The following points frame the strategic context for investors:
Key Considerations:
- Permitting Dependency: The timeline for La Preciosa’s full ramp remains contingent on environmental permit approvals, with community support already secured but regulatory risk present.
- FX Sensitivity: The cost base is highly exposed to the Mexican peso, which appreciated 15-20% YoY, impacting margins and requiring ongoing hedging or operational mitigation.
- Production Mix Shift: The transition to higher-grade La Preciosa feed is expected to lower costs, but actual savings will depend on ramp execution and orebody performance.
- Organic Growth Leverage: Existing infrastructure allows for stepwise production increases without major greenfield capex, but also limits flexibility if ramp timelines slip.
- ESG as Enabler: Deep community integration and ESG focus have proven critical in unlocking land use agreements and may provide a competitive edge in permitting processes.
Risks
Key risks include permitting delays at La Preciosa, which could push back the production mix shift and cost improvements central to ASM’s five-year plan. FX volatility remains a persistent threat to cost structure given the company’s peso-denominated expenses. Operational risk around mill throughput, grade control, and recovery rates could also impact margin trajectory, particularly as new ore sources are integrated. Management’s guidance is predicated on stable macro conditions and assumes timely regulatory approvals.
Forward Outlook
For Q1 and full-year 2024, ASM guided to:
- Silver equivalent production of 2.5 to 2.8 million ounces, sourced predominantly from Avino, with incremental contribution from La Preciosa stockpiles.
- Mill throughput of 700,000 to 750,000 tons, up from 615,000 tons in 2023.
For full-year 2024, management maintained the production outlook, with any fresh La Preciosa ore representing upside to current guidance:
- Guidance assumes no fresh ore from La Preciosa, only stockpile processing.
Management highlighted several factors that could influence outcomes:
- Permitting timelines for La Preciosa remain the gating factor for fresh ore contribution.
- Cost reductions are expected to persist as mining and milling rates are better aligned and higher-grade feed is introduced.
Takeaways
ASM’s Q4 marked a pivot to margin expansion and operational discipline, setting up 2024 as a potential inflection year as La Preciosa comes online. The company’s five-year growth plan is credible, but execution risk remains, particularly around permitting and cost inflation.
- Margin Recovery: Q4’s cash margin rebound demonstrates the company’s ability to flex costs and optimize throughput, but sustaining gains requires flawless execution on upcoming ramps.
- Strategic Leverage: The contiguous asset base and infrastructure create organic growth options, but also concentrate risk if La Preciosa or the oxide tailings project face delays.
- Execution Watchpoints: Investors should monitor permitting progress, FX trends, and bulk sample performance at La Preciosa as leading indicators for 2024 trajectory.
Conclusion
Aveeno’s Q4 performance demonstrates tangible progress on cost control and operational stability, with clear catalysts in place for 2024 as La Preciosa advances. The path to tripling production by 2029 is visible, but will hinge on timely permitting, successful integration of new ore sources, and continued discipline on costs and community engagement.
Industry Read-Through
ASM’s experience underscores the importance of operational flexibility, community engagement, and permitting agility in the Mexican precious metals sector. The ability to quickly redeploy equipment, align mining and milling rates, and maintain deep local relationships is a template for mid-tier miners facing similar regulatory and FX headwinds. The margin volatility observed at ASM is emblematic of broader trends in the industry, where cost inflation and currency swings can rapidly erode profitability. As Mexican mining companies increasingly pursue brownfield expansions and organic growth, the lessons from ASM’s Q4—especially around ESG integration and cost discipline—will be instructive for peers navigating a complex operating environment.