Gold At $3,300: Market Peak or Just The First Leg Up? (Uncut) 05-01-2025

Gold At $3,300: Market Peak or Just The First Leg Up? | David Wolfin

Every portfolio should have insurance. Gold is insurance in uncertain times. You shouldn’t be concerned about price.

You should have insurance. So don’t worry about what it’s at. You need some in there.

With gold reaching new all-time highs above $3,300 an ounce, investors are wondering what’s next and whether or not this will continue to be a space where profits can be seen. Well, our next guest, David Wolfin, is the president and CEO of Aveeno Silver and Gold Mines, a very interesting project. And they have a very interesting jurisdiction in Latin America.

Their ticker is ASM on the NYSE and TSX. And we’ll be talking about the future of resource extraction and mining with gold hitting all-time highs. David, welcome to the show.

Thanks for having me, David. Is there still a story here for investors looking into precious metals with gold already reaching levels never before seen above $3,300 an ounce? Absolutely. Every portfolio should have insurance.

Gold is insurance in uncertain times. You shouldn’t be concerned about price. You should have insurance.

So don’t worry about what it’s at. You need some in there. And if you like leverage to the metal, then you’ve got to look at the equities.

And we’re a good choice there. What is the fundamental difference for investors who may not be following this space? The fundamental difference between owning gold equities and gold itself? Because the question some people may have is, why don’t I just own the bullion? Because you get higher leverage on the equities. So if gold goes up 10%, the equities may go up 30% or 40% or more.

What right now is the main driver for equities valuation for the mining sector? In other words, besides gold going up, last year, for example, the equities were lagging gold. This year, what is the story that will compel the miners to start outperforming dramatically? Cash flow, free cash flow. That’s the key indicator.

So the larger companies have come out with great news for Q4, which is basically the third quarter in the rally. So the rally started a year ago in March. So really, Q4 was a leading indicator.

Q1’s coming out in the next few weeks. And I expect that the larger mining companies and royalty companies are going to be increasing their dividends. And that’s going to attract generalists, yield-driven type investors.

And I think that that will eventually trickle down to the mid-tiers and then the juniors, because the seniors will get a high PNAV, and then the investors will look for opportunities below that. And how the miners, especially the producers with this higher free cash flow, like you said, how are they spending their cash? Presumably, they have a larger cash reserve now. Well, some of them are buying back stock, I see, because they feel the value of their company is low.

I see a lot of sustaining capital going back in, capital expenditures to expand their operations. And hopefully increase their cash flow generation. And then M&A, you see in our sector, you see Silvercrest and Gatos are gone.

So those were $2 billion market cap companies. So the spotlight is narrowing down on the pure silver plays that are left. And our share price has been appreciating since then.

I do want to talk about your company in more detail. But first, let’s just talk about the share price for your company before we get into the project itself. So up about 160, 170% since basically one year ago.

Yeah, exactly 12 months. This is a 12-month chart. I know that, again, leverage to the upside, but not all miners have outperformed to this extent.

So what did Divino do last year? Well, we advanced our second asset. And we subsequently, earlier this year, we announced we got the permit in Mexico. So that really opened everyone’s eyes.

But we were developing, we were doing community engagement last year and permitting. And so people were anticipating that we were going to get the permit. And that’s what happened.

It shows that Mexico is open for business. Let’s just go back to the mining sector for a few minutes. So right now, companies are flush with cash.

They’re buying assets, M&A, and so on and so forth. What mistakes, maybe, have they learned from the last bull cycle in 2011 when, as you remember, perhaps a lot of assets were bought without maybe proper due diligence? Were they overpaid for assets? Do you think the sector has learned from those mistakes this time? Hard to say. I think that they’re driven by the need to deliver growth.

Investment bankers want commissions. So they’re pushing CEOs to make deals. It’s hard to say if the industry has learned.

But from my perspective, I’ve learned as a junior operator, you’ve got to be careful not to take on more than you can handle, especially if you face a downturn. And you have to grow your middle management to operate multiple operations. It’s going to hurt you and the shareholders in a downturn.

And nothing goes straight up. So I expect gold’s going to pull back at some point and then maybe go higher again. Right.

If you were, let’s say, a major and you were looking for projects to acquire right now, what are the criteria on your checklist that you would have to be watching out for? They’re going to look for the ones that generate the best cash flow, I think. Have a decent resource base. Grade is king.

Who’s got high grade? Those are probably the three key indicators. Is your plan in the long term to be acquired? Or do you want to just continue expanding your profile here? We’ve put together a five-year plan to grow organically to get to intermediate status. During that time or at the end of that time, if an acquirer comes along, we’ll have to see what the shareholders want to do.

But our plan is to remain disciplined and focused on our five-year plan. Well, tell us about your five-year plan in a little bit more detail. So what is your current production profile? And where do you see yourself in five years? Yeah.

So we were considered a junior producer. We produced 2.6 million ounces of silver equivalent last year. And then so our second asset, our second mine is coming online now.

And it’s not requiring a lot of capex. It was acquired. We acquired it back in 2022 from Cura Mining for $30 million.

They bought out Orco in 2013 for $358 million. So we got it for 10 cents on the dollar. But they were considering an open pit mine, which won’t fly in Mexico.

We’re just doing an underground mine. And we’re planning to haul that material to site, which is 19 kilometers away. And we have the ability to process it in our current facility.

And the third asset is the oxide tailings project. So this is leftover waste from when we mined in the 70s, open pit mined in the 70s and 80s. We’ve done a pre-feasibility study on reprocessing that material by way of leaching.

So we’ve got proven and probable reserves on that project of 5.7 million tons. The capex on that’s going to be $49 million on a standalone basis. But it’s going to add about 2 million ounces of silver equivalent to our production in year 2027, 2028.

It’ll start ramping up. So we’re just doing one expansion at a time. This five-year plan was put together a few years ago before the rally.

So we were planning to do it organically with the cash that we have. If we can shrink the timeline now that we’ve got more cash, we’re going to work on that. There’s a lot of good mines and good deposits in Latin America.

What is special about not just Aveeno, but the area in which you operate? Well, the location is a safe jurisdiction. It’s in the high desert. It’s in rolling farmland.

So there’s cattle ranching and farming that goes on there. You’re not in a remote area where it could be dangerous. And because the mine was discovered in the 1500s, infrastructure is built up around us.

There’s villages. It’s busy. So that’s important for security to be in a busy area.

And the beauty of that is we have access to every type of skill set. We’ve got 100% Mexican labor force, right up to our chief operating officer, who’s a graduate of Colorado School of Mines. We’ve got an excellent man there running the operation.

Excellent. All right. So let me just share my screen here and I can show the audience a visual of your portfolio here.

So Aveeno Mine production, like you mentioned, you acquired the Preciosa project, an underground development, and you have a tailings project as well. So give us a sense of the scale of the deposit itself. So how many ounces of indicated and inferred? Well, for La Preciosa, there’s 17.4 million metric tons of measured and indicated or 113 million ounces of silver equivalent.

And then there’s 4.4 million metric tons of inferred or 24 million ounces of silver equivalent. Now, we raised the cutoff grade from what Coor had because we’re not looking at open pit mining there. So if the government changes its mind on that, there’s more ounces there because we can lower the cutoff grade.

But it’s well defined. There’s over 1,500 drill holes on the Preciosa, 90 million spent by Pan American Silver and Coor and Orko pincushing the deposit. It’s all between 150 and 500 grams of silver.

That’s all ore grade material. And so we have all the ingredients for expansion. We’ve got a 20 kilometer dedicated power line capable of 5 megawatts.

We’re only utilizing three. So when we go to build out our third asset, we have excess electrical capacity. So and high water supply.

So we built a dry stack tailing storage facility for 10 million dollars. We weren’t mandated. We were doing this to protect our interests.

I’m the largest shareholder of the company and I don’t want a catastrophe there. So we built out the safest way of storing tailings and we’re backfilling the open pit, which is a form of reclamation. And the rest is going back in the underground.

Let’s take a look at the next slide here. So this is your production profile growth projection. So how are you planning to expand your production profile? Yeah.

So on there, you see the dark blue represents the producing of, you know, the light blue is La Preciosa and the lightest blue is oxide tailings. That’s how we’re going to grow our operation. You see the big jump next year is between 30 to 50 percent.

And that’s only with spending three to five million dollars, which is basically nothing. We’ve got that in the treasury. We’re not building a new processing plant.

It’s all being hauled over there. So that’s going to drop our all in sustaining costs to the mid teens from right now. It’s between 18 to 20 dollars is our cost per ounce.

OK, and looking ahead, are you planning to do more capital raising or do you have enough cash already? No, there’s no plans to do any large financings. We do have an ATM that we use from time to time. It’s more for insurance for the balance sheet.

We do want to grow our balance sheet to be able to handle the expansion. The oxide tailings, as I mentioned, is forty nine million dollars. But we won’t make that construction decision probably till the end of 2026.

We’re doing community engagement. And then we’re and also a final feasibility study on that one. Have tariffs imposed on Mexico? I know most of them have been have been taken off.

But have tariffs impacted your production and or company strategy at all? No, because we don’t send anything to the US at all. We produce a concentrate that gets hauled to the shipping port of Manzanillo and then it goes on a freighter over to Asia. And our primary trading partner is Samsung.

They use it in their electronics. And so we’re protected from tariffs. So you ship over the concentrate.

There’s no refining done before it’s shipped over to Asia, right? We just produce a concentrate. Then it goes to Asia to a smelter of choice for of Samsung. Well, what happens then if, let’s say, trade restrictions tighten up? Would you be looking at another partner to work with besides Samsung? Oh, we do deal with other trading partners.

The other Ocean Partners, Traficura, Glencore, they all bid on our product in excess of what our contract is with Samsung. So if we were able to produce more than 900 tons per month, we put it up for auction. And there’s a high demand for it.

Yes, absolutely. OK. Are there any costs that you see or foresee could rise in the future that may offset the goal to keep all the sustaining costs down? And if so, how would you plan to mitigate these costs? Costs have been trending down since the pandemic because there were supply chain disruptions.

So it’s hard to know what could happen in the future. But we remain a competitive company with our low cost per ton and all in sustaining. Would there be a price at which gold would fall so much that you would halt production and wouldn’t make any economic sense? It’d have to go below or all in sustaining for a period of time.

And so right now, between 18 to 20 for silver is how we look at profitability, anything above that. So with La Preciosa, it’s going to drop to mid teens. So that really protects investors.

In oxide tailings, the ASIC on that is $10. So that will bring the combined all in sustaining costs to the low teens. So you’ve got to look at the silver price.

So at $30, we’re 50% making margin right now. Is there an ASIC for gold as well? It’s all calculated into silver equivalent. Oh, interesting.

Roughly, how much of the production is silver versus gold? Yeah. So this year, it’s going to be 49% of our revenue will come from silver and 19% from gold and 31% from copper. So we’ll go up to 58% to 60% next year with the onset of La Preciosa.

And then with the oxide tailings, we want to get into 70%, 80% of our revenue from silver because there’s very few companies that can say that. Can you comment on the grade profile? The grade profile at the moment is about 60 to 70 grams silver, a third to a half a gram gold, and anywhere from 0.5 to 1% copper. And that’s in the Avena mine.

At La Preciosa, it’s different. The combined resource is around 250 to 300 grams of silver equivalent. But within the drilling that we’ve uncovered is what we’re going to be mining for the first few years is between 300 to 500 grams of silver.

So it’s going to be considered high grade. OK. So is it, correct me if I’m wrong, but is it primarily a copper vein with gold and silver being byproducts? It’s changing from the surface.

It was richer in silver, but it’s getting richer as it goes deeper, which is an indicator of a porphyry system. But it hasn’t been classified as a porphyry system. We’ve brought in two world-renowned structural geologists, and basically we have to do more drilling to determine that because it keeps morphing as we go down deeper.

And so porphyries tend to stack. So there is that potential, which could be massive, but we haven’t proven that one yet. Let’s just take a look at this slide here for your financials.

So yeah, really impressive growth in Q4 2024, net income was 5.1 million. That’s an 800% change from the previous fiscal year, if I’m not mistaken. Now, I understand that much of that may be due to higher production.

Although if I look at it, the revenues did, yeah, revenues, so 66 million for the year, and then 43 million, 44 million for fiscal year 2023. So maybe a lot of this net income increase came from higher production, higher revenue, but also good cost management, right? So what did you do differently in 2024 versus 2023? It’s not necessarily that. I mean, it’s probably higher economies of scale.

We produced more as we opened up more of the underground, but the costs have generally stayed pretty consistent. Metal prices really helped a lot, and grade. There’s gold lenses within the deposit that it’s not homogenous.

So there’s good areas and other areas that are mediocre. So that really helped. Q4 made the big difference with the metal prices, 24.4 million record revenue and 49% margin.

So that really, really helped. Are you planning to acquire any smaller deposits from other companies yourself? Not at the moment. We’re remaining disciplined.

We’ve got 75 million metric tons. And so if you look at that, so 53.1 million metric tons of measured and indicated, 277 million ounces of silver equivalent. But beside that, you see the actual metal, 171 million ounces of silver, 800,000 ounces of gold and 300 million pounds of copper.

And below that is 23.8 million metric tons. So if you combine all that and we process between 700 and 750,000 tons on an annual basis, this represents 100 years of mine life. We’re not going to wait 100 years.

So we can look at further expansions organically. We don’t need to acquire other things, but we are the only operator in this area. So there is a potential for toll milling.

Did you say your mine life is 100 years? Yeah. Wow. It’s combined between Aveeno, La Preciosa and Oxide Tailings.

I see. Okay. And how has your net asset value changed over the last couple of years? Have you added to your deposits or not much? Absolutely.

Oh, yeah. And we’re drilling right now. There’s going to be a new resource estimate coming out in Q1 next year.

And what we’ve been focused on is drilling below level 17. That’s the bottom developed area of Aveeno from surface because it’s never been drilled. And we intersected 16 holes in 2023 in ore grade material.

One was the best intercept in company history. This was 100 meters below level 17. And we hit 57 meters of 300 grams of silver equivalent.

Within there, there was 40 meters of 400 grams. Within there, there was 3.5 meters of 3.5 kilograms of silver equivalent. So this all will go into a new reserve estimate.

We now qualify to come up with reserves because we’re a reporting issuer, and we’ve had over $90 million in revenue. So now we’re going to come out with our own internal reserve estimate. And we’re going to drill this year and then put that out next year.

Tell us a little bit about yourself and your management team. Well, give us your background first. I grew up in the industry.

My father founded the company in 1968. I worked in the mine as a teenager. I worked in Nevada at a gold mine.

We had another deposit there that we sold to Barrick. It’s part of the Cortez joint venture. And then also in the field of finance.

I worked in the summers on the floor of the Vancouver Stock Exchange. I saw the crash in 1987. I worked in the head offices for two firms in the 90s and joined my father in the mid-90s.

And then I was appointed president in mid-2000s. So I was with him for about 10 years. When Aveno closed, we operated the mine from 1974 to 2001.

And during the first tech bubble, metal prices dropped, and Pignoli stopped taking our concentrates to the mine close. So I approached him and said, we should buy the other half of the mine because we only own 49%. So that’s when I was appointed president and reappointed our geologist.

He’s a graduate of Colorado School of Mines. He worked for big companies, Hecla and big Mexican companies. We’ve got other people on our board, accountants and engineers.

And a woman, a Latino woman, and another financial guy from the US. Okay. And tell us how the mining industry has evolved over the last 35 years since you’ve been involved.

Biggest changes you see, and not just the style of management, but also their priorities, strategies, attitudes. I’d say technology has improved. Processing.

I mean, the business hasn’t changed. It’s exploration, development, crushing, processing, and refining. So it’s just improving on all those metrics.

And we always look forward to new technologies. And, you know, like the invention of dry stack. So this has made it safer for jurisdictions to store their materials so it’s not wet and volatile.

What about financing? Is it difficult or harder or easier today to raise capital than, let’s say, 20 years ago? It’s harder for the really small juniors. The producers have a better time, especially right now. In the last 10, 15 years, a new financing tool called ATM came out at the market.

So if treated properly, it’s good for the business because it’s at the market. It’s not a discount. And there’s no warrant or anything.

So it mitigates dilution if managed correctly. You have no debt on your balance sheet, correct? That’s correct. Are you planning to change your capital structure at all? No.

Okay. If you had to raise again, let’s say in the future, would you prioritize equity versus debt? It depends on servicing debt. So we did an offtake agreement a few years back with Samsung.

They gave us $10 million and we built circuit number three. And we netted it off deliveries. So that was zero dilution in equity.

So we’re very mindful because everyone in the company are shareholders. And so we don’t want to dilute ourselves if we don’t have to. So we’re trying to keep that at a minimum.

I know this is a hypothetical question. You’re probably not doing this now. But let’s say Samsung approaches you and says, hey, we’d like to be vertically integrated.

Can we just acquire your company? What would you say? That would be interesting. I don’t think that they would because they’re not experts in mining. But it’s possible.

It could be the trend, secure raw materials at source. But they haven’t indicated that they’re interested in that. No, of course not.

It’s purely a hypothetical question. But would you be open to that idea of an acquisition by, it doesn’t have to be Samsung, but some industrial giant wanting to acquire mines? Or are you focused? Sure. I mean, let the shareholders decide.

But we want to try to get our expansion done to get the market cap up as high as possible. Eight to 10 million ounce producers are valued over a billion dollars. And we’re a third of that.

So we want to get there. And we’ll see what happens at that point. Well, congratulations on your success so far, David.

This is a very, very impressive numbers for a company in the mining industry. Not all companies are profitable right now. And not all companies have had their share price outperform the metals.

So good job there. Where can we learn more about your company? On our website, aveno.com, or people can reach out to us. We’re available.

Okay, good. We’ll put the link down below. So make sure to follow David and his company there.

Take care for now, David. Good to see you. Thank you very much for having me.

Thank you. And thank you for watching. Don’t forget to like and subscribe.