Executive Summary / Key Takeaways

• Avino Silver & Gold Mines Ltd. ($ASM) is strategically positioned for significant organic growth, targeting a substantial increase in silver equivalent production to 8-10 million ounces by 2029, primarily driven by the development of its high-grade La Preciosa project.
• The company has demonstrated exceptional operational efficiency and financial strength, achieving record revenues and profitability in 2024 and Q1 2025, supported by mill upgrades, automation, and improved cost metrics.
• Avino's balance sheet is robust, with over $37 million in cash and $40 million in working capital as of Q2 2025, and no significant debt, providing ample liquidity to self-fund its growth initiatives.
• Technological advancements in milling and ongoing exploration, coupled with a disciplined approach to capital allocation and strategic hedging of the Mexican peso, underpin the company's ability to maintain competitive costs and enhance future resource potential.
• While the stock has seen significant momentum, its valuation remains compelling given the clear growth trajectory, strong financial performance, and strategic asset base, positioning Avino as an attractive opportunity in the precious metals sector.

The Foundation: Organic Growth in Mexico's Silver Heart

Avino Silver & Gold Mines Ltd. ($ASM), a long-standing silver producer incorporated in 1968, has cultivated a robust operational footprint in Mexico, focusing on the acquisition, exploration, and advancement of silver, gold, and copper deposits. The company's overarching strategy is centered on organic growth, leveraging its existing assets and infrastructure within a concentrated 20-kilometer footprint. This approach, which includes the operating Avino Mine, the developing La Preciosa project, and the potential Oxide Tailings Project, is designed to scale production efficiently while mitigating the risks often associated with new project development.

The broader industry landscape for precious metals is currently experiencing favorable macro tailwinds, driven by rising silver and gold prices and expectations of future U.S. rate cuts. This environment enhances the profitability potential for producers like Avino. Furthermore, the increasing global demand for copper, fueled by electrification trends and the energy requirements of burgeoning data centers, presents an indirect but significant opportunity for Avino's copper production.

Avino's foundational strength lies in its integrated operating mill complex, which boasts established access to water, power, and tailings storage. This existing infrastructure provides a significant competitive advantage, allowing the company to expand production without the major capital investments typically required for greenfield projects. The company's resource base is substantial, with 277 million silver equivalent ounces in Measured and Indicated Mineral Resources and an additional 94 million silver equivalent ounces in Inferred Mineral Resources, providing a strong pipeline for future growth.

Technological Edge and Operational Excellence

Avino’s operational prowess is a cornerstone of its investment thesis, driven by continuous technological enhancements and a dedicated operations team. The company has consistently invested in mill upgrades and automation, which have directly translated into measurable and positive results. In Q2 2025, Avino achieved its highest mill throughput in history, processing 190,987 tonnes of material, a 36% increase from Q2 2024. This milestone was made possible by previous plant upgrades and automation enhancements.

The company's metallurgical team actively conducts test work and stays abreast of the latest recovery technologies. This focus on process optimization has yielded tangible benefits in metal recoveries. In Q1 2025, gold recoveries improved to 75% from 70% in Q1 2024, and copper recoveries increased to 87% from 84%. While silver recovery saw a slight decrease in Q2 2025 due to varying mineralogy, the company anticipates improved recoveries at La Preciosa due to its different and higher-grade mineralogy. The ability to adapt to varying ore characteristics and optimize recovery processes is a key technological differentiator.

Avino's commitment to innovation extends to its exploration and resource development. Delineation drilling commenced at the Avino Mine in April 2025 to test the down-dip extension of the Avino Vein, which remains open at depth and has shown comparable grades and widths to currently mined areas. At La Preciosa, a second surface drill was deployed to confirm prior drill results and enhance the understanding of grade distribution near scheduled mining areas. This drilling information will be crucial for underground mine planning, 3D modeling, and an updated resource estimate due in Q1 2026. Furthermore, Avino plans to release its first mineral reserve estimate in Q1 2026, having met the requirements for a producing issuer under National Instrument 43-101 standards. These ongoing R&D and exploration efforts are vital for extending mine life, discovering new high-grade zones, and ultimately enhancing the company's long-term production profile and competitive moat.

The La Preciosa Catalyst: A New Chapter of Growth

The La Preciosa project represents the most significant near-term catalyst for Avino's transformational growth strategy. Acquired in 2022, Avino solidified its control over this substantial undeveloped silver deposit in Mexico by acquiring 100% ownership and extinguishing all outstanding royalties and contingent payment obligations on August 25, 2025. This strategic move is expected to lower the project's operating cost profile and streamline future development.

Underground development at La Preciosa commenced in January 2025, following the receipt of all necessary permits. By Q2 2025, blasting and construction of the 360-meter San Fernando main access decline were well underway, with expedited equipment mobilization. The new jumbo drill is actively working on the ramp, and as of the Q2 2025 earnings call, the Abundancia Vein had been intercepted, with the Gloria Vein expected to be reached within a few weeks. Site services, including compressed air, ventilation, and power, have been installed, and an existing building has been renovated for site personnel.

Capital allocation for La Preciosa is a key focus, with approximately $5 million to $6 million earmarked for equipment and mine development in 2025. These expenditures are expected to be heavier in Q2 and Q3 2025, tapering off in Q4. While 2025 will primarily involve development ore, meaningful income from La Preciosa is anticipated in 2026. The company's goal for 2026 is to achieve a throughput of 400 to 500 tonnes per day by utilizing the two smaller mill circuits, with a long-term target of approximately 1,500 tonnes per day, potentially increasing depending on future plans for the Martha project. La Preciosa is integral to Avino's ambitious target of scaling up production to between 8 million and 10 million silver equivalent ounces by 2029.

Robust Financial Performance and Liquidity

Avino has demonstrated a remarkable turnaround in its financial performance, culminating in record results. For the full year 2024, the company reported record annual revenue of $66.2 million, a substantial 51% increase from 2023. Net income for 2024 stood at $8.1 million, or $0.06 per share. This strong performance continued into 2025. In Q1 2025, Avino achieved a record gross profit of $10.6 million, with a gross profit margin of 56% (61% on a cash basis), the highest in the Avino Mine's underground production history. Net income in Q1 2025 reached a record $5.6 million, or $0.04 per share. Q2 2025 further built on this success, generating $21.8 million in revenues, a 47% increase from Q2 2024, and its second-highest quarterly revenue in company history. Gross profit margins in Q2 2025 were 45% (52% on a cash basis), a significant improvement from 32% in Q2 2024.

The company's cost structure has also seen significant improvements. In Q2 2025, cash cost per silver equivalent ounce was $15.11, down 7% from Q2 2024, and all-in sustaining cash cost came in just under $21 per silver equivalent sold, 8% lower than Q2 2024. This places Avino in the lower quartile of its junior producing peers and the mid-range of intermediate producers in Mexico. Cash cost per tonne processed in Q2 2025 was $52.61, a 24% decrease from Q2 2024, primarily due to increased mill availability and higher throughput.

Avino's balance sheet is exceptionally strong, providing a solid foundation for its growth initiatives. As of the end of Q2 2025, the company held over $37 million in cash, which subsequently increased to approximately $48 million. Working capital also exceeded $40 million at quarter-end. Critically, Avino operates with no debt, excluding operating equipment, positioning it favorably to execute its 5-year organic growth plan. The company has also utilized its ATM facility to "top up the cash position" when hitting 52-week highs, with over two-thirds of the $40 million facility remaining, demonstrating prudent capital management. Free cash flow generation has been robust, with $4.4 million in Q2 2025, and $6.5 million from the Avino operation on a stand-alone basis.

Competitive Landscape and Strategic Positioning

Avino operates in a competitive precious metals mining sector, but its strategic positioning and operational efficiencies provide distinct advantages. The company's cash and all-in sustaining cash costs consistently place it in the lower quartile of junior producing peers and the mid-range of intermediate producers in Mexico. This cost competitiveness is a significant moat, allowing Avino to maintain profitability even during periods of metal price volatility.

Compared to larger, more diversified competitors like Hecla Mining Company (HL) and Pan American Silver Corp. (PAAS), Avino's smaller scale allows for greater agility and a focused approach to high-potential, less competitive areas. While these larger players benefit from economies of scale and often demonstrate stronger overall financial resilience, Avino's disciplined organic growth strategy, centered on its existing assets, offers a lower-cost path to expansion. Against First Majestic Silver Corp. (AG), which also has significant operations in Mexico, Avino differentiates itself through its balanced approach to exploration across multiple countries (Canada and Mexico), potentially offering greater geographic diversification and adaptability to regional opportunities.

Avino's extensive portfolio of mineral claims and regulatory licenses in Mexico and Canada provides a strong competitive advantage, offering access to diverse exploration opportunities and potential for resource discovery. This allows the company to pursue targeted growth and build stronger relationships with partners seeking reliable suppliers. The company has also secured improved terms with Samsung (SSNLF) for concentrate sales, highlighting its ability to optimize commercial agreements.

Risks and Mitigation

While Avino's growth trajectory is compelling, investors should consider several key risks. The company's revenues are directly exposed to the inherent volatility of silver, gold, and copper prices. While management does not hedge metal prices, they have implemented a hedging program for the Mexican peso to mitigate foreign exchange risk, as approximately 75% of operating costs are peso-denominated. This program has already yielded benefits, with a $1.5 million derivative asset on the balance sheet in Q2 2025.

Operational risks include potential mine sequencing issues that can impact grades and recoveries, as observed in Q3 2025 when operations were in a lower-grade area. However, management expects higher grades later in the quarter. Permitting delays, particularly for the final military inspection of the explosives building at La Preciosa, could affect the timeline for full underground development. The company also faces general geopolitical and regulatory risks in Mexico, although there is recent optimism for the mining industry under the current administration.

Outlook and Growth Trajectory

Avino is firmly on track to achieve its 2025 annual production guidance of 2.5 million to 2.8 million ounces of silver equivalent. The company's long-term vision is to scale up production to between 8 million and 10 million ounces of silver equivalent by 2029, leveraging its three key assets. This ambitious target is supported by a robust resource base and a clear development plan for La Preciosa.

Management's capital allocation strategy prioritizes organic growth, with plans to redeploy cash into increasing production rather than short-term dividends. This disciplined approach, combined with a strong balance sheet and ongoing exploration efforts, is expected to drive sustainable value creation. The company's commitment to operational excellence, technological innovation, and strategic project development positions it favorably to capitalize on positive market trends in the precious metals sector.

Conclusion

Avino Silver & Gold Mines Ltd. presents a compelling investment narrative, characterized by a clear organic growth strategy, robust financial performance, and a strong pipeline of development projects. The company's historical journey has culminated in a period of exceptional operational efficiency, marked by record mill throughput and improved cost structures. The ongoing development of La Preciosa, now 100% owned, is poised to be a transformative catalyst, significantly expanding Avino's production profile and contributing meaningful income by 2026.

Avino's strong balance sheet, characterized by substantial cash reserves and minimal debt, provides the financial flexibility to self-fund its ambitious growth plans. Its competitive cost positioning, coupled with strategic hedging against currency volatility, underscores a disciplined approach to risk management. While the precious metals sector inherently carries price volatility, Avino's operational excellence and strategic asset base position it to capitalize on favorable market trends. The company's commitment to technological advancement and resource expansion further strengthens its long-term outlook, making Avino a noteworthy opportunity for discerning investors seeking exposure to a growing and efficiently managed precious metals producer.