Q1 2022 Coeur Mining Inc Earnings Call

Good day and welcome to the core mining first quarter 2022 financial results Conference call.

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Please note this event is being recorded.

I would now like to turn the conference over to Mitchell Krebs Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining our first quarter 2022 earnings call.

Joining me here are <unk> Routledge, Tom Whelan, along with other members of our team.

Before I begin please note our cautionary language on forward looking statements in our slide deck and refer to our SEC filings, which are available on our website.

Our first quarter results were in line with expectations and position us to achieve our full year production and cost guidance ranges as we look to deliver sequential production growth over the remainder of 2022.

Palm of rail and wharf led the way with solid starts to the year offset by slower starts at Kensington and Rochester.

As those who follow this sector are keenly aware lingering effects from Covid and inflationary pressures were two key themes during the quarter.

However, COVID-19 related disruptions appear to be dissipating and we're managing our way through the supply chain shortages disruptions and higher cost environment through our commitment to continuous business improvement initiatives at each of our operations.

Both Nick and Tom will go into more detail on operating costs.

We provided an update on several important steps, we've taken to materially bolster our liquidity levels to support the ongoing Rochester expansion, which Tom will detail shortly.

The expansion is gaining momentum and advancing according to plan.

You can see from the photos on slides 10, and 11, but the key elements of the project are quickly coming together.

Mick will provide a more detailed update in a couple of minutes.

On the exploration front, we provided another update last week. This time, highlighting new high grade intercepts at our Kensington and Palmeiro operations that point to future potential mine life additions.

Meanwhile, the exploration team at Silvertip hit the ground running this year after delivering strong double digit resource growth last year with several additional high grade intercepts, including a new discovery called Camp Creek West that is opening up even greater possibilities at this emerging world class deposit.

Another first quarter highlight that flew a bit under the radar was the receipt of the final record of decision from the United States Forest service to increase the tailings and waste rock storage capacity at Kensington.

As our recent exploration success at Kensington indicates we think the mind may have a much longer life than the current reserve suggest.

And receiving this record of decision provides us room to accommodate another decade of future growth.

Finishing up with the highlights we released our 2021 ESG report last week, which detailed our efforts to extend our leadership position in these critical areas of our business.

We have substantially increased our commitment to reducing our greenhouse gas emissions net intensity.

Raising our goal to have 35% reduction by 2024.

Compared to last year's goal of a 25% reduction by 2025.

A summary of highlights from the ESG report can be found in the deck beginning on slide 17.

I'll now pass the call over to Mick.

Thanks Mitch.

Slide six includes the details of our first quarter operating results.

How we're tracking versus the balance of the year.

As Mitch mentioned, the first quarter is expected to be our weakest, but we're pleased with the overall start 2022.

Starting with pulmonary hall gold production ticked up slightly compared to the prior quarter, while filled up production remained consistent.

Turning to costs and what will be a common theme as I go through operations higher consumable costs led to increases in unit costs for both gold and silver.

Completion of the Mexican peso hedging program, we had in place last year also contributed to higher costs compared to prior periods.

Unexpected pulmonary whose first quarter cash flows were impacted by the annual Mexican EBITDA tax payment.

In short our solid start to the year ahead of production for Palmer.

Switching over to Rochester.

More placement at the end of last year and ended January led to a slower start to 2022 production compounded by lower average silver grade on platform.

On the plus side tons placed increased 14% this quarter driven by better fleet availability and supplemented by $1 5 million tons of run of mine material during the quarter.

The team is making solid progress daily in the optimum crush size with some excellent work in the pit.

<unk> exited crusher and out on pod for.

Youll recall that we're incorporating pre screens in the both the existing pusher under new limit crusher that is being constructed to maximize our flexibility to process ore mined with varying hardness and provide control of things, which are too high kind of affect solution flows through the heap leach and potentially.

Negatively impact.

<unk>.

An important next step in this process will be the installation of pre screens on the existing ex pit crusher.

Where work is already underway with concrete now being poured for the foundation.

It's important to point out a pre screen construction is expected to inhibit our ability to crush material for up to 30 days during the second quarter.

We look forward to measuring the impact of the screens of what just a second half operating performance and of course applying these learnings to further de risk the peewee 11 project and incorporating them into our post expansion operating plan.

Before covering the other operations I want to provide a brief update on the progress taking place of the Rochester expansion project starting on slide nine.

The pace of activity is entering a new phase.

With the majority of essential materials and components now at site.

Approximately $283 million is now being spent towards the project and a total of $477 million of the estimated capital has now been committed representing about 80% of the total company.

With the majority of the stage six leach pad now complete.

Structural steel for the Merrill Crowe processing facility is being directed in concrete at the new Crusher coda was being port.

We look forward to sharing our progress of this important year unfolds.

Turning to Kensington Fantastic news as Mitch shared earlier that Kensington received the permits required to extend the tailings and withdraw capacity by up to 10 years.

COVID-19 related workforce availability impacted mine sequencing and led to lower than anticipated production during the quarter thankfully. The excellent controls we have in place developed over the last two years led to a quick resolution.

Workforce availability has since resumed to normal levels and the team is working to catch up on delayed stope development.

Lastly, a wharf gold production was delivered slightly ahead of plan due to solid production rates as mining takes place in a lower grade area of the pit throughout 2022.

On the cost side the team did a great job with fleet efficiency improvements, helping offset increased prices for consumables.

With that I will pass the call over to Tom Thanks.

Thanks, Nick.

Turning to slide four I'll quickly run through our consolidated financial results for spending some time to review the recent balance sheet enhancements.

Strong performances at <unk>, and wharf were offset by weaker than expected performances at Rochester, and Kensington, leading to quarterly revenues and costs that were in line with our expectations.

Revenues decreased 9% quarter over quarter based on a 15, 6% decrease in gold and silver ounces sold respectively, partially offset by a 4% increase in average realized gold and silver prices.

Operating costs were in line with our expectations as our 2022 budgeting process has generally captured most of the cost inflation pressures other than diesel.

Typically consume 16 to 18 million gallons of diesel per year and are currently running approximately <unk> 60 per gallon over budget through the end of the first quarter.

A couple of other items to note on the first quarter operating cash flow was negative $6 million, reflecting the chunky outflows typical of our first quarter, including the annual Mexican EBITDA tax and annual employee incentive payments as well as the semiannual interest payment on our senior notes capital expenditure.

For the quarter were $70 million, reflecting lower than expected Poa 11 expenditures, primarily due to timing of invoices our guidance for expected Poa 11 expenditures in 2022 remains unchanged at between $217 million to $257 million.

With production and cash flow is expected to increase over the course of 2022, coupled with the recent actions that have significantly enhanced our balance sheet. We're confident in our ability to fully fund our growth objectives. Both this year and in 2023 as Poa 11 construction winds down.

Turning to slide 12, the initiatives that we've taken since our year end conference call strongly positions the company to be able to comfortably fund the remainder of the Poa 11 expansion and our other internal growth initiatives. According to our capital allocation framework.

As of March 31.

Adjusted to reflect recent initiatives I will describe in a moment, we had liquidity of approximately $378 million.

We've completed three important initiatives to significantly enhance our liquidity.

First we took advantage of elevated gold prices during the quarter to significantly bolster our gold hedging program to provide a meaningful source of downside protection. During this time of price volatility and elevated capital investment.

Second we expanded our revolving credit facility by $90 million to $390 million as.

As of March 31, we had $55 million drawn on the facility, we would like to thank the banks in the syndicate, including Goldman Sachs, who joined the lender group for their confidence and supporting our strategic plans.

Third we completed our previously announced ATM program during the first quarter for gross proceeds of $100 million.

We also continue to hold approximately $160 million of equity investments.

With roughly $378 million of pro forma liquidity and the additional potential liquidity from our equity investments, we feel very comfortable that the balance sheet will provide the required flexibility. During this time of significant investment and expected high return growth initiatives.

I will now pass the call back to Mitch.

Thanks, Tom as these recent actions highlight we continue to systematically build uncertainty and eliminate risk as we advanced cores growth strategy.

With proper execution, we expect to conclude 2022 on the cusp of a new phase of multiyear growth in production and cash flow from our North American asset base.

Before opening it up for questions I, just want to take a moment to extend my appreciation for the tireless efforts of the entire core workforce.

I was recently at Palmer Ao in Rochester, and was reminded once again, if everyone's incredible dedication.

I am very proud of the combined efforts of our nearly 2000 dedicated employees and hundreds of contractors, who are pulling together to consistently safely and responsibly deliver results.

To your standard.

I'd also like to welcome our newest member of this team <unk> Mcgrath <unk>, New senior Vice President of exploration.

If a joined US last month, bringing with her an impressive track record of value creation over a distinguished career.

We look forward to benefiting from her leadership and expertise going forward.

With that let's go ahead and open it up for questions.

Thank you we will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

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Thank you.

And on the first question will come from Trevor Turnbull with Scotiabank. Please go ahead.

Yes, thanks for taking my call guys.

I was looking at the slide deck and I was quite didn't press I thought it was just a good way to see the impact of inflation. The way you presented it and perhaps you've done that in the past, but it was the first time I've noticed it.

I was curious can you comment a little bit on some of the Capex inflation pressures you gave a really good breakdown of some of the operating cost pressures and how they've changed but can you make any comment on things like maybe structural steel and the bigger hard items that that you might have to <unk>.

Order.

Can you just comment on how inflation has played a role in those.

Yes, sure I appreciate that feedback and this was a first time for this slide we just thought given.

The focus both internally and externally on these pressures that this might be.

A good a good slide to create and include so I appreciate that feedback.

On the capital side I'll, let Nick talk a little bit more specifically, we started to see.

Those pressures on the capital side really sort of.

Mid summer last year and going into the fall as we had a couple of large remaining.

Contracts to award relating to the Rochester expansion, maybe between making Tom you guys can give trevor a little bit of color on.

How inflation has shown up on the capital side.

Yes.

So on the project the Great thing is that we're about 80% committed on the project is <unk> 11, and we predicted quite well from last year's planning process that expectation. So when we rebased late in the project.

Look at the new schedule and capital.

We then communicated the last time around and we're sticking with that.

Cadence so on the capital project front, we're pretty happy with where we're at with Poa 11 and on the operations side. In fact, the planning process was was a robust one last year and we built a lot of that expectation for some inflation in this year and that's why we're holding the cost guidance for 2022.

Tom anything to add.

Trevor I think just to put a fine point on what mix that I think that third quarter last year, we flagged.

10% to 15%.

Potential inflation on the project.

And then when we came back early this year with a re baseline estimate it was.

It came in right in that range kind of in the high end of that.

Net of that range, mostly on the yeah on the steel piping electrical and then labor and really.

One of the big themes that I.

Took away from that was just how contractors were.

Kind of inflating their bids to reflect the risk of labor scarcity.

And trying to.

Incorporate that into there.

They're estimates and that was our sources of some of the more significant escalation that we were seeing.

Is that right and I do recall, you telegraphed that back back in Q3.

Yes, yes.

Happy to follow up offline and give you more color if you'd like.

No I appreciate that and I hate to harp on inflation, but I haven't heard this asked before and I am just a bit curious.

Does exploration is it starting to reflect.

Inflation as well in terms of drilling rates.

And what's the availability like these days it just seems like there's so much interest in this sector.

For exploration is it.

Are you starting to see cost pressures just from trying to keep rigs available and so forth.

The place that I think of first is on the labor side drill crews.

Very tough.

Sure.

And then also in the assay labs.

Scarcity of labor there is impacting turnaround times on assay results.

On the the actual cost side.

We're not really seeing that but I know Rick.

We've seen a little similar.

Political pressure the great thing is we got what we needed so far and well planned for this year and the efficiencies that we're seeing across our portfolio in fact.

Well.

Cost efficiencies per foot.

And us to stave off some of that inflation.

Thanks.

Great. Thank you.

And just while we're talking about exploration I'll use it as an excuse to congratulate <unk> on her appointment, but thats all I had thank you Mitch thanks sure. Thanks a lot.

The next question will be from Ryan Thompson from BMO. Please go ahead.

Hey, guys. Thanks for the update.

I'd Echo <unk> comments on that slide I thought that was.

Sorry.

Formative slides thanks for that.

Maybe just a couple of questions for me first on Kensington can you, maybe just dig in a little bit more on that record of decision that you got in.

How do you see the mine life sort of evolve in there over the next call. It 12 months to 24 months.

Yes, sure we started that that permitting process almost five years ago.

And just to give you a sense of how long those things.

Can take here.

In the U S.

We.

And I think we said in the.

In the earnings materials that that should give us another decade, or so of capacity for both tailings and waste rock now.

The onus is on us.

Fill up that next 10 years, we've been investing mostly on the expansion side.

<unk> of the drilling budget Kensington, we've built up a pretty decent inventory of resources.

Reserves declined year over year, but now the focus is to convert some of that resource into reserve this year.

Some of the drilling results that we put out last week from.

Kensington, which I found very encouraging in terms of some of the.

Results coming from the upper areas of Kensington of the main Kensington zone that we've where we've been mining since the mine started up in 2010.

And so going up high higher there in what we call zone 30, 38, <unk>. That's an interesting development that we think can give us some some additional.

Resources, and then ultimately reserved Mick do you want to adding to that or have some of the other deposits. Besides the main Kensington no. We have them, obviously, if our joined US and we're really excited about that to get some some strategic interpretation of that region.

Carl Robot Callahan joined US who has a lot of experience in that region as well and we've put together a great target list and we're going to work through that conversion pipeline will have a strong tier approach <unk> III to when all the way down.

Reserves at tier one and we're going to get after those targets when you look at where.

While options we have options.

Get after there.

We're hopeful that we'll find the right.

Targets to convert and fill up that capacity overtime.

Perfect. Thanks for that and looking forward to tracking that does the work unfolds there.

Maybe just another one for me can you just give us an update on.

Crown and Sterling are you still active there what's the latest thinking on that project.

Yes still active.

A pretty healthy allocation of our exploration budget is two <unk>.

Southern Nevada.

The activity in the area as I think most people.

No.

And the reason there is a lot of activities because theres a lot of potential in that.

Historic District, that's now sort of got a new.

New lease on life with with Anglogold announcing a resource.

Immediately to the north of us on what they call Silicon and then <unk>.

Them acquiring corvus gold right there in the region. There has just been a lot of corporate activity.

And a lot of a lot of exploration investment taking place so.

We're going to continue to invest in drilling and keep growing our resource base.

We're having continued.

Very good success, there that said if if like I think always said if theres a compelling opportunity that comes along to really.

Unlock value in southern Nevada share risk rationalized capital.

Whether it's partnerships consolidation, we're always open to those conversations wherever we can do to maximize the value of.

Southern Nevada.

You look at the math down there, we really like the the land position that we have we kind of have the.

<unk> of that of that district tied up in.

So it's an exciting part of of the longer term.

Both story that we have here.

Perfect.

Thanks, a lot for the update that that's all I got.

Thanks Ryan.

The next question will be from Karl Blunden from Goldman Sachs. Please go ahead.

Hi, good morning, Thanks for the time.

Just wanted to focus in on Capex and the full year guidance. There when you look at that and the main factors that could drive it to be towards the lower or higher end of that range I'd be interested to hear what the big buckets are perhaps more focus on those that are not really in your control.

Unhedged.

Material costs or something of that nature.

Yes.

Overall.

Capex basis for 2022, obviously, the lions share of that is dedicated to the ongoing Rochester expansion and we've started to kind of transition out of what was a lot of procurement risk.

And now much more towards just the project management.

Risk, which sits more in our control than the procurement phase we still have.

To nail down the pre screen capital estimate that we're going to <unk>.

Design in and incorporate into the expanded crusher facility, but the nature of the spend out there at Rochester is starting to.

Kind of shift from that procurement.

Project management management contingency owner's costs et cetera et cetera.

Tom make anything you want to that's the bulk of it.

The next biggest bucket of our Capex. This year is really underground development capitalized development at our underground mines, which I think we've got a.

Good.

Good process good controls over over those those buckets at Kensington.

Tim and Paul Maria.

They'll leave anything out just on the <unk> 11, construction and the risk profile of course, when we're digging holes in the ground and were doing civil work is always a risk, but once we get above growth, which we largely all now for this project than the control of that work on construction and execution is much tighter.

Largely in our control.

We're pretty happy with that risk profile.

Okay, that's very helpful and great to see on slide 12.

Basically the summary of all of the balance sheet enhancements there getting it to the total liquidity number that you disclosed there 378 as you think about.

The revolver capacity that you'd like to maintain is there kind of a range that you'd be comfortable with even as we go through kind of the build phase of Rochester.

The addition of certainly helpful. There.

And just kind of a sensitivity to the downside.

Tom do you want to go ahead, yes sure answer that we've always stated 100 million kind of what we would like to have us.

Minimum level of that.

Availability to make sure that we've got the flexibility that we need.

Multinational company with opportunities that pop up from time to time, it's always good to add sort of at least that amount of cushion that's what we target Carl and again from that.

A big part of that.

The math that we did around putting on those hedges was was doing to in fact ensure that we've got that $100 million.

Of liquidity.

Available.

The hedge program that we put in with 70% of of 2022 hedged and.

And 50% of the first half of 'twenty three with add on a little bit more the second half of 'twenty. Three is all geared up to just make sure that that downside protection during that during the construction at <unk> Rochester.

That's helpful. Thanks very much.

Thanks, Paul.

And again, if you have a question please press star one.

Our next question is from Mark Reichman from Noble capital markets. Please go ahead.

Good morning, and thanks for taking my question.

Be a little early.

Maybe a little early but with the.

With the exploration success at <unk>.

At Silvertip have you received any encouraging signs from the market whether that be.

Discussions of off take agreements or or even interest from other parties in buying the project.

That you are making the right decision on that project moving forward.

And what are your expectations for the for Silvertip at this point.

Yes. Thanks for the question I'll start and then Tom maybe you can.

Tack on anything on the especially on the offtake.

Hi.

Yes.

Said, Mark we will know a lot more here in the late this year.

As we gain some clarity from the work that's going on.

We certainly like the grade profile and we always have I think thats starting to get a bit more attention from even from other companies that see that this is among the highest grade silver zinc lead deposits anywhere in the world and now they're starting to like us to see the the tonnage.

Increase fairly rapidly and so that's creating some some interest the fact that it's sitting in British Columbia.

Also checks the box for.

For external parties and it always has.

For us and we're looking forward to getting to the end of this year and seeing what does some potential higher tonnage scenarios look like in terms of the overall.

Economics for the project and then and then most importantly, we need to find a way to make that capital.

And the sequencing of the project work.

Four.

The economics of the project and for US as a company balancing other priorities like de levering on the back of Poa 11, getting Rochester, obviously completed.

Those are those come first.

But certainly is attracting a lot of.

Interest externally in a lot of excitement here internally, Tom do you have any other.

Yes.

Yes.

Talk about that all the various metallurgical testing that we've done across all the zones and certainly.

The concentrate grades that we come out of those testing is showing both the zinc and the lead times are going to be highly desirable and given the geographic location logistics route was never an issue to get the concentrate out to market and so there continues to be heavy interest.

And.

And again, we'll come out with that.

More news here towards the end of the year and I think just.

One last thought there is with everything going on in Eastern Europe .

Disruption supply disruptions geopolitical uncertainty, that's even put more of and with the higher base metals prices.

Has created more of a of a buzz around around silver too yes.

Particularly at a higher tonnage.

That's going to be even that much more interesting so.

Yeah.

Sounds like there's growing recognition that.

The project is really shaping up to look very competitive.

And.

Whether you decide to hang onto it or or.

Decide to do something else with it.

At this point Youre feeling pretty good about.

How it's progressing in terms of.

As youre working towards your process at the end of the year.

Yes, I think Thats, well said Mark I'm looking at make over here to see if he is nodding or shaking his head and he is nodding his head so that's better than I know anyway.

Okay. Thank you very much that's really helpful and very much appreciate it.

Thanks Mark.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Mitchell Krebs for any closing remarks.

Well Hey, we appreciate everybody's time this morning, and look forward to speaking with everybody again. This summer. So thanks again for the time I know, it's a busy reporting week.

Have a great day.

Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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