Q3 2019 Earnings Call
Good day and welcome to the core mining third quarter 2019 financial results conference call and webcast.
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I would now like to turn the conference over to Paul the part two.
Director of Investor Relations. Please go ahead.
Thank you and good morning, welcome to core mining third quarter earnings Conference call. Our results were released after yesterday's market close a copy of the press release and slides for today's call are available on our website I'd like to remind everyone that our press release slides and some of our comments today include forward looking statements for money back.
Well results May differ please review the cautionary statements included in our press release and presentation as well as the risk factors described in our 2018 10, Okay. Now I'll turn it over Tonight, Thanks, Paul and good morning, Tom Whelan and Terry Smith, along with a handful of other members of the management team are here with me today.
Our third quarter results reflect the start of a strong expected second half we saw a second we saw a quarter over quarter revenue climbed 23% to $200 million.
Adjusted EBITDA jumped 99% to $61 million and free cash flow nearly doubled to $11 million.
We are reiterating our full year production and cost guidance, given our strong expected finish to the year.
And by higher gold and silver prices continued solid performance from Palmarejo and Kensington strong fourth quarters at Rochester, and wharf and an improvement at silver too.
Starting off on slide three some key highlights from the quarter were the strong revenue and cash flow growth due to a 15% increase in our gold production and higher precious metals prices.
A second consecutive quarter of positive free cash flow on the back of solid performance at right at Palmarejo and wharf.
The commissioning of the new crushing facility at Rochester.
Another solid quarter at Kensington, reflecting the ongoing benefit of higher grade ore from Jew Allen.
And the significant amount of debt that was repaid and the bolstered liquidity at quarter end.
As the quarterly results demonstrate four of our five operations are performing well.
Clearly silvertip remains our biggest operational challenge.
Once were able to transition the operation from a consumer of cash to a generator of cash our overall financial performance will obviously be even stronger.
Although silver tips third quarter production levels didn't reflect the same level of progress as far as prior quarters, we're seeing steady improvement and believe we're nearing the completion of our commission need efforts.
And we'll soon be accelerating our optimization and potential expansion initiatives.
Before handing the call over to Terry.
On a call your attention to a set of slides starting on slide 17 that highlight our commitment to partnering with the communities where we operate.
These valued local partnerships have a tremendous impact on the people who matter the most our employees their families and local organizations.
And our integral to our overall strategy.
Also I want to complement the team for winning the 2019 per day Index E. H S Innovation awards, which reflects our use of technology, such as drones, wearables and sensors to increase overall efficiency and improve employee safety.
And with that I'll turn it over to Terry.
Thanks, Mitch and good morning, everyone.
From an operation standpoint, the third quarter showcased a solid start to what we expect will be a strong second half of year.
As highlighted on slide five several operation showed improvement well others are under position to finish the year strong.
And although we ever work cut out for us at Rochester, and silver to we remain confident in our ability to achieve our overall production and cost guidance.
Turning off at Palmarejo.
Higher grades during the quarter led to a 13% increasing gold production quarter over quarter ball. Several silver production remained relatively consistent as higher grade was offset by lower recoveries and mill throughput.
Reported recoveries, which are based on payable metal production were lower during the quarter as a result of additional in circuit inventory and adjustments on final settlements of Doris sales.
We began mining Atlanta see on during the quarter and plan to continue ramping up production through the end of 29 team.
In the fourth quarter, we expect to average approximately 400 tonnes per day from let us young leading to a slight uptick in throughput rates quarter over quarter.
We also completed commissioning of a new thickener on budget and on schedule during the quarter.
We expect the project your improved metallurgical recoveries for gold and silver by roughly 2%.
Early indications are encouraging and we've now begun to see solid performance only a few months after commissioning.
At Rochester, we've successfully commissioned the new three stage crushing circuit that many of our analysts had a chance to see other site to work back in September .
The commissioning process impact the placement rates, which affected production during the quarter. However, crushing rates improved post commissioning and will support stronger production going forward.
As highlighted on slide eight crush product from HPG are as well as recoveries from vulnerable tests are inline with expectations.
Well it will take some time for us to fully validated these improvements from the stage for Leach pad early indications are positive.
In September we began placing material close to the liner on the north and upstage for facilitating faster silver recovery, which is expected to be a key catalyst in the fourth quarter for increased silver and gold production.
Hi, Kensington, we experienced another strong quarter.
Reducing over 34000 ounces of gold at a cost of $822 per ounce, resulting in just over 14 million or free cash flow.
Approximately 15% of production came from drawn at an average grade <unk> 0.41 ounce per ton.
We expect this trend to continue in the fourth quarter with plans for Jew Allen to account for approximately 15% of Kinsey didn't production for the full year.
As you May recall this is slightly lower than the 20% we guided towards the beginning of year. This is primarily due to an increase in production from the Kensington main deposit where we've been seeing positive grade reconciliations.
At Wharf results reflected a significant improvement in operational performance, helping to drive a 65% increase in gold production quarter over quarter.
Worse results reflect strong crusher performance higher grades and better weather.
Combining this operational performance with a higher gold price led to nearly 17 million of free cash flow at wharf during the quarter.
This represents the third largest free cash flow quarter since we acquired the operation back in February of 2015.
At silver to.
We significantly extended plant downtime to complete the important maintenance projects spanning the flow sheet, including the grinding flotation sickening filtration and paste backfill surrogates.
This work was tied to areas, where we've seen the most downtime in the past.
During the quarter I spent most of my time at silver to working directly with our team.
And while extended plant downtime is a significant part of our overall strategy. We've also been focusing on our employees.
This includes implementing a coordinated human resource strategy to retain an attractive employees.
Adding third party resources to supplement mill operations training and reduce unforced errors.
Mobilizing a maintenance contractor to reinforce our mill right.
This revamps and bolstered approach is paying off and we expect fourth quarter results to show a marked improvement.
With a stabilized operation, we can foresee achieving positive operating cash flow by the end of year.
Before I pass the call over to Tom I'd, just like to say a quick. Thank you to the dedicated folks working at our operations for their continued commitment to delivering safe and efficient results for the company.
Thanks, Tom will speak to the financial highlights for the quarter. Thanks Terry.
I'd like to start off by highlighting our continued focus on reducing debt to more comfortable levels.
As presented on slide 11.
We retired over $70 million a debt during the third quarter, a 19% reduction compared to the prior periods. Our debt is currently $299 million compared to 459 million at the start of the year.
We ended the third quarter with the debt to EBITDA ratio, a slightly less than two.
Our cash balance increased 72% and totaled $65 million at the ended the quarter, helping our liquidity position improved by 34% to $315 million.
As you may have seen in our Denver goal presentation, we're seeking to build a capital structure able to withstand commodity price cycles and are targeting a long term total leverage above one times and a net leverage ratio best nil.
Turning to our financial results on slide four.
Our 23% increase in quarterly revenue reflects the sale of over 100000 ounces of gold and 3 million ounces of silver as well as significantly higher realized precious metal prices as Mitch mentioned, we saw second consecutive quarter. That's positive free cash flow a trend we expect to continue in the fourth quarter.
Third quarter cash flow figures reflect a 15 million dollar working capital outflows associated with the 25 million dollar pre pay we completed during the second quarter. We expect the remaining balance will be reflected in our fourth quarter results.
Finally, I want to mention the hedging program that we implemented during the third quarter, which is highlighted on slide 12.
We implemented a series of zero cost collars on a portion of our gold production in 2019 and 2020.
Structure is designed to provide downside protection, while also enabling us to participate in the potential upside in gold prices. It is important to note, we purposely have not hedged our silver exposure.
Hedges carry an average floor roughly $1400 announcing a ceiling of approximately $1800 announcing covered 42000 ounces in 2019 and 96000 ounces in 2020.
As you've heard us say in the past, we're focused on generating dollars not ounces.
Thirdly, managing costs and allocating capital according to our framework summarized on slide 10 with that I'll pass the call back to Mitch. Thanks, Tom looking at Slide 14, you can see the key items, we are focusing on for the rest of the year number one demonstrating higher and faster silver recoveries as well as lower unit costs you.
Sure.
Further optimizing mill availability and rationalizing costs at silver to.
And number three delivering an even stronger fourth quarter and positive free cash flow for the full year.
We plan to continue pursuing a higher standard and all that we do and remain committed to generating solid results and quality growth from our balanced portfolio of North American precious metals assets.
With that let's go ahead and open it up for any questions.
We will now begin the question and answer session.
You ask a question you May press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Joseph record with Roth Capital Partners. Please go ahead.
Morning, guys and thanks for taking the questions.
Hi, Joe.
So I guess first thing is.
On the debt reduction.
Do you guys have other plans to do things like we do its Kensington you know.
Third sale or ATM or any of this other you know things you've used to reduce debt or is at this point is that reduction just cash flow based.
Oh sure. Thanks, Joe.
We're all the obviously constantly evaluating the landscape the potential alternatives, but at this stage with the debt ratio under too.
Balance it starts that's under 300 million and strong cash flow expected for the remainder of the year.
You know that that that that's the main focus for US right now so I wouldn't anticipate us doing anything more but obviously, we sort of set our target for ourselves where we'd like to see our our leverage.
I had two words in the long run Joe It's a Mitch just to add on to Tom's comments, we've paid off the revolver. So that's gone.
Really all that's left in our two thinks the.
Five and seven eight senior unsecured notes and those don't mature until 2024, so that's a a low cost flexible.
Patient piece of debt and then just capital leases and those.
We expect to roll off a chunk each year over the next five years or so so you need to echo Tom's comment really the.
The next level of de levering that will take place will primarily be driven more by the denominator increasing.
From all the different initiatives that we have underway at the at the operations.
Okay, and then shifting gears, but.
The Crown block assets, obviously, there's been a lot of news and speculation in that region, Nevada.
You know what is your guys thoughts there you guys, who continue to explore or.
I tried to develop girl mines or do you think.
Some of the speculation out there about a major kind of consolidating that district is most likely outcome.
Yes ill start and then han's can talk a little bit more about what's going on and that that part of Nevada. We are drilling at both Sterling and Crown currently.
We're also.
Engaged in permitting activity at both to facilitate larger scale exploration programs that we plan to commence in 2020 or so we're planning to increase the level of exploration.
At both Crown and Sterling in in 2020.
We plan to.
I have an updated resource at crown as part of our year end reserve and resource work.
And I know, we're also shooting to put out an exploration update a release sometime in December which will summarize the drilling highlights from crown in Sterling from this year.
Neither one of these represent near term consumers have significant capital you know, we're not trying to get Sterling, which as you know the past producer or not you know.
Rushing to put that back into production what we're more focused on is drilling expanding improving the economics doing engineering.
Overtime here and being mindful at the same time of the overall kind of pipeline and portfolio and where these fit into the sequencing and overall timing to fit in in a way that.
You know takes liquidity into account takes returns and overall maximizes value. So those are those are some of my thoughts on Sterling in Crown Han's you want to talk about what's going on maybe out there.
Around us how's it going Joe.
The drills are turning right now Sterling and crown one each in each location.
Sterling we found that the prior explore is really didnt understand the geology.
And where we're drilling now we're finding new zones of mineralization new extensions, so excellent grades and we'll have some of that in our news release in December Similarly up at Crown, we really haven't even finished the geologic mapping but have unravel lot of the complexities that prior explores had not.
Traveled and that will lead to more.
Growth for sure up there and we're looking.
Basically one rig right now, but once we get this permit that Mitch mentioned.
That will give us 300 acres of of disturbance under the BLM guidelines, so that will enable us to test these new targets that should be sometime in the second quarter next year, we get the.
At the same time, you mentioned the competitors in there you are very aware of corvus or as you follow them, but also Anglo we've heard or getting their plan of operations later this year.
Wrapping up their drill program up on the silicone project as far as a district consolidation, we don't even know we have yet as far as our.
Resources, there's just so much potential in the district, so much potential growth that we need to continue just focus on growing our own before thinking about something like that.
Okay fair enough I'll turn it over let some other people and.
Thanks, Joe.
The next question comes from Adam Graf with B. Riley. Please go ahead.
Hey, guys. Thanks for thanks for taking my question Congrats on a solid quarter.
Hi.
Just a a couple of quick questions on Palmarejo and Kensington you guys addressed some of this and the in the comments but.
Tom array, how you guys are forecasting or we're talking about higher throughput levels.
Through the mill, there and with the bring on that going in and I was curious you know is are you going to be able to hold those those higher level.
Through 2020 or is it sort of a temporary.
You know a temporary blip up.
What you're getting well now see or not it's coming on and and sort of similarly at Kensington. You know are you going to be able to to hold those grades you know well into a well well into and through 2020.
Harry you want to take those yeah sure maybe palmarejo first.
Two questions.
With Palmarejo I think throughput levels.
You can see those remaining constant, but our grade will dip off here as we progress through 2020.
That's a simple way of thinking about that as far as candy Mint is concerned you can look at our run rate.
With which you Alan is progressing.
At this level through 2020, so that is sustainable.
The were.
We're getting there.
That's great.
That's great on maybe if I could change the subject a little bit.
To.
To silver tip in in the in so far in the fourth quarter have you guys made any zinc concentrate.
Have you guys made any zinc concentrate shipments that have made spec.
Or do you expect to a in the quarter.
Hey, Adam it's Tom.
We tend to just to make sure we get day rate economies in our are seeing shipments we tend to save it up and get a aim to ship at a 10000 metric tons and so we've got a shipment schedule the in in November .
Yes, we have a long term or we have issue we've.
Dennis short term contract to have that a material sold and and no issues, obviously some headwinds.
In terms of treatment charges that are out there. These days that we still much zinc supply on the market and.
Could go on an honor the desktop that but.
Suffice it to save got happy unfair for both our zinc and lead times throughout the rest of the here.
Great and then finally again to change the subject a little bit you guys. In the release you sort of had maybe a little bit more aggressive language around placebo side. Your investigations. There when can we expect a the new resource or will that be followed by a new P.A. or.
What's the what's the what's the timetable there.
Yeah, I'll start and then on feel free to or Terry.
We're taking.
Advantage of of time here and with a bit of a resurgence in the silver price to.
So take another look at lopresti OSA onto the and the geology team have been doing to a fair amount of work. There. This year reinterpreting the geology, Oh, we expect in the first quarter to have a an updated resource model where then.
[noise] kind of middle second second quarter of next year, we'll be.
Taking a refresh look along with some third party help at the Capex Opex.
And we'll see where where things shake out and if there seems to be something there that it appears to have have some positive economics, we can make the decision at that point, what we do from from there but.
Yeah, we continue to try and.
Find a way to make lopresti also a viable economically attractive opportunity that's worthy of of receiving some you know some capital investment.
[laughter] talk noticeable Yep go ahead.
Sorry, just a follow on that.
The the project through the last couple of iterations didn't get a fair treatment on the geologic model and we found when we've been going through core.
There's a completely new interpretation that we can throw out this and what that will do is add more hybrid veins that will constrain future resource model and those high grade veins then will.
A lot more.
Coherent as far as how we look at mining this thing in the future. So that's that's what the process. We're going through right now will be done in December with the first cut of the geologic model for the project. It's taken us almost a year and then first quarter. We're we have a third party engineering from looking at the resource and did.
Terminated as Mitch said, if it will.
Be better than the prior one or what kind of metal prices, we need to to crack the code there.
Are you guys gonna be doing some drilling to confirm your new interpretation.
We don't really need to drill anymore, there's plenty of infill drilling it's just really looking at the core again and there's some areas that we might have to re assay, but.
Funny enough it gets back to basic geology that was this is a fundamental part of resource.
Calculations as you have the geology first resource second and we've got a chance to do that no poppers Joseph.
Great looking forward to a hearing it update there appreciate it I'll get back into queue. Thanks, guys.
Thanks, Adam.
Our next question comes from Mark Reichman with Noble capital markets. Please go ahead.
Good morning, So the company just getting through a good place on generating cash flow has a strong cash position and increased financial flexibility. So just wondering if maybe you could kind of address your.
Capital spending priorities in 2020.
You know kind of whats your expectations are also how you think about no acquisitions. You know you did to kind of in the latter part of a of 2018 searches kind of wondering in terms of you know whether you're looking at more focusing on on the current portfolio or whether.
You know we might expect some activity in 2020. Thank you.
Yeah, Great question.
Tom fill in blanks that I'm sure that I Miss but.
I can't remember the slide number but that capital allocation framework that we hold pretty near and Dear to our hearts around here is a good way if.
Thinking about our how we set priorities and just thinking about 2020.
Yes, it optimizations.
[laughter] tend to always come up to the top of that have that list you know and I think about Picoway 11, not it at Rochester.
Think about some other.
Mill optimization opportunities down it's done at Palmarejo, obviously, a lot of the incremental projects silver tip.
An incremental basis have good good returns associated with them, so investing in in our assets and and getting back quick quick paybacks.
On those type.
Of investments remains price priority number one oh, we do intend to accelerate our near mine exploration in 2020 that is a a tremendous.
Opportunity for us to deploy capital.
The way that as a high success rate good returns.
And next can extend mine lives in particular, I'm thinking about palmarejo and thinking about Kensington and I'm thinking about silver to and those will be key a key priorities in 2020, as we think about.
Oh, how and where we deploy capital and then M&A you know does always factor into this kind of holistic view of how we deploy capital and to the extent that there are opportunities that come along that can.
Jump up you know on the list there of priority based on economics.
We always will will be open to taking a look at those things as long as they are opportunities that fit within our criteria of jurisdiction being North America help us reduce overall costs help us extend overall mine lives you know do the things that we're trying to do to improve.
Proved the quality of the overall collection of assets, whether they're producing or or not producing it's a focus on quality and a focus on returns and if M&A is a is as it does an avenue to achieving that then we're open to it but.
Meantime, there are plenty of opportunities in the business that we can allocate capital to and and unlock good good returns.
Maybe the only thing like that.
I'd add.
Is that we'll be issuing our 2020 guidance.
Early in the first quarter, we're in that.
Most of our budgeting process and capital allocation discussions as we speak obviously, keeping an eye on where prices are going.
And I will let more to report early in the first quarter.
Great. Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Mitchell crabs for any closing remarks.
Okay, well hey, we appreciate everyone's time. This morning. Thank you for dialing in and we look forward to speaking with you again hard to believe but in the new year to discuss our fourth quarter and full year 2019 results.
Thanks, again have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.