Q4 2020 Coeur Mining Inc Earnings Call
Good morning, and welcome to core mining fourth quarter 2020 financial results Conference call.
All participants will be in listen only mode.
Assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
Now I'd like to turn the call over to Mr. Palti bar to director of.
Investor Relations. Please go ahead.
Thank you and good morning, welcome to core mining fourth quarter and full year earnings Conference call. Our results were released after yesterday's market close and a copy of the press release and slides are available on our website.
To remind everyone that our press release slides and some of our comments today include forward looking statements from which actual results may differ. Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our 2020 10-K, now I'll turn it over to Mitch make kantar.
Paul and good morning, everyone.
2020 was quite a year.
Obviously, COVID-19 was the main headline for everyone and of course, we were no exception.
Covid had a big impact on the first half of our year by sharply driving down prices and forcing a government mandated shutdown in Mexico, which impacted us at our Palmeraie all mine.
Of course prices have strengthened considerably since their April lows, and Mexico allowed mining to resume in the second quarter.
And together with solid production and effective cost and balance sheet management, we delivered a strong second half of 2020, which make and Tom will talk more about shortly.
I first want to take a minute to recognize our people for how they've risen to the occasion over the past 12 months, we've asked a lot of everyone in.
And our entire organization has responded incredibly well to the challenges.
I can't help it have immense pride for how well our culture has served us the talent we've attracted the ESG leadership, we've established in the overall performance we delivered during such an unprecedented year. So thank you to everyone.
Now starting off on slides three and four there were a lot of highlights and accomplishments last year that led to adjusted EBITDA jumping over 50% to $263 million and free cash flow climbing to $49 million for starters, we achieved production guidance at all of our sites and use.
Costs were at or below full year guidance ranges at each of our primary gold operations.
Palmer Rayos results were truly remarkable the way they ramp back up mid year, and really never look back and Kensington and wharf also had fantastic years with both operations breaking their previous free cash flow records.
Rochester finished the year much stronger than it started with fourth quarter silver production, increasing nearly 40% and gold production up almost 50% quarter over quarter.
And just to add a bit more color on Rochester, the big highlight last year was kicking off the expansion and providing the details of this project late in the year.
The updated mine plan reflects our reserves only 18 year mine life with an NPV of $634 million and an anticipated IRR of 31%.
Production rates are also expected to double driving average free cash flow to over $100 million per year.
Until this expansion is completed late next year Rochester will remain in a state of transition, while we balance near term performance with gathering and applying key learnings to ensure rochester's long term success.
During this time, we will also remain focused on further expanding Rochester, silver and gold reserves beyond the 58% and 65% growth we saw last year.
That's a good segue to the highlights from our $50 million exploration investment that we made last year, which are summarized on slides 10, and 11 and were included in our press release, we issued yesterday morning.
It was the largest drilling program in our history and it was wildly successful.
Gold reserves grew by over 20% and silver reserves increased by over 40% to the highest levels in company history.
We've now dramatically increased our overall average mine life from just over seven years in 2015 to well over 12 years currently.
And with over $65 million allocated to exploration. This year, we expect to see this number extend out even further.
These investments in exploration rank among our most attractive capital allocation priorities and should help drive higher returns on invested capital going forward.
On top of our reserve success, we made a new discovery in southern Nevada called Seahorse located in the Crown District, which has the potential to become a significant asset for the company.
We included several recent drill holes in yesterday's release from Seahorse, including one that was over 216 meters, averaging just about a gram per ton of oxide gold.
An aggressive drilling program has already begun at sea horse this year and we plan to invest approximately $10 million to continue growing this new discovery.
Another big success from last year's exploration program was the substantial resource growth at silvertip in British Columbia.
With only around half of the assays back at the end of the year total resource tons increased over 40% and we more than tripled the strike length of the high grade deposit to over three and a half kilometers.
We plan to invest roughly $14 million in exploration at silvertip. This year aimed at further expanding the resource and beginning to convert some of this material to reserves.
And sticking with silvertip for a minute.
We ended Twenty-twenty feeling confident in the resource and in our ability to continue expanding Silvertips mine life with further drilling.
We also have identified and expect to lock down the flow sheet for a straightforward 1700 50 ton a day process plant that can reliably deliver consistent recoveries and generate high quality concentrates.
The team is now focused on optimizing capital costs, the mine plan and operating costs to incorporate everything we learned from last year's PFS.
We're also working through how best to slot in a potential expansion and restart to maximize the likelihood of success without distracting us from our Rochester expansion.
Our goal is to end the year with a solid compelling business case to justify a decision to move forward at silvertip.
Yes.
Our three year outlook reflects strong returns and a step change in production and cash flow. If you didn't get a chance to listen to our Investor day in December I encourage you to go to our website look at the materials or watch the replay to find out more about our culture strategy and outlook.
Before passing the call to Mick I want to quickly highlight slides 18, and 19, which provide a good high level overview of our deep rooted community relationships we strive.
To maintain strong relations with all of our partner communities and other local stakeholders with the goal of attaining mutual long term prosperity with that I'll turn it over to Mick.
Mitch Wow, what a great quarter and a strong finish to the year.
Before diving into the operational highlights I want to take the opportunity to thank our workforce for the progress made in health and safety performance and their ongoing dedication and commitment to pursuing a highest standard bill.
Building on our momentum we expect to deliver another strong year from our operations in 2021.
Now taking a look at slide six and seven and beginning with Paul Maria.
Strong results during the second half helped us finish the year on a high note despite being down for roughly 45 days in the second quarter.
Full year gold production finished above the high end of its guidance range, while silver production was inline with expectations.
Additionally, the team did an excellent job balancing operating and financial results during the year, which resulted in the unit cost for both gold and silver to come in below the low end of their guidance ranges.
Together these great accomplishments helped to generate nearly $93 million of free cash flow pulmonary whose largest free cash flow year since 2017.
Looking at the year ahead, we plan to increase our mining in throughput rates to help offset some lower grades and expect pulmonary hotel, but not a great year in 2021.
Turning over to Rochester, we have begun to see positive results from our revised stocking plan, which leverages in Lyft line is to maximize the placement of each P. G. All crushed ore on shallower portions of the Leach pad.
This strategy directly led to higher production during the second half of 2020, helping us to achieve the low end of our production guidance for both silver and gold.
Unit costs came in slightly higher than expected largely due to additional cyanide dosing as well as higher metallurgical outside services costs for the modeling the test work and the consulting support we used to drive the improvement program in the second half.
Going forward.
We are continuing to focus on performance enhancements in driving sustained improvements in our results.
Before moving on I want to quickly highlight two important items for Rochester in 2021.
We plan to swap out the existing secondary crusher in the second quarter to further optimize creation of crushed material at higher throughput rates.
This will give us the opportunity to daily and the new unit before it goes into the expanded crusher cargo as part of Poa 11.
We also plan to begin crude Cushing overlay net material for the new stage six leach pad.
During the second half of the year and we have solid plans for both of these projects to mitigate some of the operational impacts.
It is important to remember that we are effectively using in the left lane is in the existing crushing circuit is a full scale testbed to optimize performance, helping to derisk, our ability to achieve the expected results from the expansion in this coming years.
Switching over to Kensington 'twenty.
2020 was an excellent year for the operation.
Teams' diligent focus and efforts helped us achieve our full year production and cost guidance, which led to a record $60 million of free cash flow.
We expect another strong performance from Kensington in 2021, aided by the inclusion of Eureka and am Myra into the operations production profile.
Lastly at wharf the team did a great job accomplishing their goals for the year and achieved guidance by producing over 93000 ounces of gold at an average cost around $890 per ounce.
More importantly, wolf generated $73 million of free cash flow shuttering its previous record value of about 25%.
Looking ahead, we plan to move some additional tons. During 2021, while this is expected to result in marginally higher costs, we anticipate wolf will have another great free cash flow year.
With that I'll pass the call over to Tom Tom Thanks, Nick.
Slide five highlights our fantastic financial results as Mitch and Mick mentioned strong performances from Palmer, <unk>, Kensington and wharf, along with higher realized prices led to significant improvements in our annual financial results.
Margin expansion from top line growth and prudent cost management helped us generate over $260 million and adjusted EBITDA and nearly a $150 million in operating cash flow both metrics for over 50% higher year over year.
These results showcase the power of our portfolio, especially during the second half of 2020, when our assets generated $86 million of free cash flow.
The strong second half more than offset the slower start to the year, leading to nearly $50 million of free cash flow in 2020.
Our highest annual figures since 2017.
Looking ahead as highlighted on slide 15, we issued our 2021 guidance consistent with our recent Investor day outlook.
These guidance ranges signal another solid year of operating cash flow in EBITDA.
I do want to flag that we are anticipating a relatively weaker first quarter driven by one our mine plans production profile and buildup of inventories on our Leach pad secondly, timing of tax payments and Mexico combined to be roughly $30 million to $35 million of cash outflow and third annual incentive payouts across.
The company.
Turning over to slide 13, I wanted to emphasize a few key takeaways from our balance sheet.
We bolstered our financial flexibility during the fourth quarter by fully repaying, our revolving credit facility borrowings and expanding the capacity of the revolver to $300 million.
The other with our significantly improved cash position. This led to nearly $360 million of liquidity at the end of the year.
Looking at our leverage levels, both total debt and net debt to EBITDA decreased steadily during 2020 <unk>.
Particularly our key leverage metric net debt to EBITDA was cut in half year over year, ending 2020 at <unk> seven times.
We are targeting a net debt to EBITDA EBITDA ratio of under two times, while maintaining at least $100 million of liquidity over the next two years as we complete major construction at Rochester.
By using a combination of cash on hand, operating cash flow and debt capacity. We are confident in our game plan, leaving us very well positioned to fund this phase of significant capital investment I'll now pass the call back to Mitch Thanks, Tom.
Slide 14 shows our top priorities for 2021.
And by following this roadmap we believe we can deliver solid results over the short medium and long term from our balanced portfolio of North American precious metals assets.
With that let's go ahead and open it up for any questions.
Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
For using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble the roster.
Yeah.
First question comes from Michael Dudas Vertical research partners. Please go ahead.
During the winter land out there in the Chicago.
Hey, Mike Yeah.
We are a hardy bunch here.
Uh huh.
Of course, we're getting harder year over here in the northeast as well low anyway.
Yeah, a couple of questions first.
Maybe you could maybe Mitch can address a little bit on the 'twenty and 'twenty one.
Cost guidance for for the mines.
You did a good job of of improving in the second half of last year and I guess, there's some conservatism there for some.
Some of the drivers I know some grade issues at some of the minds of zero. So like a general inflation labor some catch up costs that you didn't have in 2020 that are going to flow through 'twenty, one just get a little sense of that and how that may play through the year as.
For rollout.
Yeah, I'll start there on that one.
And turn it over to Mick I think a couple come a couple of things come to mind for example at Wharf you know there was some waste stripping.
In 2020 that didn't get done due to some.
Labor availability challenges relating to COVID-19. So we'll be doing some of that here in 2021, and so I know that that's a factor in in in wharf's cost here.
Here this year.
Mick do you want to.
Maybe pick up from there and cover any other sort of give Mike some color on on the cost guidance at each of the assets certainly overall.
That cost position for 2021, and it's driven by the life of mine plans and so there is some changes to 2020.
But a few judgments we moved a lot of run of mine material in 2020 at Rochester, and we're going to do a little bit of that again in 2021, and then there's a little bit of some adjustment with the optimization program that we have around getting the best out of what heap Leach pads for the cyanide costs are going to be up.
A little bit higher at Rochester, as we are in.
Increase for.
The from about one five pounds per ton to two five pounds per tonne for awhile.
On the heap Leach and so they are the main drivers are at Rochester at at.
At Kensington as a few bits and bobs that really it's a it's across the board there's a little adjustment on royalty and management fees look for the G&A and but then what pushing the throughput.
Kensington as well to maximize the benefits of that operations. So the processing costs will be a little bit higher.
As Mitch said on wharf, and we're moving a little bit of catch up material and stripping at wharf and to make sure that we're well ahead, we don't anticipate any impact on the production for wharf for 2021, there we should be able to move up material as per the.
The plan.
And so overall bits and pieces across the piece I'm not too many concerns and obviously, we'll always look to optimize those costs through 2021, but at the moment.
Yes, good distribution and nothing particularly significant for folks in EMEA Palmer ale.
For more of a grade driven.
Yeah denominator right other places.
I think we're going to we're going to we're going to a process of local shows Paul Maria who does it.
A drop as per the life of mine plan and greed pump Regal and the team they are doing a fantastic job of increasing the production rates.
To more than compensate for that.
2021.
That helped by excellent yeah. It helps it helps a lot. Thank you for that and my follow up would be on on Rochester.
For Capex guide of $1 55, a 195, so certainly.
Is it a sense of how quickly how you know how quickly you move through some of the projects that you have that's going to generate even more or less spending. This year is it just like robbing 'twenty two into 'twenty, one or how does that how does that play for words, there anymore or just.
Productivity or cost issues that might flow into that how that number flows through <unk>.
Relative to the long term outlook on getting Rochester started up.
Yeah, So you're right Rochester as is the expansion is upon us major construction activity started off on schedule on January 15th.
And most of the spend will be wrapped up late next year.
Tom do you want to talk maybe a little bit about the shape of the spending as we see it this year and next year at Rochester, Yeah. So so so two items.
I mean, we.
We have as you can appreciate with a big large capital project. Like this we are we are well down the path and committed to spending a lot of this money.
Construction contracts have been signed procurement as they made et cetera, et cetera, again, youll see a significant ramp up here in the first quarter versus the fourth quarter and then the real spending kicks in in Q2, Q3, Q4, and just the one item I want to note is on that Capex guidance that is net.
Net of some planned capital leases that we intend to to have to help fund the overall Rochester capital spend.
That makes sense and can you remind me what the contingency that you guys have set forth a net in that budget.
Overall.
Yet at 32 million.
Great terrific. Thanks, gentlemen.
Yes, Thanks, Mike.
Thank you for the next question is from Thompson of BMO. Please go ahead.
Hey, guys. Good morning. Thanks.
Thanks for the update image.
Just a couple of questions, maybe I'll start with war and just on the reserve and resource update that you guys put out yesterday morning.
It looks like there was a pretty good uptick in measured and indicated both tonnes and ounces.
Can you just talk a little bit about that increase and what sort of needs to be done to get that that material into the into the mine plan.
Yeah, I'll start and then I'll turn it over to you Hans and then make if you have anything to add on on war, we expanded the boundary there.
At wharf, which allowed us to bring in.
That material, Brian that you mentioned.
Probably it takes it will take some time on the permitting community consultation.
For two to get that ultimately enter into reserves.
But we're optimistic about that I think that probably the the quicker opportunity to pull in some some additional mine life and reserves it's probably.
Is where we're focusing our infill budget at war for this year, which is our by.
By far our biggest program ever since we've owned wharf, Hans you want to talk a little bit about.
About that in an interest.
What we're doing at wharf on the exploration front, Yeah, Hey, Ryan.
What Mitch mentioned with the boundary effects, the Green Mountain pit.
And it looks like a big number because our M&A was quite small at wharf and we didn't know drilling so not really much added to convert so it ended up being about 230000 ounces or so that were.
At it.
As a result of that move.
Move of the boundary, but yes, we're expecting to spend about four and a half million dollars on this infill program. We already started in the winter, which is also a new precedent for wharf shouldn't should finish in August and what that does is gives us a jumpstart on the Portland, Rich philosophy area and if things go well with the drilling the mall.
Italy, and the permitting we should be able to start laying back in February next year, that's why we jumped on that right away.
Gotcha.
Helpful.
And maybe just a point Ryan I'll just yeah.
Plug there on wharf.
For its great to hear about these other opportunities to further extend that mine life.
2015, we we bought that for $99 million, we've harvested a $245 million of free cash flow. It had a six year mine life. When we bought it it has a six year mine life now and with what making Hans are doing out there.
There's some opportunity to further.
Further extend that so it's it's a great great piece of the.
The portfolio, sorry, I cut you off there youre going to asking for the question Yeah, Yeah, No worries no. It's definitely been a good act.
Acquisition for you guys and just a follow up so.
I think you guys had a sort of Saturday property.
Under option there rich for now I think it was called can you just give us an update on that option as well.
Yeah, we're doing more drilling.
That option I think has an expiration in the third quarter and he September so it will finish up the drilling see what the results look like and then and then make a decision.
Whether to go go forward, there or not so that.
Decision remains still to be made probably middle middle part of the year.
Richmond Hill.
Okay. Thanks.
And then maybe just one more for me and I'll.
I'll turn it over to other callers, but just switching over to silvertip.
Obviously, the the messaging sounds.
Constructive there.
Sounds like you guys.
We're feeling more confident about what you're finding can you maybe just touch on what a potential restart would look like in terms of timing.
I mean, if you if you do get to that positive decision in capital and just how we should sort of be.
Are you thinking about that.
Yeah, Yeah, Great question, it's a.
It's a constant topic around here.
You know on one hand, we want to make sure we're moving forward in a deliberate disciplined way and not rushing.
To get to a result that we all want.
At the same time we.
We don't want to you.
You look at the outlook that we put out in our Investor day, 'twenty 'twenty three and beyond look really good for this company and we really would not like to see silvertip expansion.
Delay that or defer that that that free cash flow profile and so <unk>.
<unk> those constraints and those that sort of those goalposts you know that's kind of the timetable that we're working on but you know we we we we are prioritizing Rochester you know that's that's job number one.
And we're prioritizing getting this thing right high confidence Derisk go forward with confidence.
And do it in a way that is going to have the outcome that we all that we all want there.
Does that does that give you a little bit of context right.
Yeah No. That's that's that's helpful. I appreciate.
The added color and.
Yeah, like I said, I think I'll turn it over to other callers, but I appreciate the update guys.
Yeah. Thanks Ryan.
Sure.
Again, if you would need to ask a question. Please press Star then one.
Yeah.
Our next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.
Good morning, guys congrats for the strong finish to the year.
Thanks.
So.
Just kind of a point of clarity on Rochester.
Expected in <unk>.
Q2 stacking rates to be impacted at all by the swap out of the secondary crusher or is that part of the 38000 tons is that already included in that 30000 ton per day plant.
Nick go ahead, yeah, so and it's built into the plan already that's what boat for the budget and that's what it looked like it was going to be about a 30 day is already looking at about in DS for that's what right now so we're a little bit ahead of the game and continue to optimize that and as said.
While looking to minimize that impact continually but at the moment.
Thats, what bodes really well planned and built into the budget.
And the guidance rich exactly.
Okay, Okay fair enough.
And then a lot of my other questions already asked but I guess I'll touch on the Crown block.
Seahorse discovery.
Your neighbors to the north have had some higher grade intercepts, they're taking a slightly different approach to drilling part of land that they have there.
Do you guys expect there's you have you know drove from different pads that you might take a similar approach I think theyre drilling more west to east.
It back into the structures, where you guys could continue to use like the single pad multi directional drilling.
Kind of plan.
Yes, great question, it's a.
A lot of a lot of excitement.
A lot still to learn out there early days, but the the drilling has been going exceptionally well Hans you want to take that.
Joe.
How much time do you have.
Eric.
We are we're employing some real high level geologist to understand what we've got at sea horse because it's different than anything we've seen in the district for sure.
But by contrast to our neighbors to the north.
Their geologists comes from Bullfrog his experiences bullfrog all the high grade mineralized structures from the Bullfrog mine dip to the west so they drilled to the east and they've had some great results they've done a great job then oxidize to depth just like what we're seeing.
And as you alluded to correctly, we've been restricted by a five acre permit and so we stuck to for a five pads and Doug fans off of those limiting the attack angle on these west dipping structures, we are going to start stepping out and testing knows we expect to see the higher grades like they've got from theirs.
And based on some of the high power geologists we've employed.
They expect to see much higher grades when we get what's called the feeder structure for these systems now we interpret our mineralization totally different oxide disseminated hosted by the Bullfrog formation.
While structures are important to host rock is actually giving us these larger tonnage and thicker intervals like Mitchell alluded to.
From our news release 710 feet of point, all three as per ton. So as we get an amended drill permit this year.
We've got a 300 acre drill permit to disturb 300 acres, we needed to amend that because we didn't have the seahorse discovery when we got that.
And we should get that in March we will start building pads, south and west to test. These.
Structures and to test the growth of Seahorse to the south.
But it's looking really good pure gold nothing else, but pure gold oxide.
Normally in these systems, you see things like arsenic.
Other things so it's given us a lot of confidence this is going to turn into something economic in the future.
Okay. Thanks for the color there and then one final thing.
You're kind of thinking about capital spending over the course of the year.
Yeah.
If the balance sheet gets laid at any point because you know you have some bigger yeah, especially at Rochester, a big project this year.
Would you just draw on the revolver or is that the plan or is there any chance you guys.
If silver catches a bit again would you tap the equity markets.
Well that one is bottom other list in terms of any equity.
I think.
Tween.
Tom and his team have done a tremendous job I think of not only.
Putting us in a position to fund this but also have identified a pretty wide spectrum of other alternatives.
That we could pursue if we felt.
Like we needed to Tom do you want to give a little more color yeah. It is.
Joe with that.
Between our cash on hand, and the operating cash flow from the existing mines and the debt capacity.
We've got the ability to keep keep to that guidance those guardrails that we set for ourselves of a net debt to EBITDA of less than two times in and sell world. We've got tests in capital leases that we've I've already mentioned net at Rochester, the revolvers fully fully available and and again, we will will that will delay drawing drawing upon it.
As as late as late as possible.
In terms of head in terms of hedging look.
At recent run up in silver price.
Absolutely caught caught our eye and and so as I think it's prudent to always be looking and understanding what what's available in the lake and the non adult side, we have about half of this year's.
Production with a 1600 dollar for dollar co.
Correct, so that gives us another.
Sort of extra buffer.
In there.
I don't know Joe does that give you.
If you see I know that that's good that I'm, mostly you know that some of your peers are slightly smaller companies have been being opportunistic on the equity front and it didn't seem like you guys needed to be and I just wanted to confirm it.
Yep.
No fair enough.
Thanks, guys I'll turn it over.
Great. Thanks, Joe.
Yes.
This concludes our question and answer session.
I would like to turn the conference back over to Mr. Mitchell Krebs for closing remarks.
Okay, well hey, we appreciate everybody's time. This morning, I know, it's a busy reporting day and we look forward to speaking with you again in the spring hopefully the snow will be gone and we'll talk about our first quarter results.
So have a good a good rest of the week. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.