Avino’s Secondary Offering Should Create a Buying Opportunity

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Just a few days ago, I revisited my bullish call on Avino Gold and Silver Mines (NYSEMKT:ASM) and recommended that investors consider taking some profits, as the shares had soared more than 60 percent since I recommended the stock in January.

Over the past couple of days, this anticipated correction has begun, with shares falling from a multiyear high of $2.84 per share down to Friday’s close of $2.40per share. The primary trigger of this was that the company announced a secondary offering. Management is selling $5 million worth of stock at $2.42 per share. This amounts to roughly 2,066,115 shares. Furthermore, with each share issued, the company is issuing half a warrant. Each warrant entitles the holder to purchase a share of Avino at $2.87 per share on or before February 15, 2017.

The secondary offering will likely spawn continued short-term weakness in the stock. Not only are gold and silver prices due for a correction in the next few weeks, but Avino shares have performed particularly well due to the company’s strong production figures from the San Gonzalo vein at its Avino mine in Mexico.

Nevertheless, I think that this weakness should be bought. The company is still relatively inexpensive compared to its peers. Furthermore, there is hardly anything arbitrary about the terms of this secondary offering. The $5 million in proceeds, coupled with the $5.7 million raised just prior to this, will be going toward restarting production at the main vein at the company’s Avino mine. This mine was a long-term producer up until 2000, when the company decided that metals prices were too low to continue producing.

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