Q1 2021 Coeur Mining Inc Earnings Call
Good morning, and welcome to the first quarter 2021 financial results conference call for core mining all participants will be on listen only mode and you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be and opportunity to ask questions to ask a question.
And you May Press Star One Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Paul the part to director of Investor Relations. Please go ahead.
Thank you and good morning, welcome to core Mining's first quarter 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.
And I'd like 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 first quarter 10-Q, and 2020 10-K, now I'll turn it over to Mitch Mitchell.
And Tom Thanks, Paul and good morning, everyone.
And as we said and our released yesterday, our first quarter results were in line with our expectations and represent a strong start to the year.
We're feeling confident and our ability to accomplish our key objectives and achieve full year guidance at each of our sites.
Turning to slide three of today's presentation and looking at the highlights for the quarter.
Solid production and higher realized prices helped drive margin expansion, leading to a significant double digit year over year improvements in revenue Ocs pre working capital and adjusted EBITDA.
These results were supported by the overall performance of our portfolio, particularly for gold.
With over 85000 ounces of gold produce and the first quarter expected to be our weakest of the year, we're feeling good about being a quarter of the way towards the midpoint of our full year production guidance, which is ahead of the 22% we indicated earlier this year.
Additionally, the overall cost performance has been well managed all of our site level unit costs for gold ended the quarter either below or within their full year guidance ranges.
We also achieved some important strategic milestones during the first quarter. The most noteworthy was the successful refinancing of our senior notes, which Tom will cover in more detail.
We're extremely pleased with the outcome and how well positioned this leaves us for the future.
The catalyst for this refinancing was really to shore up our balance sheet as we continue executing major construction at Rochester, which kicked off earlier this year.
The project was approximately 20% complete at the end of the first quarter with detailed design substantially finished and almost all the equipment procurement and service packages committed.
If you turn to slide seven and eight you can see a more comprehensive breakdown of the project timeline as well as the progress we're making on the new 300 million ton Leach pad.
Importantly, this company transforming project remains on schedule to be largely completed by late next year.
Turning to slide 10, and I'd be remiss not to mention exploration and building on the strong double digit reserve growth in 2020, we decided to further bolster our efforts and plan to spend just under $70 million on exploration this year.
Notably, we invested roughly $15 million and the first quarter, which is almost as much as we spent during all of 2015.
We drilled nearly 40% more feet quarter over quarter as pre key programs at silvertip and crown ramped up while drilling campaigns continued to advance across the rest of our portfolio.
Although it's still early and we're seeing encouraging results that continue to validate our ongoing commitment to this higher level of exploration investment and the higher ROIC it generates.
With such an important program underway, we plan to provide some additional updates on our progress throughout the year, including one and a few weeks that will focus on silvertip and crowd.
Before passing the call to Mick I want to briefly mention our responsibility report that was published yesterday.
We pride ourselves on being and ESG leader and the report does a fantastic job showcasing our commitment.
To transparently disclosing our ESG related goals and accomplishments.
Including our initial target to reduce net greenhouse gas intensity by 25% over the next five years.
With that I will now turn the call over to Mick.
Thanks Mitch.
And we're discussing the operational results I want to quickly on to michel's comments on ESG.
Slide 17, and 18 and today's presentation do an excellent job and highlighting our commitment to pursuing our highest standard.
And we're passionate about being responsible stewards of the environment and strong contributors and the communities where we operate.
Selling ghouls aimed at reducing our overall impact on the environment. We are not only staying true to the purpose statement. We are also enhancing the integrity of our operations to drive them further down the cost curve.
Now turning to slide six and starting with pulmonary who.
Production results were ahead of expectations for the quarter largely due to higher than planned recoveries, partially offset by lower mill throughput as a result of the change and mine sequencing.
This was driven by some challenging growing conditions, we intended which led us to pivot and Maine and different areas.
Despite the change and the main plan unit costs for both gold and silver ended below the low end and the guidance ranges.
This quarter was a perfect example of how pulmonary was consistently able to produce results while balancing multiple priorities.
Moving to Rochester.
We anticipated slower start to the year, which was broadly in line with our results for the quarter.
And as a bit ahead of where we thought we would be while silver has some catching up to do.
We ran into some softer ore, which caused us to dial back throughput rates to help manage the amount of things being sent to the leach pad.
Importantly, we expect to improve those throughput rates and controls items during the second half a day with the new secondary crusher that we've just commissioned.
We also plan to police fresh material closer to plastic once the fourth phase of our lift line. Our strategy is completed around mid year.
Shortly thereafter, and we are scheduled to begin delivering overlay and a material for the new stage six leach pad.
While we have solid plans in place we are anticipating some near term variability and our production profile as we continue to operate with the legacy crusher and stage four leach pad to maximize our learnings while P will evidence completed.
The valuable experience and runtime with the recently modified crusher and enlist liner on top of stitch for during the remainder of the year will be key to helping those further derisk our ability to achieve the expected results from Poa 11.
Turning over to Kensington production was slightly ahead of our expectations, albeit a little bit more quarter over quarter. As a result of a reduction in mill throughput and average grade.
The decrease and throughput was primarily driven by a routine mill shutdown for maintenance, but we moved from December into January and slightly lower average grades were due to the targeted focus on oil development and stope drilling capacity earlier and the year.
Unit costs for the quarter totaled roughly $990 per items up slightly quarter over quarter, but below the low and Kensington and guidance range.
Overall, Kensington had a very solid quarter and we are anticipating another great year for the operation.
Lastly at wharf.
Operational results were ahead of plan.
Production totaled roughly 19000 ounces of gold and unit costs came in below the low end of guidance, giving us a strong foundation for the rest of the year.
With that I will pass the call over to Tom Thanks, Nick.
I'm going to run through the financial results on slide five which showcased the key points that Mitch and Nick already hit on.
2021 started much stronger than 2020 with revenue up 17% or.
42% increase and adjusted EBITDA, and a 6% expansion and margins all of which contributed to a third consecutive quarter of GAAP earnings.
We are pleased to be ahead of our internal expectations to start the year.
We mentioned on our last call that we were anticipating relatively weaker cash flow and the first quarter based on the buildup of inventories on our leach pads as well as the timing of tax payments, Mexico and annual incentive pay and it's across the company.
We forecast a return to stronger operating cash flow over the remainder of 2021 to help fund the planned capital expenditures at Rochester, and our aggressive exploration program.
Turning over to slide 12, I wanted to provide a bit more color on the improvements we made to our balance sheet.
We successfully refinanced our five and seven eight senior notes that were set to mature in 2020 four with $375 million of five and <unk> notes.
Due in 2020 nine.
This represents a tremendous achievement on multiple fronts.
First and foremost is the financial flexibility. This gives us as we execute a period of significant capital investment.
Next we took the opportunity to upsize the offering to further bolster our cash position and enhance our liquidity.
We also made significant improvements to certain terms of the bond indenture.
Finally, the five and one eight coupon represents the lowest coupon of any high yield mid cap precious metals bond ever.
In addition to the bonds. We also extended the maturity on our $300 million revolving credit facility from October 2022 to March 2025.
And with no borrowings under the revolver and the additional cash from the refinancing we ended the quarter with nearly $420 million of liquidity and a net leverage ratio of under one times I'll now pass the call back to Mitch Thanks, Tom.
Before moving to the Q&A I want to quickly highlight slide 13 that summarizes our top priorities for the remainder of the year.
By staying disciplined and executing our strategy. We're confident we can achieve these priorities and deliver solid results from our balanced portfolio of North American 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 to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw from the question queue. Please press Star then two.
The first question is from Joseph Reagor with Roth Capital Partners. Please go ahead.
Good morning, guys and congrats on a solid start to the year.
Joe Hi.
So first question G&A seem to be a bit elevated.
Compared to last year is that something we should expect to continue or was that kind of a onetime thing.
Yeah.
That's the highest quarter of the year.
We'll still and the year and that guidance range.
Which is what 37% and 41, yeah, I think yeah, a slight uptick in there Joe to reflect some additional costs, we expect to incur to help.
And I get all the new S. K 1300 technical reports done as we head into 2022.
And so we'll have some additional third party resources.
And in place to help us there that's one.
Extra bump in in this year's G&A, Tom anything now and they are.
The other the first quarter is always a bit lumpy with that as we true up.
On annual bonuses.
And we estimate at what the long term incentive.
And it's going to be so those are that those are the key things that as your main.
Main message there is what where we'll be on track to the guidance for the year Joe.
Okay Fair enough and then on the cost front have you guys started to see any and inflation impacts on the cost side are you know whether it would be.
Reagents or any.
Any other items even labor.
Yeah, I'll start and and Mick maybe you can chime in.
We're seeing some pressures on some commodity related inputs, Joe I know, even though diesel is only about 6% of our overall costs.
We saw I think about a 17% increase and the price.
Price per per gallon in the first quarter versus fourth quarter.
So that was very real.
And we've all read headlines about lumber.
Cement plastic those kinds of things we've seen some some cost pressure.
And not so much on the labor upfront, but make anything that I'm missing.
And just I mean across the board right. We expected some of that so we built that into our model and we still expect to meet the cost guidance across the across the portfolio, but there are certainly those that there was some potential high exposures with the projects, we're doing particularly at Rochester, but because of the progress on that project and the majority of those contracts are locked in and that.
Looks really good for us so and certainly some exposure the jaw and air.
And what we're watching that carefully but overall we're in control.
Okay. Thanks, I'll turn it over.
Joe.
The next question is from Michael Dudas of vertical research. Please go ahead.
Good morning, gentlemen, and good to hear about the push.
Christian on the cost fixed cost non sub contractors on the price increases that were going on certainly seen this inflationary environment high.
So.
First question is COVID-19 could you just update us on.
The vaccination rates, how much it through and your U S operations that you've have you got two and and how things are and Mexico and is it trending and the right direction to to kind of get to the other side, maybe as we get more vaccines over index a few months.
Yeah, Great question, I'll start and and make you can fill in any of the blanks.
It's a function Mike largely as you might expect of where where youre talking right out in the Western U S. A R. R kind of layers of controls that we've put in place over the last year seemed to be very effective and we're operating.
Very well, especially at wharf, and Rochester, Kensington and that was the the source of about 70% of our COVID-19 related costs last year were related to Kensington, and quarantine and especially requirements. There. We've now been able to kind of roll that back.
For those vaccinated Theres, no quarantine and otherwise to three day quarantines and so that's a flow.
And our cry from where we were.
About a year ago, when we were.
And dealing with about a two week quarantine and so that's that's allowed us to.
Really reduce our COVID-19 related costs, even quarter over quarter, I think they've gone from five and a half million to down to three and the threes.
Mexico is still.
Clearly the laggard.
On the controls that we have are effective but when it comes to any vaccines or anything like that and I think we're still quite a ways away.
At Silvertip.
And you know that that asset sits just south of the border with the Yukon and we've we've managed to see some really great cooperation with the Yukon Province in terms of PCR tests, and and vaccines and so that's really helped our silvertip kind of catch up to where we are.
Here in the U S and overall vaccination rates vary.
By site, Kensington and <unk> I think the highest.
Around 50.
Or even higher.
We're still below 50 at wharf and Rochester, Mick do you want to pick up from there and fill in anything I didn't cover yeah for sure and clearly one of the higher exposures would be what fly in fly out sites, pulmonary who and kenzie and and particularly kenzie and where we'll have that the HUD that strict quarantine, but we hit a milestone deal idea we actually.
We have 75% of the work force that have at least one vaccine and above 60% on how to.
And so that's that.
And that program is going really well and overall the controls both on pulmonary who on.
And all of the other sites are working very well, we have multiple layers of protection with testing and on the other controls around hygiene and and masks and those controls are doing great and just last thing Mike I would say is that here and the office and it's actually a full room here.
This morning, and person and June 1st will be going to more of a hybrid returned to the office model.
And we'll see how that that works, but it's.
A lot of signs of.
And a return to something approaching normalcy.
Yeah, but that's certainly encouraging with from glad I'm glad to hear that maybe for Tom.
And you highlighted the working capital headwind.
Headwinds this quarter, the reversals and and how much of a tailwind and we think we'll see and timing over the next couple of quarters.
Yeah.
On the first quarter is when we tend to build up the the heap leach inventory and the stockpiles that are both Rochester and wharf.
As well as we had that we.
We have a really lumpy onetime Mexican tax payment as we pay the annual EBITDA tax and the AR and then.
And true up our 2020 tax Bill and so those are kind of behind us and and so I would I wouldn't expect to see any large buildups and and again help will be monetizing what was put on the stockpiles are on the heap leaches as fast as possible.
I appreciate it and final question and then maybe for mature from Mick.
As we're looking at it.
Rochester and build out on.
And what are you know and.
And you do next.
Summary on on the slide deck, but what are some of the things we're seeing this quarter maybe into the summer that or milestones that we should be concerned or focused about as as we wrap up 2%.
Percent complete you know above what you were at 20%.
Yeah, I'll start and and Nick Terry Smith is here as well.
That leach stage six leach pad is moving along nicely I think if we haven't we will soon be starting to put overlay on our material out there on on stage sticks.
That'll be in the second quarter, the new power line with Nevada Energy is is moving along on schedule and we will see that.
Not complete but I think later this fall will be completed.
And we've kicked off obviously on on not only the leach pads and the Merrill Crowe.
And Oh.
Krishna and the crushing train yeah, and so those will those are more of a mid mid to third quarter of 2022 completion.
But in the summer or any other big highlights that we should be looking for and the second quarter not really.
And the Mitch.
It's really a lot of ex excavation work.
And we're.
Working through this year.
The big milestone that will we'll try to hit as getting all of that overlay on material and it.
Through the third quarter, and complete that leach pad before snow hits and for us.
Good.
Excellent.
John Thanks.
Thanks, Mike.
As a reminder, if you have a question. Please press Star then one the next question is from Brian Macarthur of Raymond James. Please go ahead.
Hi, Good morning, My question has to do with Palm of rail.
Your costs from the first quarter were 621, but you're guiding towards 710 day 10 for the year, So that implies a pretty big increase later this year.
Is that a relation to the switch and the Franco mined ounces land or is there something going on or I'm, just surprised because it looks like if you annualize and production you're sort of on schedule. So I'm just trying to figure out if there's anything else going on there.
Nothing.
We came in lower than plan and the first quarter, let's hope that that continues throughout the remaining three that Nick is there anything that you want to point out there yeah. It's it's absolutely expected the grids continue to go down a little bit across the year and we will continue to optimize and move more tons to hit that production profile. So.
And right now we expect to be in the guidance range for cost but of course, we're striving to be at the bottom end of that guidance on below but for the moment, we expect to be and the in the guidance.
More tonnes, that's great and yes.
And sorry, just a follow up you don't hedge the peso or anything there or do you is there any peso effect that's happening as well is and Tom do you want to summarize yeah on that yeah, So Brian and the guidance we gave.
The guidance pre any hedging.
Alright.
But when we report it includes the impact of hedging so we yeah and roughly $50 million of pesos hedged in.
In 2021.
And you know that we had a benefit of about a million Bucks a month through the first quarter.
If you look through the financial statements are you.
There are that the forwards are on the balance sheet as an asset of about $9 million of day FX rates stayed where it is we would have a $9 million additional tailwind on cost, but but that's how we handle the AR. That's how that's the hedging profile for the rest of the year and that FX rate is what 25 25.
Yes.
Okay. That's very helpful. But I can also assume there's not a real big mix and which which.
Which materials coming off a franco land versus non Franco lands because again.
You know that might affect the costs, but obviously you get a day if you get more of your stuff you get a better revenue and there is no other function going on there or anything.
That will that really only impacts the revenue line, Brian right. So so I think and the first quarter. The revenue we had a 34% where we only receive that $800, which is quite a bit lower than the fourth quarter, which was 44% now at <unk>.
34%, probably that's the right number to be thinking about for the rest of the year basis based on the budget.
So hopefully that clarifies that.
Yes. Thank you all very much that's very helpful. Thank you very much.
Thanks, Brian.
And next question is from Dalton Barreto of Canaccord. Please go ahead.
Thank you and good morning, guys. Just one question from me Hey, guys.
As you move forward.
Towards a decision on salary cap.
Just given what's happening with the industrial commodity is there an opportunity on and you guys considering hedging out a substantial portion of the zinc and lead production there.
Yeah, Great question, and it's an active topic, Tom smirking over here on the other side of the table do you want to take that Tom and the short answer spoiler alert as yet.
On the time, you're going on yeah.
No it's not like we've been a I.
I think we've demonstrated with the Rochester billed AR were not afraid to put on hedges during periods of capital intensity and.
It makes sense people on the credit side and the equity side completely get it and you know as as we advance those discussions as the feasibility study comes comes to a conclusion here and that second half of the year and begin.
Our discussions primarily around offtake financing I and we would expect to include some element of hedging.
That's great and that's what I thought you'd say, Tommy and others make market better than most.
[laughter].
That's all from me guys. Thank you, thanks, Alan and thanks.
And so.
Yeah.
The next question from Brian Johnson of BMO. Please go ahead.
Hey, guys. Thanks for the update just a quick one for me can you just.
And we'll send updates on southern Nevada, with a crown and Sterling and Crs and just the sort of some good activity there and what the latest.
So to update and thinking is there.
Yeah sure Ryan Thanks for the question and Hans is on the call as well, it's Hans you can chime in after after me if I Miss anything, but it's it's a it's a very dynamic area down there around BD and Nye County, Southern Nevada.
Brown Sterling complex is one of our biggest allocations of exploration spend this year.
Which is a reflection of how enthusiastic we are about what our what we're seeing down there and.
In particular up there to the north and that Crown block you know Youll recall, Ryan when we bought northern Empire.
And then the Crown block was consists of S and a secret pass and Daisy.
And then about a year ago right now we made the discovery Seahorse.
And which has been exciting now we've been drilling on all four of those and what we are planning to do is continue to drill spend that budget that we've allocated this year and then pull together a P. A middle of next year.
And it.
Reflects a.
Our mine plan and hopefully a future operation for us that encompasses all four of those deposits and some sort of sequence and so that's that's kind of where our focus is.
We'll be putting out Hank I mentioned this in my prepared comments next month.
And exploration update and crown will be a focus.
In that release, so there'll be some good information and drill results.
For you to see.
And next next month on did I leave anything out.
I would just hey, Ryan just to a couple of points about you know what.
What our focus is there.
You know it's pretty much described it it's a big area, where we were focused only on resource expansion at the moment. There's so many things to drill and we just got our 300 acre plan of operation drill disturbance last October.
With a limited area at Crown.
The horse on them, where we only have five acres to drill we pulled the rigs down to these other assets.
That day, the secret and SMA to focus on expansion around and then we've done a lot of geologic work down there and we've got some great targets that we're drilling and seeing some good visible visual.
And indications of growth there too.
In addition to the Seahorse.
And talking about for the last year. So it's really exciting three Archie rigs are turning right now one core rig.
And we've doubled almost doubled the budget there.
And over last year. So you can tell we're quite excited about that area.
Perfect. Thanks.
Thanks for the update mentioned on looking forward to Washington, the results as they come out there that's volume thanks.
Yeah. Thanks.
Okay and this concludes our question and answer session I would like to turn the conference back over to Mitch Krebs for closing remarks.
Thanks, everybody I know a busy day here. Thanks for your time and thanks for the questions and we look forward to speaking with you. This summer to discuss our second quarter results. So thanks have a good day bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.