Q3 2020 Coeur Mining Inc Earnings Call
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Yes, it's the core mining earnings call.
Thank you your name Sir.
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Ah, Yes, Cotter C O R Mcdaid M.C.D.A.D.
The company or with.
Sarah A.I. era.
All join you in though call's being recorded for less than $5 million a year to over $100 million a year will help to fundamentally repositioned the company.
We look forward to sharing the details of this important expansion with you when the updated technical report is issued in December.
Another headline is the fact that we ratcheted up our momentum in exploration and are now on pace to invest over $50 million companywide this year.
We continue to view this as an excellent capital allocation decision that has tremendous potential to grow our near mine resource base generate new discoveries and lead to larger reserves and longer mine lives.
And finally, it was great to be able to further strengthen the balance sheet by repaying nearly $50 million of outstanding debt.
Well still have in our cash balance increase quarter over quarter.
Two major ongoing priorities I want to briefly touch on our the fine tuning taking place at Rochester, and the internal pre feasibility study were wrapping up at silvertip.
Starting with Rochester. The team is doing a lot of great work to optimize several aspects of the operation in advance of Picoway 11 from the mine and blasting to the Crusher circuit and HPG our unit.
To the stage for Leach pad and the recovery of the silver and gold ounces.
All of this work is helping to de risk the mine and enhance our understanding how of how best to operate Rochester post expansion to achieve consistent predictable results.
Mick will provide you with some more details, but we remain confident that HPG, our is dramatically accelerating silver recoveries and that production levels will accelerate in coming quarters based on the revised stacking plan and use of inner lift liners that we implemented early in the third quarter.
Regarding the silver to PFS, we're very pleased with the initial results from the technical work that's been focused on a potential mill expansion and on ensuring efficient and reliable performance assuming a restart.
Additionally, the drill results, we're getting back have been extremely encouraging.
Further increasing our confidence in the size and quality of the high grade deposit there.
We'll assess where we are with silvertip later this quarter and determine the best path forward from there.
As we do this it's critical for us to remain disciplined and objective and make investment decisions. According to our capital allocation framework.
We cannot afford to let the positive results were seen as silvertip distract us from achieving our important near term priorities at Rochester.
Before it goes through the operations I want to quickly bring your attention to slide 17, which highlights a few examples of our greenhouse gas reduction initiatives.
We've been measuring our energy usage and emissions since 2013 and are now shifting our focus to proactively managing our carbon footprint.
The key headline from slide 17 is that worth plans to source more than 40% of its electricity next year from wind generated power with the ultimate goal of reaching a 100% as more wind power capacity comes online.
With that I'll go ahead and turn it over to Mick Thanks Mitch.
For covering the operational highlights I'd like to thank our entire workforce from our maintenance to our office employees and our contractors and suppliers for their relentless commitment to health and safety and for all the hard work and dedication. During these challenging times, let's continue to strive for excellence and pursue higher standard each and every day.
Now digging into the results on slide six and starting off with Palmarejo, who which was our top free cash flow generator this quarter.
We bounced back strong with gold production over over 90% in silver production more than doubling after being down for roughly 45 days in the second quarter.
Much of the increase in production was due to higher throughput, which averaged just over 5300 tonnes per day.
Along with solid cost controls this helped us generate $45 million of free cash flow during the quarter.
We were able to accomplish these results through efficiencies in the mine and in the mill together with higher staffing levels to ensure business continuity in case of any COVID-19 impacts.
Well there may be periodic changes to workforce restrictions from the government. We are focused on what we can control and consistently execute our operating plans.
Looking forward, we expect to offset the 45 days, we lost in the second quarter with slightly higher production and considerably lower cash costs for gold for the full year.
Switching to Rochester.
The team did an excellent job crushing and stocking during the quarter, which led to the placement of 400 million terms, 21% higher than the prior year period, and 80% higher than the third quarter of 2019.
Not said production increases were less than anticipated for a couple of key reasons.
First we are still seeing the impact of dilution from all we started earlier this year on areas of the stage for each pod lowering the predictability of breakthrough and slowing the recovery of those answers.
And secondly, there were some challenges with the Merrill Crowe plant due to an increase in fine particles in the pregnant solution coming from commissioning the new in the lift liners limiting production towards the end of the quarter. However.
However, we are addressing these items head on and expect to see improvements in production as the result of higher placement rates and continued execution of our entire lift lane our strategy.
Turning to the next slide.
You will see that we have expected expanded the scope of our revised doctoring plant by installing additional into lift liners to help drive better operational performance by placing more ounces closer to plastic.
So they will recover faster with a higher level of predictability.
We have also continued to supplement placement rates with run of mine material.
Which is stuck separately to maximize the benefits of HPG, our CRO store.
All of the lessons learned give us confidence that we can increase production over the coming quarters and more importantly apply the knowledge to to Pee Wee 11. So we are able to optimize performance on the new heap Leach pad.
Turning back to the previous slide and looking at Kensington production was lower as we have several positive cases occurred mainly in during August, causing us to briefly suspend underground activities for a couple of weeks.
As we conducted extensive testing and contact tracing across the site.
Despite the main a setback Kensington has bounced back strong this month and we expect the domain to finish the year on a high note.
Lastly, and certainly not least awards, we were able to generate record results drive is driven by higher placement rates and better grades over the past couple of quarters.
The team produced over 33400 ounces of gold at an average cost of $800 per ounce, helping to generate nearly $40 million of free cash flow.
To finish the year, we anticipate production levels similar to the first half of 2020, while we maintain our strong cost discipline.
Before handing the call over to Tom.
I want to bring your attention to slide 14, and highlight our updated guidance that reflects overall higher production and lower costs, which underscores our confidence in closing out 2020 with a strong fourth quarter with.
With that I'll pass it over to Tom.
Thanks, Nick.
Starting off on slide five our third quarter financials reflect excellent results at Palmarejo and wharf as.
As well as higher realized prices, which led to nearly 50% revenue growth and $91 million of adjusted EBITDA at a 40% margin as we continue to increase profitability LTM EBITDA has grown by almost 60% to $239 million compared to 151.
$1, just one year ago.
Operating and free cash flow totaled $80 million and $57 million, respectively significant improvements quarter over quarter.
Turning over to slide 12, our balance sheet remains in excellent shape.
With no near near term maturities and ended the quarter with over $285 million of liquidity.
We use much of the cash flow generated during the quarter to repaid nearly $50 million of debt, including $40 million of revolver borrowings.
We plan to repay the remaining $20 million balance on the revolver by year end, if not sooner and expect our cash position to remain strong as we head into the end of the year.
I would like to also mentioned that we did not execute any additional hedges since our latest investor call. Additionally, the ATM remains untouched and in place for now as a last resort liquidity backstop.
Hi, generating better financial results and our commitment to further bolster the balance sheet, we continue to see our leverage ratios trend downward significantly at the end of the third quarter, our net debt to EBITDA was under one times for the first time since late 2017.
We are proud of the progress that has been made to strengthen the balance sheet and believe we're very well positioned heading into major construction at Rochester over the next few years I'll now pass the call back to Mitch Thanks, Tom Slide.
Slide 13 shows several near term priorities as we approach the end of the year.
And while our third quarter performance was very strong.
We can achieve even stronger results with Kensington returning to its first half form and getting Rochester dialed in the way we know we can.
We're looking forward to hosting a virtual investor day on December 17th to walk through the updated Rochester Technical report as well as provide a status update on silver tail.
We'll also highlight the progress of our exploration program to build off the strong midyear results, we published back in August.
Our team is extremely excited about delivering the kind of results and creating the amount of value. We all believe is possible in the near future based on our strengthening operational performance executing our near term organic growth projects and advancing our expanded pipeline of longer term opportunities we're developing from our.
Higher level of exploration investment.
We'll keep pursuing a higher standard in every facet of our business with the goal of delivering consistent operating and financial results from our balanced portfolio of North American based precious metals assets.
With that let's go ahead and open it up for questions.
And we will now begin the question and answer session term question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset from the keys to withdraw your question. Please press Star then two once again that is star then one to ask a question.
And our first question today will come from Mark Reichman with noble capital markets.
Uh-huh.
Good morning.
More active exploration program.
Probably expected for 2021.
To get your take on kind of the environment for.
Permits et cetera. So I know you just recently got the 300 acre disturbance permitted.
And was wondering if there is.
Any other kind of key permits.
You need to get in order to execute the exploration program.
Yes, Okay high markets, Mitch I'll ask constant to cover that Hans.
Mark.
Well as far as permitting yet we just got the 300 acre permit for 300 acres of disturbance at Crown.
We're also working on specifically on the Seahorse.
Discovery, where we've got six new pads permitted through this five acre notice.
So no real problems as far as headwinds there were.
Where I think the industry will see some issues is in drill rig availability and we are grabbing a couple more drill rigs. So we'll end up with three RC rigs.
Crown and one core rig.
By the end of the year.
The other headwind of course, I'm sure you're seeing with a lot of companies as DRC turnaround issue and we've switched labs.
Crown and now we're down to about a two to three week turnaround from two to three month turnaround earlier in the year.
Other permits were that are in process or drill.
Drilling at the Lincoln Hill.
Independents Hill assets, we got from Elio, where we expect to permit by Q3 next year for 200 acres of disturbance in the interim though we have a five acre notice permit we can drill on out there other than that no rule.
Slowdowns in Mexico or B.C.
So we're moving forward with those programs for easily.
That's very helpful and just my follow up is for Tom.
You know with the a much improved earnings I was thinking about the net operating loss carry forwards, which I guess could be an advantage in terms of making acquisitions in the U.S. Sir.
You mean shielding income once the Rochester expansion.
Could you just maybe.
Dress worked well position is and in kind of the mechanics and the plans to employer.
Sure Great Great question. Thanks, Thanks for noticing that we've got over $400 million of of net operating losses.
Which are going to allow us to to not pay federal income tax.
In the U.S., United States for the first foreseeable future and so again with with that the major expansion coming up at Rochester.
Again, where we should be not paying federal income taxes for quite quite some time sales so thats.
And that fits right into our capital allocation framework. So when we're thinking about where we want to allocate funds.
Mexico.
Or the last seen other us.
Wins hands down because of this said this tax advantage that we have.
Thank you very much.
Yes, thanks Mark.
And once again, if youd like to ask a question. Please press Star then one.
Our next question will come from Joseph Reagor with.
Ross Capital Partners. Please go ahead.
Joe.
Hi, guys.
First congrats on a great quarter.
Great cash flow.
Thanks, Tim.
So I guess.
First thing at Palmarejo.
Covered rates, particularly for gold have been pretty high this year compared to last year.
Can you guys give us any other color on what's driving that and what.
Possibilities are for sustaining those levels or recoveries.
Yes. Good question Mick you want to cover that yes for sure. So there we've seen some great results. So fall we expect those results generally to continue of course, it's driven somewhat by the.
The mineralogy booked the team there may have got a grip the eye program ongoing optimizing the performance of the process plant and delivered some really sustainable improvements.
And.
Has there been any capital expense related to those improvements at the plant or is it just better maintenance better care of machinery.
Certainly a very small amount so far we have.
A little bit ongoing with projects to continue that optimization.
Okay.
Sounds good.
Switching gears a bit Rochester, obviously is still kind of lagging behind where as hoped it would be.
When do you think you'll get this thing running like a top and what would you say your conviction level of reaching that point is.
Well I'll start off and then make you can.
Pick up from where I leave us I'll start with the last.
Last question, there, which won't surprise you to hear me say that we have a very high level of conviction.
We we've thrown a lot at Rochester, all at once there is a lot of moving parts right with between the the crusher configuration introducing HPG are.
Obviously, we're dealing with a very mature.
Leach pad out there in that in that stage four.
What we're putting a lot of lot of solution.
Into into a Merrill Crowe plan out there and so going through and optimizing all of those things here in 2020 is it can be a little painful at times, but its very worthwhile right as we think about.
Fine tuning and dialing it in before we invest a lot of capital and then have to HPG. Our units at the end of this expansion and when you go back and think about we put in one Hbr June eight one HPG our unit late last year for precisely this reason right, which is to have a year or two.
Of run time with it so that we can get comfortable with it understand it from the mine.
Through the Leach pad and that's the process that we're kind of systematically working through.
Right now I think it's nice that we will have this investor day in December we can provide everybody with an update.
But you know if things continue as we see them and as we plan second half of the year versus first half of the year out there gold production should be kind of a double second half versus first half silver should be up 40 or 50% over the first half so it's happening.
These commissioning things with the interest the inner lift liner.
Strategy.
As is typical and we've only been doing that now for two or three months, but I think we're getting those that debugged as well so Nick I don't know if I've left any thing for you to cover but you covered a lot there Mitch but I mean in in an end to end sort of view right. The main the milling the heap leach in the Merrill Crowe.
This short interval control that we can now apply either because we have these in lift lane as allows us very high visibility in a short period of time. So we can optimize blasting and powder fact wasn't bench Heights, Maine, and then each BG owns getting optimized for sales sizing fraction through the heap Leach of course in fluids.
And that opportunity for that short interval control. So we're not having to wait long periods with a high depth delay now to understand how things are performing and then the Merrill Crowe plant I mean, we talked about it earlier in the call. This commissioning of the new heap Leach pad. It's very typical normal you see some fein's come through when you start up a new.
Leach pad, we're getting through those issues now and managing them a little bit of extra clarification at the Merrill Crowe plant must see better results and we expect to see a stronger second half as we said earlier and then even better more powerful the lessons learned that are supporting the program to de risk Pee Wee 11, that's fantastic create learning.
That are going to help us to apply in the in the project the upcoming project and have a really robust startup for the P. Releven project in the next couple of years.
Okay. Thanks for the color on that guys. One final thing just any.
Any intention to add anymore.
Ill.
Gold and silver price collar kind of stuff or are we.
Are we done with that for now it's just what you have is enough.
Yes.
And.
I guess the short answer Joe Joe is.
We're comfortable with having that 1600 dollar floor underneath us a pretty good chunk of next year.
And then.
Smaller chunk of 2022, which covers the bulk of the.
The spend out there at Rochester, we don't intend to become a perpetual you know hedger. We're doing this to protect an important source of funding for POS 11 over this limited period of time and so today, we're we're comfortable with what we have obviously that that thinking.
Evolves as.
As the market sort of.
Sales, but Tom anything to add.
Add Joe as you know.
We need to do what we need to do to make sure we get to through.
Through the Rochester expansion, and so where we're kind of modeling. This out we took a pause as we saw prices running up and where we saw performance improving and felt like we had sufficient cushion at this point in time, we still have that flexibility to add a few more ounces in 22, when and if we think it's the right thing to do to maintain that.
Balance sheet flexibility, we'll we'll do so but we have taken a pause for now.
Okay. Good to hear I'll turn it over thanks guys.
Yes.
Yes.
And our next question will come from Mark Mihaljevic.
See please go ahead.
Hey, Thanks, and good morning, Yes, hi.
Hi, Mark.
I guess to kick it off actually one on hospital work it feels like it never gets the gets the attention displacing a great cash generator for you guys. So.
Just kind of wondering obviously you guys benefited from the higher stacking rates, you've had and some of the contract crushing you've done as well like is that something that.
Especially at higher prices make sense for you to.
Put a little more money into that and keep production level elevated.
Try to capture that that's part of the cycle, rather than kind of going back to your historical run rate.
Yes, thanks for giving worth a shot.
No doubt it definitely deserves deserves one.
Ill, let ill, let Mick cover that as you know there's the.
The on loading and unloading offloading of of pads and that sequencing that factors into.
Into that question, obviously summer months out there are a lot easier.
Then fourth.
Fourth quarters, and first quarters, so that is probably going to play.
Be a factor here in the fourth quarter as they are already dealing with with.
Snow and things like that but Mick do you want to.
Cover.
My next question and then I might ask Han's also to comment.
Orphans one of these assets that has been around for as you know 30, plus years, but seems like we never run out of potential and opportunities to keep extending and there's.
Theres been more drilling activity out there that gives us some cautious optimism about the future that maybe Hans can can talk about briefly after May go ahead, and then briefly after a great Q2, Q3 performance pull announces simmons's forward in the mine plan and I'm seeing some good positive reconciliation, we now expect to just delay.
Solidly against the plan for Q4, so that's the that's this year and because as Mitch mentioned, we'll have a pod onboard and restocking start in Q4 on finish in Q4 than Thats, why we see those numbers a little bit lower but fully as expected and planned and then and the go forward for Wolf is too.
This continued solid performance year on year as we'll have done in the past.
And.
Hey, Mark.
As you know wharf, we haven't done a lot of exploration the requirements for expansion.
Our pretty minimal just because of the footprint of the mine.
Permit boundary, but this year, we've done some work at the Richmond Hill.
Set which is just north of of war fueled lack no barrick asset that we have an option to purchase on we're doing some expansion drilling they're looking at potentially new ounces that would flow into the mine life near the end of work with better outcomes and so.
So that we're still in the evaluation stage Q1, we should have all the assets back from the lab to evaluate what that asset looks like both surface geology, geochemistry and drilling geochemistry.
We should all that done by Q1 and look at what that means for future there.
For next year.
They are getting a little bit more innovative in terms of where we're going to start drilling to expand mine life.
It looks like we'll start stepping to the south a bit permits dependent.
And.
Do another playback on the high oil if that if that.
Makes sense so.
More news to come from work as far as drilling and we'll be drilling a bit more next year almost double the budget of 2020.
In 2021 so.
And just one last shameless plug there for wharf, we as you probably remember Mark we bought that for 99 and a half million dollars. So for it to throw off nearly 40 million. Just this quarter really kind of highlights just how great that that thing has been for us as an acquisition as a as an overall.
Contributor and I think when we bought it in 2015 it had a six year mine life.
Five years later.
It has plus six year mine life, maybe seven years and hopefully more more to come so.
It's just been than a terrific one for us and the third quarters.
Real credit to the hard work out there by that team so.
Thanks for the question.
Yeah.
Thanks for thanks for the color around that and then I guess the Queen.
On a linked in and Palmarejo, you were actually able to get pretty good throughputs there.
Might have been some concern heading into the quarter around maintaining underground mining rate and obviously you had some challenges.
Covert cases at Kensington that you seem to have managed through pretty well. So just kind of or do you think that these run rates are now sustainable in with all the protocols in place you can maintain.
Running at these capacity levels or even see some opportunities to push even higher than that.
Yes, I'll I'll start and then mechanism can fill in if.
Kensington I think if we were able to run off stockpile material there, while while we dealt with the cobot issues in the underground.
Team there.
But I think those those those mining and processing rates. There you can kind of continue expect to continue.
At Palmarejo.
We definitely were ahead of plan there with the 5300 tons, a day, which is great to see.
I think where we were targeting to get is more on a run rate basis of around 5000, or so tons, a day, which is probably where and when you think about the fourth quarter.
They might surprise us, but fit to keep going at 5300 tons a day.
A lot of things have to go right.
And there's still a lot of moving parts down there as it relates to cope with.
And just overall workforce management.
Rick you want to add any other color is that yes, and certainly a couple of things one on Kensington. This year, we had for a while production limit of 2000 tonnes per day and that that limit has been lifted and so now we're looking at the process plant de bottle necking that process plan to see really what we can do.
With Kensington going forward, but that's presenting us with a great opportunity with business improvement opportunities to optimize that asset at that.
Summary, who will that be I program. We mentioned earlier is really supporting well add the results that we saw in September and help sustain them going forward into the future. So that's a good confidence there that the team are doing a great job supporting our future potential and not to put it back on.
On the hands, but the reason we're spending more at Palmarejo right is to get that inventory built up if we can get that mine and the mine life to where it can support it we've still got some mill excess capacity, there and that as you know in terms of internal opportunities to generate incremental.
Cash flow with no.
Virtually no incremental capital that's that's high on the list and so we're still building toward that over some over some time obviously.
Yes.
That all makes sense and.
Not to belabor Rochester, According to your but a couple of follow ups to up to the earlier answer I guess.
First off you mentioned that the fine cut has been disrupting the.
As a miracle Gro and obviously as you mentioned, it's not overly surprising to see it kind of early stages of a new pad, but just wondering kind of whether you are seeing any issues.
With the HPG are creating more finely than you were expecting or is that really is it really just kind of.
Early days on a new pad that you're earning IXYS does not come through.
Yes, certainly I can I can address that so and the the fraction that we're seeing from the HPG all is right inside the spec, but when we use that material for overlay enough to put a new heap leach pad in in operation then that fame fractions, just a little bit high we saw that.
Our yearly we optimize that and now we're seeing better performance as those veins run through we normally see some things were commissioning a new heap Leach pad of course, it's just the nature of the of the distribution, but well certainly optimize not and then we implemented a new clarifier at the Merrill Crowe plan to improve the.
The capacity on the front end of that plant and give us more operating flexibility. So that we can deal with that as we go forward and put additional into lift lane as in into operation over the next 12 months.
Okay, perfect and kind of the second follow up here are just that.
Kind of what or how long the percolation that it takes you to get get down afterwards.
For some of that higher or some of them here at least at higher on the pad.
Yes, Bruce and kind of all you to start replacing fresh onto the new interior look liners.
So on the on the all part of the pod and certainly we already see breakthrough. It's a question of am how how we truck that profile over a long period. It was 450 foot to liner in the old part of the pod will now what.
Please and very close to plastics, so we'll see not break through very quickly within within one to two weeks, we'll see not breakthrough now on the new analysts like areas and that's why we're extending our analysts lane our strategy. We started off with one area and then phase two and were now so.
Starting the construction work for phase three to implement a wider area within the stage lane. So we can implement that short interval controls.
Okay perfect.
Thanks.
Covers what I had in <unk>.
Let's see the three vessels this quarter.
Thanks, Mark appreciate it.
Yes.
Our next question will come from Brian Macarthur with Raymond James.
Go ahead.
Hi, Brian.
The Liberal can you hear me maybe muted.
Yes catch ups are at an all sorry I apologize.
Philosophically if you go ahead and I realised Rochester preferred focus, but if you go ahead with some restart a silver TEP would you consider hedging that as well I mean, the the trade off between crude and hedging the capital expenditures, which I think makes sense and you're kind of doing at the moment, but philosophic.
Glee some extent if you continue to head call again.
Our test and Rochester to some extent, we're capping gold.
Develop silver so I'm, just kind of trying to figure out how you think through all of that would you actually go ahead on overtaken had coming or would you just.
Philosophically go ahead with it.
No.
Good question I think you asked a philosophical question last quarter to Brian.
Your philosophy.
It's all strategy maybe yes.
Yeah, that's I think one of the best majors you can have in universities philosophy for life.
Like our general counsel over here Who's raises and look I think you think about the pie chart of revenues from a silver tips and its a third silver a third zinc third led roughly.
That means two thirds are metals that nobody really buys I think our stock for exposure to zinc and lead and I think that makes them.
Good candidates to potentially.
De risk and bring some.
Higher level of certainty to.
To that project.
I think even though silvers not a huge percentage of our business anymore.
Most of our investors really do prefer having that upside to.
Silver, which we which we still provide we have no hedging on any silver at all and we would be less inclined to do something with it with that silver.
Revenue coming out of our silver to it but I think those other two metals are fair fair game.
Great. Thank you very much very clear.
Yes, okay. Good thanks, Brian.
And this concludes our question and answer session I'd like to turn the conference back over to Mr. scripts for any closing remarks.
Okay, great well, we appreciate everybody's time this morning.
I look forward to speaking with you again at our Investor Day, our virtual Investor Day on December 17th.
And in the meantime between now and then hopefully everybody will stay healthy and safe so have a good day. Thanks.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.