Q2 2021 Coeur Mining Inc Earnings Call
[music].
Good morning, and welcome to the.
Coeur mining second quarter 2021 financial results conference call all participants will be in listen only mode should you need assistance. Please signal of a conference specialist by pressing the star key followed by zero.
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I would now like to turn the conference over to Paul deeper to director of Investor Relations. Please go ahead.
Thank you and good morning, welcome to the core mining second quarter earnings.
So for this call of 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.
Earnings.
As well as the risk factors described in our second quarter 10-Q, and 2020.10-K.
Now I'll turn it over to Mitch MC and Tom Thanks, Paul and good morning, everyone.
I'll start off on slide 3 of today's presentation with some highlights from the quarter.
Improved topline performance was.
And by an increase in gold and silver ounces sold and.
And an uptick and our average realized silver price.
These factors along with some positive changes in working capital led to significantly higher operating cash flow both quarter over quarter and year over year.
This revenue and cash flow growth was.
Largely a result of of 27% quarter over quarter increase in gold production at wharf and of 15% quarter over quarter increase and silver production at Rochester.
Kensington Gold production was down slightly due to timing and palm of Rayos production was essentially flat due to slightly lower grades offset by higher.
<unk>.
Looking ahead to the back half of the year, we are reiterating our production guidance and expect a strong second half at each of our operating locations for reasons that Mick will touch on.
Overall operating cost increased during the period, reflecting higher throughput and underground development rates.
Higher through additional maintenance expense general inflationary pressures and a noncash charge at Rochester.
Mick will also provide a bit more color on these items and a few minutes.
We continued to advance our largest exploration campaign in company history, and established a new record for meters drilled.
<unk> and a single quarter of nearly 100 kilometers with 27 drill rigs currently turning.
We highlighted some of our progress and our press release, we issued back in mid June which showcased a new high grade mineralized zone, and our silvertip mine in northern British Columbia and.
And more excellent results from our crown.
Rates exploration property and southern Nevada.
Turning to slide 8 you can see we have upped our exploration guidance for the year to keep building on the successes we are having.
We now plan to invest approximately $75 million and exploration in 2021, which is nearly 50% higher than last.
Last year's record and 2.5 times more than our investment in 2019.
We continue to view, our investment and exploration.
Which is 1 of the largest programs and our sector as a very attractive allocation of capital and an important differentiator.
Continuing with the <unk>.
Narrative I want to touch on the company's 2 major development priorities the ongoing expansion at Rochester, and the potential expansion and restart at silvertip.
Starting with Rochester, and looking at slides 11 through 13.
11 is advancing on schedule with overall progress at approximate.
<unk>, 31% complete and over 90% of the contracts committed representing roughly $334 million of capital at the end of June.
Like most companies going through a large capital project right now we've started to see the impact of inflation and areas such as contractor labor building.
The materials and fuel on a small number of remaining uncommitted contracts will be evaluating these last few contracts as they come in over the coming months and will provide an update on our next call.
And finally, our technical team continues to Carryout optimization work to incorporate all of the important learnings.
Earnings being generated during this transition period until the new infrastructure at Rochester is completed late next year.
Turning over to silvertip and looking at slide 14.
The ongoing technical work and success of our exploration program combined with much more favorable market conditions.
Have us feeling confident in of potential expansion and restart of silvertip.
As a result, we have accelerated our level of investment to take advantage of the summer construction season to complete a range of mostly surface projects.
We plan to pull the ongoing exploration and technical work into and update.
<unk> Technical report, which is expected to be filed in early 2022.
Without question, we believe the growing high grade deposits that silvertip is well worth the effort. Despite the challenges we've had there and the past.
With the retooled flow sheet, and a larger and more reliable processing plant, we see silvertip, becoming.
<unk> margin cash flow contributor over a very long mine life and an attractive jurisdiction.
Before passing the call the mic I want to briefly mention the strategic investment we made in Victoria gold.
It was a unique opportunity to acquire the 18% block from Orion mine finance.
And the Hyatt aligns with our strategy and further bolsters, our portfolio of precious metals assets and high quality jurisdictions.
We are pleased to be of Victoria shareholder with how the investment has performed and with how the Victoria team is advancing its new Eagle open pit heap Leach operation.
Beyond that I'm not going to speculate on today's call about potential scenarios, our next steps, which I'm sure you can appreciate.
With that I'll now turn the call over to Mick.
Thanks Mitch.
Before going through the operational results I want to point out the set of slides that highlight our steadfast commitment to protecting our people.
And <unk> are top health and safety initiatives, starting on slide 20.
In order to continuously enhance our safety culture and achieve grid performance, we must work for you of any uncontrolled exposures.
We truly believe that health and safety do not improve unless the exposure is contained.
And reduced or eliminated.
Our search and I'm proud to report that we recently completed our recertification for the National Mining Association of course safety program.
And year to date, we're running towards the lowest lost time injury rate and our company history.
And as I mentioned on my first call year ago.
And when companies get health and safety rate strong operational performance follows.
Now turning to slide 6 and beginning with palm of vehicle.
Higher mill throughput and better metallurgical recoveries helped to offset lower grades as we continue to encounter some geotechnical challenges.
And this led us to accelerate the rehabilitation of historical grow and controls and we sequence of the mine plan.
This is expected to result, and more ounces coming from the area covered by the gold stream, which results in a higher proportion of the cost allocated to solar on a co product basis.
We are confident and our ability to achieve.
Cheap production targets for the year and expect these impacts to be limited to 2021 and.
And with annual EBITDA Tox behind us.
And <unk>, who was able to generate roughly $24 million of free cash flow.
Over 7 times higher than the prior period.
This was another great example of how the team.
Team can routinely balance multiple priorities and still produce solid results for the business.
Moving to Rochester.
With the laser focus on short interval controls, we are beginning to see better results for material placed on the lyft liners.
Which drove a 15% increase and.
Production during the quarter.
The full production was also higher supported by an aggressive 1 of the main campaign.
It's also worth noting that these production levels represent significant improvements from where we were 12 months ago and.
Additionally, we commissioned the new secondary crusher over and in the period.
And so the allowed us to begin placing all of the liner on the new stage 6 leach pad approximately 6 weeks ahead of schedule.
Importantly, initial results from the new crusher of being quite positive.
We've been able to operate at higher throughput rates produce a more consistent cost product and improved leach ability of.
<unk> of crushed ore relative to what we saw over the last few quarters.
Moving on this momentum the team also successfully completed the fourth and final phase of our in the lift of lane our strategy on the legacy stage for Leach pad, allowing us to please the fresh material closer of the plastic June transition period.
Periods of unit cost came in higher than anticipated largely driven by a change and our recovery assumptions on historically and placed on the legacy pod.
However by switching to of course, the crush size and remaining focused on improving the short interval controls, we now expect to achieve of 56% recovery rate for silver.
Which for over the next 5 years as we finish leaching on that pad.
As Mitch mentioned all of the valuable experience and key learnings of helping us further de risk and optimize peewee 11, as we continued to execute on this pivotal expansion project.
Switching over the Kensington.
We saw slightly lower production as we process some additional development ore from dwelling and changed out the line is and the ball mill.
Unit cost for the quarter remained within guidance and total roughly $1090 per ounce.
The modest uptick in cost was driven by higher diesel prices and additional contract.
On the port for drilling and maintenance as well as fewer ounces sold.
Looking ahead for the second half Kensington is on track to generate its third consecutive year of solid free cash flow.
Wrapping up with Wolf with.
We continue to place higher grade material, which led to a 27%.
The increase in gold production.
The stronger performance was coupled with great financial discipline.
The team did an excellent job managing costs, while the continued advanced stripping and unloaded 1 of the leach pads and leading to free cash flow of more than doubling quarter over quarter.
All of this important work.
Seth Woolf of to finish the second half of the year on a high note.
With that I'll pass the call over to Tom Thanks, Nick.
I'll quickly run through our consolidated financial results that are highlighted on slide 5.
6% increase in quarterly revenue, coupled with favorable changes in working capital helped us to generate 50.
And $58 million of operating cash flow during the quarter.
LTM EBITDA of approached $300 million.
Despite the noncash inventory charge at Rochester this quarter of.
The 41% increase year over year, and once again, demonstrating the power of our portfolio, especially at these gold and silver prices.
And with production guidance reaffirmed we expect to see increased cash flow generation during the second half of the year to help fund our key internal growth priorities.
Next turning to slide 15, and looking at the balance sheet. We ended the quarter with the strong cash position and no borrowings under the revolver leading to nearly.
Early $390 million of liquidity and the net leverage ratio of 1 times, which leaves us well positioned to fund our 2021, Capex and exploration programs. It's worth pointing out that these numbers do not include the nearly $175 million of equity investments that we have on the balance sheet.
As previously discussed our financing strategy for the Rochester expansion included an element of capital leases. We were very pleased to of secured of capital lease package of nearly $60 million during the quarter. The cash will be used to help fund a portion of the planned equipment purchases for Poa 11 and is above our original target of 50.
The million dollars.
The package is a 5 year tenor and carries a fixed interest rate of 5.2%, which is in line with the senior notes that we issued earlier this year.
Lastly, I wanted to quickly note that we opportunistically added to our hedge position during the quarter when spot gold prices approached $1900.
We now have 132000 ounces of gold hedge next year with an average floor of $630 per ounce and then average ceiling of $2038 per ounce.
We will continue to proactively monitor the market to potentially layer in additional hedges and up to 50% of expected gold production.
And in 'twenty, 2 to underpin our cash flow during this period of elevated capital investment.
I'll now pass the call back to Mitch Thanks, Tom before moving to the Q&A I want to quickly highlight slide 16.
Summarizes our top priorities for the second half of the year.
By accomplishing.
And this set of priorities, we expect to enter 2022, with a clear and compelling path to delivering industry, leading organic growth from our balanced portfolio of north American precious metals assets.
With that let's go ahead and open it up for questions.
We will now begin the.
The question and answer session.
To ask a question you May press Star then 1 on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
Our first question comes from Mark Reichman with Noble capital markets. Please go ahead.
Good morning from my first question relates to Rochester, So the technical reported forecast preproduction expenditures of about $397 million. So when you look at your release and you've committed $334 million of capital.
All of that additional 20 million and bringing the total of the $3.50 for so what are your expectations now with respect of preproduction expenditures for the Rochester expansion.
Yeah, Hi, Mark it's Mitch.
We're still anticipating kind of that even split between 2021.
2022, roughly kind of around.
Around that $200 million level in each each of those 2.2 years, so maybe a little bit more now into 2022 with that additional $20 million that we referenced in the in the release that you mentioned, but otherwise still still of that kind of even split.
Between this year and next.
Yeah, well smell just you don't really break out the development and sustaining capital by mine.
And I know that like Rochester development capital and it's been higher kind of like the than the average for the entire budget for development.
And what would you say your development capital.
And would be in 2021 and 2022.
Developments, we break that out in the release.
Lease and each in the <unk>.
And by mining sections.
Is the Capex.
And for the point or 2 to add to the sustaining versus <unk>.
Versus <unk>.
Development of <unk>.
Tom do you happen to have that in front of you I don't have that for us.
Okay.
I think the Rochester sustaining.
This year is only 10.
10 of $15 million.
And then the rest of this off.
All of the development related to Poa 11.
11.
Okay. So 10 to 15 and each year so to speak and then the remaining so it'd be kind of keep it at 200 of year and then the 15 would be sustaining and the remainder would be so do you think you'll get pretty close to that $3.97, or do you think youll.
Youll run under or do you think with inflation I guess I'm.
Just trying to gauge kind of whether that's still a pretty good number.
Yeah great.
Great question, it's a day.
And then fluid dynamic time, like we mentioned and the release and and our.
Comment.
We're lucky or we're fortunate to of the vast majority of the cash.
Capital already committed.
We have the.
Just a tad over $60 million.
The uncommitted still and so thats, where we.
We will have some.
We will receive some bids here in the next next few months, we'll pick those apart, but those have a lot of steel pipe.
Cement.
And and contract labor rates in there and so we are.
And our eyes are wide open on those remaining elements and that's where some of the escalation pressure is starting to be seen a little bit. So we'll have more to say at the end of the third quarter and once we get all of that in and.
And sort through it and see where we are but at the.
And at Rochester, the that's the only on a pretty small relatively speaking small piece of that remaining uncommitted capital.
Okay, and just to clarify 1 thing on our discussion on the development capital.
And if you're saying 200.
It sounds to me like you kind of expect to be at the upper end of the range for for Rochester in terms of where the guidance is.
Yes.
And I think Thats, probably a fair a fair assumption for now until we come back and give you more clarity.
And later this year.
No that's really helpful. I really appreciate it thanks very much yeah sure Mark Thanks.
The next question is from Joseph Reagor with Roth Capital Partners. Please go ahead.
Good morning, guys and congrats on a solid quarter.
And Joe Thanks.
So.
A little bit more on.
Rochester.
So in the release, you mentioned that $20 million the previous caller mentioned as well.
Could you give us a little bit more color on you know.
Where that's going and how accretive you think that extra investment is.
Yeah sure. Good question, it's a lot of little things, but.
Terry Smith of sitting here and he'll Terry can you cover that quick yeah sure. Good question Joe.
The funding is really underpins that we want to build Rochester for the long term success.
There's a lot of.
The incremental pieces to this but it really comes down to improving the.
But the.
Availability and Operability of the infrastructure that we're putting in place and just to give you some color on that.
And we upgraded the geotechnical design and the crusher pocket, making that a safer excavation for the long term.
Some redundant pumps and to the Merrill Crowe plant that will increase.
Safe availability of that plant and the long term.
We've put a more sophisticated control system and the leach pad and the Merrill Crowe plant, which will make that a more efficient set.
And set of of.
Leach operations going forward.
Overall, we're pretty happy with with all of.
<unk> will upgrades unfortunately cost money, but we feel these are of good returns for the long term.
Does that helpful for yes, yes, that's helpful.
And then on the inflation that you guys mentioned.
Can you give us kind of order of magnitude on.
And that are we talking a couple of percent or are we talking 10 to 15 or are we talking something larger magnitude a level of pressure.
And the Opex side Joe.
No so specifically with the contracts at Rochester.
Yeah.
I would I.
I would say.
Of these the labor rates debt or the.
The biggest.
Component of the pressure bin bin.
<unk>.
And then probably followed by the I'm just thinking about the dollars associated with each cement.
Steel.
A lot of copper conduit goes into the Merrill Crowe.
Into the into the Crusher corridor.
Those are for.
Of the main drivers commentary and my leaving any make and may leave and any big ones out.
No no no.
And.
Just to add a little color right and.
The 2 <unk> contracts are in the budget, we're roughly about 60 million Bucks just to give you a sensitive of what.
And that order of magnitude is so again as Mitch said earlier.
Obviously pretty happy that we've committed a lot of the capital earlier.
And so where we're evaluate will be evaluating.
And those ticked here of the third quarter, and we'll do that to everyone.
During the next call with with where those of ultimately landed.
Okay.
Fair enough and then 1.
1 final thing.
Theres been a number of companies that are traditionally Mexican focused silver miners.
<unk> or just minus and general who seem to be diversifying out of Mexico, they've made some let's call it unfavorable tax decisions and in recent years.
You know what what do you guys think about long term of polymer radio.
Do you see it as something where when and when its mined out you're done and Mexico or.
Do you see other opportunities there and maybe just big picture of 5 year plan there.
Yeah.
Great question.
Mexico has has become a more challenging jurisdiction relative to.
Our other jurisdictions here and the U S and.
Up north and in.
In Canada.
From the.
Our growth standpoint, you can see.
The majority of our growth really organic growth is coming over the next few years from the U S and Canada.
That all said, though you look at you referenced Joe of 5 year window.
What we can do it palmeraie over the next 5 years of.
Operationally and what were seeing with our exploration and especially at these these elevated levels and.
And there's a whole new world off to the east there at Palm array of that sits outside of the gold stream AOE.
We are.
Focused on sort of extending our exploration reach.
East of Palmer Ale Theres, a lot of a lot of targets a lot of potential of lot of historic resources that we inherited when we bought Paramount Euro Cup Youll recall from several years ago.
So there's a there's a lot more to do there, especially.
Actually with a higher exploration budget for the last 4 of 5 years frankly, we've been pretty focused on that corridor, right between and including Independencia and Guadalupe and sort of extending those both to the northwest into the southeast and then drilling and between them.
But we're starting.
Our variable develop enough of a runway down there that we're able to kind of pick our heads up a little bit and look around.
And of more expansive way and Theres still still of lot to do down there. So.
Totally committed on Palmetto and excited about the the prospects there for what should be hopefully.
And now on longtime still.
Okay. Thanks for the color.
Yeah sure. Thanks Jo.
The next question is from Brian Macarthur with Raymond James. Please go ahead.
Hi, good morning, and thanks for taking my question.
My questions relate to silver tab so.
A couple of things you talk about.
Making a bigger.
Mel.
And there are some pictures and they're showing you are cleaning up the site, but we're spending the 50 to 65 million now and I'm just trying to thanks for the timing of this and I realize you may not be able to give us everything until the study comes out already next year.
And when you talk about starting in 2023.
And winter up there is not the easiest time, if you would go forward with this is the concept.
The study early next year you'd be able to order.
What you need for the bigger mill, and then you get it up and running sort of late 2020.
23 is that kind of the way, we're tentatively thinking of better and I'm, just trying to get a little bit more color on the spending and you are obviously trying to get ahead of little bit with that capital, but any more color on how that actually could unfold would be helpful.
Yes, sure Fair Fair question, and I think you have and about right if you.
And if all sort.
The signs point to yes. The later this year.
And that sort of early <unk>.
23, commissioning and ramping up throughout the middle of the year and hopefully hitting a.
The commercial production level later in 2023 would be the the.
And we would envision it playing out.
And Youre dead on in terms of northern BC, taking advantage of of this season now.
Day, we are with some of this early works cash.
Capital that we're investing helps kind of derisk that that potential timetable I guess just the other.
The piece.
And.
Throw out there is is when you think about capital, which schedule and capital out of the 2 things, where we're working very hard to pin down here in the second half of the year, but we.
We anticipate that the majority of capital.
That would be invested.
Out for Tim would be funded from and offtake financing.
So hopefully that helps you think through to the extent youre thinking about balance sheet or.
And.
The liquidity questions.
That's sort of going to be a large part of the the.
The solution there.
That's very helpful as well, but are you actually got to put a new melon. There I'm just trying to think of when you'd be shipping that and what the weather and all of that up there or is that being envisioned or that's the other part of just trying to figure out timing wise.
Get that and I guess.
Next summer would.
And so the core is kind of what youre looking for I guess is that I'm not thinking about that right.
Thinking about it right.
Bigger mill building.
There is some.
The pieces of infrastructure that will be.
The carryover of remaining.
But that's 1 of the big Ela.
<unk> of this early works going on right now is is decommissioning and cutting out a lot of that legacy infrastructure. So it's going to be a little bit of of mix.
But that would all hit the site.
Next next construction season would be the plan under that 2023 scenario.
Great. Thanks, very much for that color Mitch that's very helpful. Yeah, sure thing, Brian and take care.
The next question is from Karl Blunden with Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for thanks, so much for the time, Inc.
Yes.
Maybe just a follow up on silvertip, you anticipate of the question I had there around funding.
And right because youre, obviously funding Rochester, right now as well and.
And I could get to hear that you've got the other ways to finance it relative to the balance sheet.
When you think about that project is it fair to say at this point that you're committed to it are there some risk factors you're still exploring you know before you go ahead or have you learned enough at this point and time.
Still.
Theres always an off ramp [laughter], we don't want to do anything there that's not.
We need to get that right.
Expanding and restarting that.
We're not going and get another chance at that and.
The.
The disapproval or this kind of.
And the inflection point late this year, let the drills keep turning get all the technical work done get the mine plan.
Updated with all of the the drilling.
There will be a very much of an off ramp available to us.
Later this year.
Like to think.
That debt.
And that off ramp is more around the question of of timing and not a question of if.
Regarding the silvertip restart more of a when not and if.
But let's get the answers and then we can lay it all out and see how it looks.
And then as the.
And kind of decisions around what and off take agreement might look like is that something that is the later 2021event or is the timing of that debt decision are also subject to and some of them.
Kind of why the time frames.
Tom you want and just give us a little bit of color on.
Yes, the uptick and thanks niche, so obviously where.
We've had preliminary conversations with potential partners.
And I think it's fair to say.
And the market has turned around a lot faster and in a much better than we anticipated and we're looking forward to sharing some of the.
And the network that.
And we've been busy.
Executing here over the last 12 months and and marrying that up with the schedule and mine plan.
And those conversations will.
The accelerate here and the second half of the year, so that any restart would be tied to do and offtake agreement and it.
And again, just reiterating niches point debt the majority of the funding of any additional capital.
The support from this offtake financing.
Carloads and hard to imagine a better environment for Tom to have.
This objective.
And in 2021, it's a great time to be to have a good.
Good high quality concentrate product.
To be looking for as you Tom say happy home, Yeah, and again I think.
During the while we were operating at Silvertip.
1 of the things that always worked well was the logistics so the.
The trucking the shipping that piece of it was was always great.
And I think it's fair to say and people are looking for high quality Counterparties like like core and New York Stock Exchange listed top ESG will be and this will be an attractive.
Concentrate.
And we're looking forward to advancing those conversations.
And that's fantastic I think the squeeze in 1 more thing.
And you have different growth option and you also then we'd look for kind of extend mine lives and I guess from questions about the Kensington. For example is that something that you could look to extend and would there be a significant capital investment required as you look over the next 2 or 3 years.
Yeah, well you pointed out that's our shortest mine life there at Kensington.
And we have accelerated our level of exploration investment there.
Last year and in particular and now this year.
I think it's our third biggest allocation this year at about.
And almost $14 million, that's 1 of the reasons, we bumped up our full.
Full year exploration investment guidance ranges because of the <unk>.
Elevated levels of investment there at Kensington, and all of which should help move that needle in terms of overall mine life.
Its not quick it's not it's not the easiest place to to drill and expand and extend.
Just given.
And the nature of the deposits and the infrastructure and where it is but we are optimistic there that.
That will have some success come year end.
You may recall, a lot of the conversion drilling the infill drilling last year Didnt take place till late in the year.
And so it didn't didn't make its way into the year end reserve.
So we've got a lot of that from last year carrying over into 2021, plus a elevated level of investment there this year theyre having.
Some really good results and so we're.
Encourage and I know.
Hans or excited there heading up there next week.
Get a deeper dive into the exploration program there so.
Hopefully that gives you some.
Some additional color Carl yes, yes, that's really helpful. Thanks, Mitch Thanks, Tom appreciate it.
Okay.
The next question is from Michael Dudas with vertical research. Please go.
Making the.
Hi, good morning, gentlemen.
Hi, Mike.
First question Mitch.
Update us on I know you've done great protocol for Roku for Covid, but like at your operations U S, Canada, and Mexico like percentage of employees vaccinated has there any issue.
Go ahead Sir.
And he and coming concerns or recent evidence with the.
The variable part of the show up more aggressively, especially in the in the south.
Great Great question.
After the.
The last whatever it's been 15 months or so.
1 of the biggest risk is just.
Issue of people, putting letting the guard down.
I think our controls have been serving us well.
At this point, we feel good with where we are in terms of vaccination rates interestingly at our at our underground mines of Kensington Palm array of silvertip.
Patient rates hover right around that 80%.
Level.
And I think a lot of that has to do with.
Vacs, and if you get vaccinated and youre going to have less of a quarantine.
Requirement or logistical issues going to and from site and.
And so that's been a big incentive and I think thats driven towards vaccination rates up like that.
Out west here and the U S vaccination rates are a little bit more typical of what you are seeing kind of on a national basis.
Little shy of half.
Of our folks.
Thanks.
Vaccinated, but that doesn't mean that we're not still doing.
Testing.
Distancing.
I'm asking for and vaccinated.
The technology that we that we implemented has continued to really help in terms of distancing and contact tracing and those things.
Of all the new buzzwords of year ago, we're still doing them.
And I'm really really proud of the the.
And what we put in place.
And how we've stuck to it and how it has allowed us to continue to largely except for the hiccup and Mexico the government suspension temporarily in Q.
2 last year down there otherwise we have been continuing to operate which is.
And which has been great.
The make did I Miss anything.
That's great really good robust controls and all of the sites and we continue to apply them.
Not on the current team from the goodwill have really good vaccination rates and continue.
And with those of our controls but overall.
High level of confidence that we have control of that issue.
Does that help Mike.
Absolutely no very good that's very helpful.
My second question is.
And maybe Mitch can share some observations on some of the corporate activity going on.
Nevada and <unk>.
Yeah highlights your block down there and and just the kind of longer term prospects of how things could work out for.
And.
The value, creating standpoint from all of the part of your stand there.
Yeah, Yeah, exactly that's well well well ask Mike it is and exciting.
Thank you.
Lots of activity, obviously going on and.
We really like the cash.
And of the strategic land position that we have there and southern Nevada.
Even though some activities going on and with with their neighbors it doesn't really change.
And some of what we need to do which is continue to drill.
Hopefully continue to have success expanding the resource there at crown in those for deposits Daisy SNA secret pass and Seahorse, we're continuing to.
Focus on.
Following the drilling together they're into.
Assessment of our technical report Middle part of next year. So we can take a look at that as a future potential operation in southern Nevada to go along with what everything we have up and northern Nevada and as far as.
On the activity look we're always open to talking to our neighbors and evaluating.
<unk> our ideas for how we could rationalize capital.
And.
Share risk.
Expand the collective pie right.
And so we.
<unk> got good good relationships I think in the neighborhood down there and hope to continue to build on them as we keep the the drills turning and I think we're spending.
About $14 million and drilling there at crown.
A little bit of that is also.
Sterling.
Just to the south but.
And that's a reflection of how enthusiastic we are about it and how quickly you can grow of resource and oxide near surface gold resource and southern Nevada, and keep the drills, turning and where we're seeing some good results.
Hopefully that gives you a little bit of <unk>.
Flavor.
We're thinking about things.
No I appreciate the just and just to qualify it sounds as if you know.
There will be different this time as opposed to historical the law.
Licenses and <unk> and situation and it appears that there is too much to be had especially and in the world of ESG carbon and kind of.
The capital.
For <unk> and the bank.
Yes, and it's great to I, certainly hope so I guess I can't speak for everybody the noise.
And down there, but the.
To have a blank slate essentially new.
Large.
It's a great place to operate down there and then.
This we can hopefully approach it with that sort of mentality and Mike of how do we do this and a way that works best for everybody works best for the environment for the community for all of the stakeholders.
It's probably the most exciting thing going on and Nevada, right now in terms of gold and new discoveries and exploration. So it's a.
Buzz.
And <unk> hopping Beatty, Nevada, and Nye County is place to be.
Absolutely. Good luck, thanks, and I appreciate you for got it thanks, Mike.
The next question is from Michael <unk> with RBC capital markets. Please go ahead.
Thanks, Thanks, guys for taking the question.
<unk>.
Back to the quarter for a second could you get into a little bit more detail on the inventory charges at Rochester, and the quarter, maybe what the specific cause was of the lower recovery that youre seeing and.
And if we should be expecting any further.
Other impacts going forward there.
Yeah sure I'll, just start with 1 or 2 quick comments and then pass it over of.
Of that Tom and Mick both looking at me nodding their heads but is at that.
And that stage for Pat Mike as you know is the legacy mature pad deep.
A lot of noise.
That exists within that pad.
And the way, we're trying to derisk debt in the interim here and the near term is mitigating it with some enlist liners.
And so all of this sort of goes away then as we transition over to stage 6 once it's completed but there has been as we've mentioned and the path.
Past some some ore in the pit.
Variable ore types that have led to the creation of of <unk>.
Find some with some higher sulfide content that materials sits out there on stage for as we've as we've mined and crush that and learn about those different ore types.
And so all of those learnings and essentially have gone into then the.
The need to adjust debt.
Net estimate in terms of the recovery rate on on stage for.
And I don't know if that gives and a good color, but maybe make Tom over to unit.
And any blanks that I left out.
On the on the oil.
<unk>.
It was a.
Alright.
The soft us through the balance between soft and hurdles and it's been a great.
Looming for us we're doing some additional core drilling over the next 18 months to make sure of it we'll have a really good characterization of the ore body and the ore body of knowledge as we head into <unk>.
Really really good timing for us the to get that knowledge.
And maybe just the last.
Piece of your question, Mike was to expect anything more and so the answer is no no again, we've gone back looked at the data.
Analyze it and.
And as Nick said going forward, we've got a 56%.
On page for for the remainder of the remainder of the life of that pad and so we're comfortable that we took the accounting charge that was required.
Okay. That's great color, thanks, very much and then.
Maybe just back to a higher level question.
And depending on how you look at it maybe.
The 4 of 5 projects on the go between Rochester and Silvertip the.
Extended the exploration program, and maybe crown as well as whatever ends up happening and Victoria. So you have offtake financing potential you have some downside protection from the hedges you have available credit, but can you talk a little bit more about.
And your confidence and executing on all of these priorities over the next couple of years and the context of the balance sheet, maybe some of the inflationary pressures you're seeing are there other levers to pull there are you looking at maybe your equity investments as the source of capital. How are you thinking about all of these things the appreciating that.
And going process now and its great question, it's kind of the key key question and I certainly 1 of.
Devoted a lot of time too and maybe I'll take the the kind of bandwidth question.
And that you are asking and and Tom you can cover maybe the levers and the balance sheet aspect of of the question I.
I think.
And with with the board.
Over the last few years around <unk>.
Development of our strategy.
Along with that came.
Concerted effort to kind of bolster the team.
And to align with that strategy to be able to deliver on the strategy and then.
And on and on top of all of that has been a lot of work that has gone into culture, and I know people like to talk about culture, but.
We have 1 here that is very much of the performance driven and make an impact.
And and achieve.
Meaningful things.
And sitting and we have a I'd say of highly motivated and inspired group not and I'm not talking about the people just and this in this room, but even deeper into the organization debt.
Have a high level of motivation about achieving great things and getting this company from kind of the adhere to there.
And that there looks really exciting and every time I'm talking to a group of people here at the company about what.
These initiatives can take this company.
There's a lot of enthusiasm in the room and a lot of excitement and a lot of alignment around making it happen and so.
Thats contagious.
I think we've got it.
We have a lot on the on the move, but but I think where we're able to prioritize and stay above kind of a lot of the noise. Because we have good teams underneath of us that are handling a lot of the black and blocking and tackling and allowing us to to really focus on these high impact.
Initiatives that you kind of walk walk through there and so.
The 3 or 4 years ago.
The capacity bandwidth definite challenge now I think we've built the organization up to where it is capable of delivering on on the strategy and delivering on those on those priorities and I.
I wasn't able to say that.
In years.
Years past.
Tom do you want to cover the other aspect of the question sure Mike.
And Mike Yamana.
Kind of answered it almost for me, but again the between our cash on hand.
The the debt capacity and the cash flow from operations is essentially.
Centrally located way that we're going to fund.
And net debt capacity just as a reminder, we've got of $300 million revolver completely undrawn is the $100 million accordion, it's completely out of at our discretion.
And that we could draw upon and and then again silvertip, we talked about earlier and the call day.
Offtake.
And it I mean.
The other things that we do have other disposal of at it you know, we've got a $175 million of equity investments.
Which include the big chunk of that Victoria gold how that plays into the.
And the future funding all of this kind of underpin with robust scenario and.
And also that we go through with the board once a quarter.
<unk> and tremendous detail.
And flexing all of the various assumptions commodity prices capital cost et cetera, et cetera, So and we feel really confident and our ability and.
Most importantly, we talked about this a lot everything still have within our control and.
And look forward to telling me more of the.
<unk> as the.
And we'll make some more decisions for the rest of the year and I would just add tack on at the end here Tom the the pie of funding sources.
Kent.
Overstate the importance of.
And the free cash flow coming from <unk> Kensington and the.
And then.
The story of testers own operating cash flow as it continues to improve quarter over quarter.
And combined those from that most of our multi asset kind of portfolio here, that's a big chunk of of the funding that goes along with all the other levers and options that the Tom Tom mentioned so.
Right.
$800.
Gold and $25 silver obviously help.
But together, we feel you put all of those pieces together and you look at this year and next year and we feel we feel good about the balance sheet.
So I guess if I can.
And maybe.
Backing into a capex question for silvertip, but I guess that and what Youre, saying is its fair to say that you can maintain the the level of exploration spending at least and partially into 2020 to fund the restart of silvertip and.
And Rochester, and Youre comfortable doing all of that.
And then.
The available capital that you have the balance sheet that you have today without without really doing anything else. That's a fair statement.
The fair statement.
<unk> got and execute on the operations and.
Gold and silver can't flow through the floor, but with those 2 caveat your statements of fair 1.
Okay, great. Thanks, very much for the time guys.
Yes sure good questions.
The next question is from Dalton Barreto with Canaccord. Please go ahead.
I don't and thanks, Bob and.
Good morning.
A couple of questions can you just kind of and that same band.
Start with silvertip.
And the offtake financing.
If memory serves.
And there was an off take agreement with the Ocean partners lack of pull the fallen away now.
Tom you want to take that.
Hi.
That agreement.
And just isn't valid right now because we haven't been able to produce the.
The trade.
The net ticket within the specification and Thats required by the of that contract. We're again hopeful that the.
With the restart will be and in a position to have the concentrate quality that we know we can produce consistently and and.
And we'll.
And we'll be able to have a further discussion.
And and others around debt the finding happy homes for the concentrate.
Okay, but it doesn't restrict you in any way from talking to other optic.
Correct.
Got it Okay and then as you were listening out for your funding source for this year, yet and you Didnt mentioned the ATM.
What are your plans around that.
Yes.
Great question.
The 2 for $2.
First question is a good 1 and Thats a good 1.2 and we put that and maybe a little over a year ago, maybe you and actually in April when the darkest of days of Covid and a lot of uncertainty a.
With them unknowns, 1 thing at that time, we felt like we could probably.
Consider the unknown is just the liquidity and our and our shares and.
And so we thought look we should put something in place. So that we have a last resort.
Source of liquidity, if things really go upside down here and at that time of course.
A lot of things like forever ago, but we.
And we didn't know where things were going to go now fast forward to today, we've just we've left it there.
And don't have any plans to.
And use it or.
The tap into it.
But it's not a bad.
And arrow to have and the quiver as just the almost like a mixed shelf just maintain that.
So if things play out and in a way that are totally unanticipated.
And there, but that's that's kind of how we think about it.
Tom Today, Yes, anything you want to add okay does that help them.
Yeah, no that makes a lot of sense and then.
Given what you were saying about inflation around the remaining contracts at Rochester are you are you moving to secure anything at silvertip ahead of time.
Well, it's a good question and also we.
Part of the early works.
And.
Let's get some of the stuff done.
And before.
The planning on some of the stuff goes back a little ways. So that we were able to.
The lock in some.
Kind of pre escalation levels.
And some of this work.
It is another.
Kind of moving.
Target as we as we work here and the second half toward a more.
Definitive capital estimate 2 so we're now we're kind of we rush to get some of the early work stuff in and remove some of that escalation risk and the very near term now as we think about the next.
And.
The larger build out now we're going to have to really sort of take the full effects of escalation into account and thinking through that and then how can we potentially mitigate that how can we approach our.
Our strategy, our contracting strategy potentially.
World that we're now all kind of living and so.
It's a good question and it's it's something that we're.
It's going to be incorporated into a lot of the aspects of what we'll need to do up there at silvertip.
Okay, and then on the <unk>.
300.
100, and change million dollars, that's been committed already for Rochester.
Those contracts are the fixed either from a from a unit price from a volume perspective or are there escalators in there.
It's a blend of.
Hey, Dalton and as Terry or it's the blue.
And the lump.
And the unit rate contracts.
Okay, Great and then just maybe 1 last 1 for me Matt I know you said you wouldn't comment on Victoria, but I'm just wondering.
The Eagle is reasonably proximal to shovel or the.
Any form.
Synergies of at all.
Adult and potentially.
Just on a map but.
Too early to say.
Not a question that.
For now is 1 that's probably worth trying to answer but it's.
Duly noted and something Thats.
The operator of keeping in mind.
Great. Thanks again guys.
Yes, sure Don Thanks.
The next question is a follow up from Mark Reichman with noble capital markets. Please go ahead.
Mr. <unk>. Your line is open and there you are.
Hi, Thank you just.
A quick follow up on silver.
So you're increasing the investment.
Head of the economic analysis, and really ahead of the.
Signing of any offtake agreements to kind of lock and the economics and so.
Everything seems to be moving and a really good path there of real good direction.
The question as you mentioned the off ramps. So if you decided not to move this forward how much of the $75 million to $90 million would you would you have spent or how much would you end up kind of writing off of that I mean in terms of versus the alternative of.
And at the spend that money.
But much of that capital after the the economic analysis now.
And now a fair question I think the way we think about it.
The market is.
Almost everything that we need to do up debt, we're doing actually right now needs to be done no matter what.
And.
Whether.
Whether that is for us whether that's for somebody else if we.
And look to monetize it down the road. These are things that are <unk>.
Adding value to the project.
And when you have of long term kind of lens on.
And on silver Tim.
And.
And just pulling back the land a little bit further.
Or commit balance as a company of few priorities right we want to.
Number 1 poa 11, we've got to deliver a successful project there and we don't want silvertip.
The feedback from a lot of our stockholders.
Don't let silvertip.
Take our eye off the.
And we're trying to Rochester, and we're very mindful of that and we're not letting that happen.
We also want to.
We're very committed to that 2023 positive free cash flow objective, we've we've staked a lot on that.
And I think that's important for our investors as we think about potentially getting.
The ball and a place where we can think about returning capital rather than investing capital into our assets and I think delaying that out into the future is not a good thing for.
For the company.
But then we also we don't want the strain.
Unduly strain the balance sheet, especially in 2022.
And so those are all of the pieces that we're trying to find the right sort of combination with some variable still unknown to get that mix right and try and ensure that we're satisfying all of those.
All of those priorities and so 1 of the.
With that 2023 goal in particular.
And into investing this capital now at Silvertip.
And is really <unk>.
Essential to allowing us to.
Kind of achieve that schedule that we talked about.
Bendigo.
The prior question in terms of the out of that 2023.
Startup would go.
In order to do.
And we've got we've got to do this work now that we're doing so I don't know if those thoughts helped but that's how we're thinking about and know that that was really helpful. I really appreciate that thanks Mitch.
You bet. Thanks.
Again, if you have a question. Please press Star then 1 the next question.
Do that the follow up from Brian Macarthur with Raymond James. Please go ahead.
Thank you for taking my follow up question 2 things just back of the silvertip.
First just from really clear because I sort of adult and had.
And a question of bet that historical concentrate contract and you.
And is that you never met the qualifications, which makes sense, but just to be clear.
Do they still have the right because you never met that qualification for that Theres, something and forced the moment that contracted and they are of a right of first refusal or anything or do we start with a.
Our clean slate, if we go down that.
And sort of meaning we can get there is no historical concentrate.
Deals that have to be filled for which would have some impact on the potential financing going forward.
Tom you want it for sure Yeah. So look it's fair to say the company has a strong relationship with ocean.
The partners they were great partners for us, while we were in silver.
Production, when we were not producing concentrate qualities, where they needed to be we sell some of our off air and the concentrate at Kensington.
And.
And so the.
We'll find a commercial agreement and I think debt again at <unk>.
What we've been saying all along that the majority of the.
Of the silvertip funding of the cash.
And we will be funded via an off take and I'll just leave it at that.
And I guess it'd be fair, obviously, the build of a bigger operation you about more kind of play around with anyway. So that gives you more flexibility right.
And of consistent.
Attractive product as well, yes, yes, yes.
Yes.
Okay, and sorry, My second question and I.
And I realize this is not the.
Critical factor, making the decision on silvertip.
But are there.
The tax pools and <unk>.
With the enhanced whatever return that you decided you could get.
Back to typically go ahead.
Because again as we talked about allocating capital around the world.
And taxes and important part of the equation.
Yeah.
Great question and the short answer is yes, Tom over to you do you want to fill in the blank yes.
We have nearly $300 million.
And the operating losses.
That will help shelter some of the.
The taxable income that will be generating so absolutely that is the fact that factor in any capital allocation decision that we make the across the company.
<unk>.
Helps with when it comes to the silvertip.
The amount of.
The tax that will be paying us is not as high as as you might otherwise Inc.
Great. Thanks, very much if I thought that was the right, but I just wanted to check and thank you yes.
The problem.
This concludes our question and answer session I would like to turn the conference back over to Mitch Krebs for any closing remarks.
Okay great.
Well, Hey, we appreciate everybody's time, this morning, and a lot of great questions and we look forward to speaking with you all again and the fall to discuss our third quarter results. Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
And.
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And then.
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