Q2 2022 Coeur Mining Inc Earnings Call
Good morning, and welcome to the core mining second quarter 2022.
This conference call all participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by female after today's presentation. There will be an opportunity to ask question can I ask a question you May Press Star then one on your touch turns down to withdraw 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 Mitch Krebs President and CEO . Please go ahead, good morning, and thanks for joining our second quarter earnings call.
With me today in Chicago, or make Routledge, Tom Whelan, Ethan Mcgrath along with several other members of our team.
Before I begin please note our cautionary language and forward looking statements in our slide deck and refer to our SEC filings, which are available on our website.
Our second quarter was marked by solid top line growth and continued progress at the cornerstone Rochester Poa 11 expansion project.
As highlighted on slide three in the earnings deck three of our four operating mines delivered strong production growth compared to the first quarter.
Solid metal sales coupled with some positive changes in working capital led to a strong rebound in quarterly operating cash flow as well.
As we look towards the second half of the year, our operations remain on track to achieve our full year production guidance.
On the cost side inflationary pressures continued to impact our results, especially from sharply higher diesel costs. So we have made some minor adjustments to our 2022 cost guidance that make and Tom will review in more detail in a moment.
We also modified our full year guidance to reflect our decision to invest an additional $11 million in exploration during the second half to follow up on recent positive drilling results at Kensington Palmer rail and the Silvertip project, which Eva will talk more about shortly.
Most importantly, the ongoing expansion at Rochester is now at peak levels of activity and remains on track to be completed mid next year.
There are over 400 contractors going through the gate everyday now and several key milestones were achieved during the quarter, including the completion of major concrete pouring and the startup steel erection at the Merrill Crowe facility and secondary crusher.
Almost all components and equipment are now on site.
The photographs on slides 10, and 11 demonstrate the terrific progress being made.
We reached an important milestone a couple of weeks ago with the successful installation of Prescreened at Rochester's existing crusher that Mick will talk more about in a few minutes.
The balance sheet remains in solid shape with total adjusted liquidity of nearly $360 million, including the recent Victoria gold share sale proceeds with an additional $59 million of potential liquidity in the form of marketable securities.
With the completion of the Rochester expansion coming into view, we look forward to delevering the balance sheet with strong cash flow, we expect to generate.
The next stage that awaits us post expansion higher production lower costs positive free cash flow and reduce debt, we will place core in a great position to pursue other opportunities to further enhance the business.
Finishing up with the highlights I'm very pleased to welcome Jeane Hull to Core's Board of directors.
<unk> brings over 35 years of engineering operational and leadership experience.
Her unique background will be particularly valuable as the Rochester expansion progresses toward completion.
Gene's work on advancing ESG initiatives also matches very well with our commitment to be an industry leader in this area.
Or is diverse independent board is stronger with the addition of gene and we will continue to pursue opportunities to further enhance and refresh our board in the future.
Shifting gears I want to turn your attention to slide 17 that highlight some important progress we're making on the people side of the business.
The ability to attract and retain the best talent remains a critical priority in our business, especially in the current tight labor market.
We continue to address that opportunity head on through the creation of programs and training designed to maintain our reputation as a place where people want to work and develop themselves and build rewarding careers.
Before having make provide an overview of our operations I'd like Eva to provide an update on her first 90 days with the company.
And give some additional color on our second half exploration priorities.
Thanks, Nick.
After three months in the new I've had an opportunity to visit all of the companies projects and meet the exploration teams across the organization.
I've been very impressed with the people and the potential of our assets.
One thing that became quickly apparent to me was the near term opportunity to invest additional exploration funds in the second half of the year to allow three sites to accelerate drilling in target showing some excellent results.
We look forward to reporting back at year end and the impact of these programs.
At Kensington wide and high grade results in the upper areas of the main Kensington deposit point to a very real potential for meaningful mine life extension from its current three year reserve life.
A key priority in the second half of 2022 will be to continue to target the lowest risk potentially highest value and conditions by testing the southern extensions to Kensington Elmira and Johnson veins.
At Palmer Ao recent drilling in the Hidalgo.
At the Independencia underground mine have returned some of the highest grade gold silver intercepts. The team has encountered this year.
With drilling plans to continue for the remainder of 2022.
At silver kit, which is a very exciting stage right now drilling continues to show the robustness of the deposits, which consistently impressive intercepts in the discovery side, Southern Silver and Camp Creek zones.
Drilling will continue to step out from an extend known deposits, but in addition summer season programs are being expanded to include testing of the regional package with the aim of vectoring towards the mineralized <unk> source.
We believe that the resource outlined to date has been defined and what is likely a small part of a larger mineralized system and we firmly believe that silvertip has the possibility to become a much larger resource and the future source of high quality growth for the company.
I will now turn the call over to Nick.
Thanks Deepa.
Before getting into the quarterly review I wanted to add that the development and training programs Mitch touched on earlier have had a clear impact on our ability to effectively grow our people.
<unk> objectives, and establish a safe working environment from a ground.
Slide 19 highlights the continuation of our multi year downward trend in injury rates.
We believe this investment in our people is a big reason for our success excellence in health safety and environmental performance is the foundation of a world class business.
Looking back on course first half of 2022 from an operational perspective, our teams have worked hard to overcome considerable headwinds on costs and global supply chain disruptions.
When we factor in the addition of a major expansion project at one of our four operations. Our performance is even more impressive.
Our priority in the second half of the year is on maintaining that momentum by first steadily advancing peewee 11 carefully monitoring rochester's transition.
Second implementing business improvement initiatives that drive efficiency and productivity at our operations.
Third and most importantly, focusing on safety and wellbeing of our people.
Turning to our second quarter production summary on slide six and beginning with pulmonary hall.
Metallurgical recoveries improved due to ongoing lending optimization metals groups remained consistent.
We are confident in our ability to achieve production targets for the year.
We have a good handle on unit cost to pulmonary hull.
Moving to Rochester.
Gold ounces produced increased 37% quarter over quarter, while silver ounces produced increased 5%.
These learnings should help us further de risk and optimize poa 11.
We move forward with a pre screen system.
Following a slower first half of the year, we remain confident that Rochester is on track to achieve 2022 production guidance for gold and silver.
<unk> guidance for 2022 has been revised upwards to reflect higher diesel labor and maintenance costs.
As a general model, we anticipate a period of elevated costs through rochester's transition period.
These learnings we believe will ultimately lead to a major reversal on costs of the scale and efficiencies of an expanded operation are fully realized.
Staying with Rochester, and PV 11 expansion for a moment Mitch hit the key Q2 highlights.
On July 29.
The transmission line and onsite substitution was successfully energized by Nevada Energy is another example of the tangible progress taking place.
The second half of the year, we'll see the pace of activity continued with the start of the product conveyor installation along the crusher hurdle will offset a secondary columbia's commencement of pre screen installation and the completion of Morocco electrical systems among many of us.
The main and project teams are aligned and working well together with over a million hours without a loss time injury.
<unk> on the project to date.
At quarter end the projects estimated cost remained approximately $600 million.
Roughly $523 million of the project capital has been committed and we incurred $350 million about estimated total through the end of the second quarter.
Key Q3, Youll get from the final engineering and procurement of the pre screen along with an updated Monte Carlo analysis of the contingency will be completed as part of our ongoing governance over the project.
This work is not yet complete.
But it is fair to say, we continue to see some inflationary pressures and could see the final cost of the project and operating 5% higher than the current estimate.
Switching over to Kensington.
Production increased on the back of Kensington, its highest ever quarterly throughput driven by improved mining on mill efficiencies. The team continues to catch up on delayed stope development due to COVID-19 impacts on the workforce in the first quarter and.
And we remain optimistic at Kensington is on track to achieve the 2022 production guidance.
Wrapping up with Wolf, we continue to place higher grade material, which led to a 15% increase in group production versus the first quarter.
Work remains on track to achieve its 2022 production guidance range.
2022 gold Cas guidance has been revised upwards to reflect higher anticipated diesel costs.
With that I'll pass the call over to Tom Thanks, Nick.
Briefly run through our consolidated financial results that are highlighted on slide four.
An 8% increase in revenue quarter over quarter was driven by increased metal sales at each of our operating mines.
This higher production coupled with favorable changes in working capital led to $23 million of operating cash flow during the quarter.
We are positioned for a stronger second half of the year with 2022 production guidance reaffirmed.
We remain focused on opportunities to contain industry wide cost pressures slide five in the deck provides additional detail on four of course key costs and their impact on our business.
As the slide demonstrates cost increases other than diesel have moderated compared to the increases we experienced last quarter diesel. However remains our largest line item in terms of cost exposure.
Core consumes between 16 to 18 million gallons of diesel per year, and we are currently running approximately $1 50 per gallon over budget through the end of the second quarter. Accordingly, we have increased our cost guidance at Rochester, Kensington and <unk>, primarily related to diesel prices.
Next turning to slide 12, and looking at the balance sheet, we ended the quarter with $319 million of liquidity, including $74 million of cash and $245 million of availability under our revolving credit facility. Additionally.
Additionally, we had $99 million of strategic investments in equity securities, leaving us with $418 million of potential liquidity as shown on the slide.
We monetized a portion of our position in Victoria Gold at quarter end and received proceeds of approximately $40 million in early July we're comfortable that the balance sheet remains well positioned to fund the capex and exploration priorities that we've highlighted during the call.
Lastly, I wanted to remind everyone of the downside protection that we have put in place during the Poa 11 build we have 108500 ounces of gold hedges remaining in 2022 at an average forward price of <unk> 90 to $165 per ounce and an additional 112500 ounces hedged.
2023 at an average forward price of 90 $182 per ounce, which is providing meaningful downside protection in this current market price environment.
Fair value of the gold hedge book at quarter end was approximately $29 million I will now pass the call back to Mitch Thanks, Tom.
Before moving on to the Q&A I want to quickly highlight slide 13 summarizes our top priorities for the second half of the year.
By delivering on these priorities, we remain confident that core is well on its way to being a truly differentiated opportunity for investors seeking industry, leading organic growth from a U S company with a 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 question and answer session.
The question you May Press Star then one on your Touchtone phone.
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Our first question is from Trevor Turnbull of Scotiabank. Please go ahead.
Thank you Mitch.
Thanks for letting me jump into the conference call.
I was interested in the higher throughput scenarios that you mentioned for silvertip I assume these are being driven by exploration success and just wondered if you could talk a little bit about maybe the framework around those scenarios. For example are you weighing these expansions in terms of having to maintaining a minimum.
Mine life or.
Are you looking at things that might be more scalable depending on exploration success.
Yes, Hi, Trevor Thanks for the question.
There is no doubt silvertip is.
As a large system that continues to grow the more we drill in.
In <unk> first 90 days it's been.
A project that she is particularly.
Enthusiastic about.
As we continue to sort of.
Pursue this.
Much larger scenario.
That will obviously take some time to continue to do the drilling the design and engineering.
Develop compelling.
Compelling business case, which.
Okay well.
While that goes on we will continue to focus on getting Rochester's Poa 11 completed and commissioned generating positive free cash flow delevering the balance sheet and so while we're doing those things silvertip can.
There can continue.
With that Nick do you want to talk a little bit more about sort of the expansion scenarios and size and how we're thinking about that yes, absolutely.
The original idea was a fairly small.
Site at Silvertip, but as since we continue to get this success with the exploration results at silvertip.
We think of that.
Now we're looking at what is that rate side. So as you mentioned.
We have to target a minimum mine life, which is then going to make a successful capital project and effectively support that investment case and as we continue to hit with the with the exploration program. Then we'll reevaluate size, but at the moment, we're going through that tradeoff study to look at what that right sizes for the <unk>.
Asset as it stands today with an expectation that we will continue to explore while we finish off the <unk> 11 project and just to put a fine point on that Trevor I think last year a lot of the work that we did focused around 1700 50 tonne a day scenario, we're sort of in the.
The range of double that now plus or minus and we will we'll fine tune that range as the work. We're continues but if is there anything you want to jump in and say from your standpoint on silver too yes.
I think it is a really exciting stage right now.
We've taken a bit of a step back to look at the larger mineralized system in the context of desktop and stock CRD deposit model.
Basically what this means is that the hub is the intrusive source or clarify that provides the heating fluids that move efforts and mineralized surrounding our concerns about radial fashion. So you get the hub and spoke effect.
And from what we're seeing in the data there is evidence that the resources the headline in today's era.
One <unk> SL.
Essentially one of several potential folks.
Also in the adjacent data there are indicators for the location of the porphyry source.
So what we want to do is step back a little bit this summer and test some additional folks on as the underground development gets closer to that potential hub we would.
Plan to drill test that too.
Great.
Sounds exciting and look forward to hearing what you come up with thanks again much for letting me jump in.
Thanks, Trevor I appreciate it.
The next question is from Mark Reichman of Noble capital markets. Please go ahead.
Thank you and good morning, sorry, I've got two questions. One question for Tom and then one for Mitch.
First question for Tom.
You know when the 2020 technical report on Rochester was completed.
Copper costs was roughly $397 million.
$600 million.
It seems like the NPV is also declined under the.
Base case discounting at 5%.
Wanted to ask you. It has a cost topped out is $600 million kind of a ceiling and could you just kind of roughly walk through for investors kind of a comparison between.
The technical report outcome and kind of where you stand today.
Thanks, Mark Hi, Good morning, Tom feel free to take a crack and I'll just I'll start off with a couple of my own thoughts if that's all right Mark.
The $600 million.
Obviously as we get further along here.
With nearly 90% committed theres less and less uncertainty remaining the one piece that we're trying to pin down here in the third quarter are these pre screens that will go into the the new crusher and as Mick said, we are seeing some.
Some cost pressure coming back on.
On the bids for some of that work, which after.
After the last nine months shouldn't be a huge surprise.
Nothing seems to be coming back lower then.
Prior estimates.
So we did put some language I think.
Mick mentioned.
A 5% sort of indication of potential increased above and beyond the $600 million.
Kind of our attempt to provider.
An indication of to capture some of those potentials that may or may not arise between now and when we have this thing wrapped up.
Middle of next year and as far as yes.
Comparison between the kind of the 400 to 600.
In my mind, there is kind of a bucket of of inflation in a bucket of scope enhancements.
About 50, 50, if I had to.
Sales off the cuff, but Tom do you know another layer.
100% so.
397 was the original amount.
As we continue through detailed engineering, we found some other opportunities whether it be to enhance safety enhanced throughput.
Let us to the $4 50, which we had.
Guided at the end of the third quarter of 'twenty one than when this revised technical report came out we had the two elements we add them.
Design changed with the pre screen as well as the inflationary pressures that.
To be honest I think we've done a great job of managing.
On the on the procurement side a lot of the key elements were ordered in.
<unk> ordered kind of pre pre the really heavy inflationary pressure and that's why when you look back at <unk>.
Where the ultimate capital is going to be I think it is going to be a success.
Given where we're at in terms of.
Now it's made at the top of the seventh inning for us versus some of some of our peers, who are still in the top of the second or third inning in terms of the project and just go back to the economics.
It's pretty compelling fell 17% IRR.
Point out these technical reports are a point in time.
And.
Hopefully as we continue to advance and take all the learnings that we've had from from the existing stage for its going to be a compelling project in and arguably the best mining jurisdictions in the world. So.
<unk>.
And our market.
I think you've managed the project well.
Given the difficult circumstances, the inflationary environment I just wanted some assurance.
The economics because clearly.
The original LTV was about $634 million now it's $63 48.
I mean, youre still expecting that $90 million of cash flow. So I was just kind of more interested in kind of the economics and the <unk>.
Second question I had for Mitch was really just kind of long term.
Silvertip project seems to be getting more exciting.
And by the quarter.
<unk> is is that I have heard from some investors that.
Kind of a knock on core has been that there always issuing equity and I think that theres. Some concern I think there are some investors that would like to see.
Kind of a halt in the spending and then once rochester's.
<unk> in place.
Cash flow will be returned to shareholders in the form of buybacks, whereas it kind of it kind of seems like that.
Once rochester's.
Completed the cash.
Cash flow will be used to delever the balance sheet and then embark on another big spending project in silvertip.
Will there be any room to return some.
To return some cash flow to shareholders in the form of buybacks.
It's a fair question and we I'd say largely agree with the second part of.
Of your question around sort of sequence and timing.
And this is an area, where we've given given it a lot of a lot of thought in and frankly, the growing size and scale and potential significance of silvertip.
It kind of helps.
Helped guide us to.
A perspective that.
Look get get Rochester completed generate free cash flow initially.
Initially use it to distress the balance sheet that we've been utilizing to help fund the poa 11 expansion and generate positive free cash flow.
Consistent generator of free cash flow as we advance silvertip, along and I think that's a bit of a.
Of a change from where we.
Where we were.
Let's say nine months ago, where we were thinking more of.
Transitioning.
Sooner from Poa 11 completion to silvertip and I think.
Delevering won't take that long with the kind of free cash flow that we anticipate generating post poa 11 as to whether then we turn to returning capital to stockholders. We will obviously like we always do we'll talk about that with our board and make.
Make decisions accordingly at that point in time, but.
I do think that the.
Getting to positive back to positive free cash flow of the company and staying there for a while while silvertip comes along and being open to alternatives with silvertip in terms of <unk>.
Partnership models and other scenarios that could.
Help to kind of share risk reduce the capital required for a company our size so that it doesn't create.
Future Big strain on the Companys balance sheet.
If and when we do.
Move ahead with an expansion and restart.
That.
So to answer your question Mark.
Mark are you is your.
Your line muted.
No.
Answered my question, that's very helpful. Thank you.
Thanks for that feedback Mark I appreciate it.
Again, if you have a question. Please press Star then one the next question is from Brian Macarthur of Raymond James. Please go ahead.
Good morning, and thank you for taking my question I, just wanted to follow up a little bit on the remaining capex at Rochester.
You sort of say $600 million.
$3 50 committed so I guess that $2 50 to go but when I look at your guidance on page nine you sort of have $2 17 to $2 57 this year.
If I take off the 73 that band at the low end and 143 than the low end Nextera is $1 31 from $2 75.
Versus that 250, <unk> already built that 5% in or.
Or how should I think about that because I guess, Kent I'm, just trying to figure out all I really care about is how much cash or it's still a go out the door on Rochester, I'm trying to reconcile all of that.
And astute reader of our disclosures I love It Brian .
Thanks for the question.
And Tom I'll, let you.
Go into a little bit more detail here in a second but Brian that really.
Flags, just what we're seeing in terms of timing of.
Of billings in payables.
So between.
GAAP accrual in cash.
Capital going out the door, there's still there's more than the $3 50 that we've incurred to date.
That needs to still be be paid and so that's been something that we've obviously we're watching this.
Like a hawk and the timing of some of this cash.
Peak capital.
At 11 will be more.
Slide more to this current third quarter and into the into the fourth quarter, we had previously.
Anticipated a lot of that to come through the door and get paid out.
In the second quarter, but that's that's now happening kind of in the second second half of the year. That's I think one of the key.
Distinction of what you've identified there Tom do you want to.
Paid.
Cash cash <unk> gone out the door that kind of leads 300 to go you have to bear in mind some of that is going to be funded.
Some capital leases.
But.
300, <unk> the magical number that's that's remaining a cached it to go and we updated as Mitch said, just the timing of invoices, probably 155 of that or $150 or so is.
<unk> is expected to go out here in the second half and then the numbers for next year remain.
And then Brian just to circle back real quick.
Sure.
Multiple levers, if there's $300 million or so to go.
The same kind of levers we've been talking about.
Still exist right there is the cash.
There's a revolver capacity.
The other equity investments.
And then there is the free cash flow from our other operations, which are underpinned with with the gold hedges that Tom Tom.
Tom detailed so.
If you add all those up together and you compare that to what's left to go there.
Poa 11, and we feel we feel good about where we sit.
No the levers we have.
The ones that we can pull if and when we need to.
Great that is very very helpful. I appreciate it because thats, what im trying to figure out how much was timing and weather over budget and I can ask one more thing about the 600.
Normally when these projects.
Working capital has not always been.
Included do I need to worry about.
Any timing on working capital on top of that obviously it will ramp up over time that you have to fund or anything to think about anything on that front too.
We're in the middle of the.
The 23 budgeting process, where we're factoring in all the various ramp up scenarios.
Wednesday Merrill Crowe done et cetera, et cetera. So.
At this stage.
We don't have anything further but that 'twenty three guidance will be very clear about.
Expected timing ranges of.
<unk> cash cost for next year et cetera, et cetera, So on that second half Commission yes.
I'm imagining the others.
Pat buildup, but theres also.
Oregon on fresh liner as well so there's a few things that will.
Sort out as we go through.
Our budgeting and then setting.
<unk> guidance will be shorter.
Articulate that that component Brian .
Yes.
Great Thats very helpful as well and maybe just following up on the other question on silvertip, but start with looking at the same way.
One time, maybe you were thinking 25, maybe 26 getting Stefan it sounds to me like bigger project, but it takes some time to figure it all out.
Against that is obviously, a time value of money, if you keep pushing it back and back before developing and eventually that factors into it but should I sort of think about.
2006, 2007 timeframe is that sort of what youre thinking right now to get all the work done.
For Silvertip, which would then as you said give you that.
GAAP to pay down debt and potentially return money to shareholders is that a fair way to think about things now.
Yes.
I can give you a specific answer if I had one.
The truth is none of us do as we sit here today.
Actually that.
It feels.
Much more on target then.
<unk>.
That's kind of swinging from the Poa 11 buying right onto the silvertip.
<unk> and <unk>.
If you think of.
Commissioning in.
And ramping up Poa 11 back half of 2023 that sets us up for a great 2024.
If we want to generate some free cash flow and de lever that starts to give you a sense of how many additional.
Additional years potentially beyond that then that we would expect.
To not be incurring any potential capital at.
At Silvertip.
So I don't know if that.
That kind of helps.
And reflect our our thinking as we sit here.
Today bigger also obviously means.
Current sort of permitting.
Approach, which.
We will take some additional time as well during that.
That window.
Alright that was going to be my next one I'll give it up that was my last question then so for all of us.
All being discovered is there are a lot of new permitting that has to be done or I mean, I get the intrusive in the hub and spoke how much of it would be like on areas that have already done. So as you said it goes pretty quickly and how much of it would you actually have to spend a fair bit of time permitting.
Yeah, Nick do you want to okay.
From an exploration perspective, we're in good shape and we've got access to all of those areas to be able to go and investigate from an operational perspective.
We expect to put a plan in place that's twice the size or bigger than we're going to need a environmental assessment and that takes some time.
<unk> already started some of that work to understand what that looks like and the timelines for that.
We progressed, our planning then we'll share that but as Mitch said.
It's exciting it's growing and we'll have to plan that out and get this right.
Right sized so.
Thanks, Brian .
Brian .
It does thank you very much for answering all my questions I appreciate it. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mitch Krebs for closing remarks.
Okay. Thanks, before wrapping up I just want to quickly. Thank all of our employees and contractors for everybody's terrific work dedication and resilience.
I'm, so proud of everyone's effort and seeing the impact.
You all are having as we continue to pursue a higher standard and turn core into America's Premier growing precious metals company. So with that thank you for.
Joining the call today, and we will speak again with you in early November to discuss our third quarter results have a good day. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.