Q4 2022 Coeur Mining Inc Earnings Call

Good day and welcome to the Coeur mining fourth quarter 2022 financial results 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 zero.

After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Mitchell Krebs President and CEO . Please go ahead.

Good morning, and thanks for joining our fourth quarter and 2022 earnings call.

Before I begin please note our cautionary language on forward looking statements in today's slide deck and refer to our SEC filings on our website.

I'll start with the main highlights on slide three before turning the call over to make Tom and Eva.

The fourth quarter was core strongest quarter of the year, which helped to achieve our overall full year production guidance for the third consecutive year.

Definitely not an easy task last year with such unprecedented volatility.

But yes, there was the main driver to our solid finish last year.

Both silver and gold production increased over 30% quarter over quarter with sharply lower costs.

Ongoing operational enhancements and higher grades contributed to rochester's results.

As we begin the transition to the newly expanded infrastructure, where construction remains on track to be completed midyear.

We achieved several critical objectives last year that we believe are important value drivers for the company in the short medium and long term.

In the short term, we continued to Derisk and advance the Rochester expansion.

The project is nearing 80% complete this month and remains on track in terms of budget and schedule.

We also further fortifying the balance sheet to support our elevated levels of investment in our existing assets that are intended to increase production decreased cost extend mine lives and drive a return to positive free cash flow, which Tom will provide more details on in a few.

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In the medium term the team at Kensington got an early jump on their multiyear development and drilling program last year by adding approximately a year and a half to its mine life.

As we laid out during our Investor day in December we're optimistic about further extending Kensington mine life and generating solid returns from higher production and lower costs from this investment.

Over the longer term I want to highlight the great results from Yesterdays Reserve and resource update on slide 11.

Which reflects another year of successfully replacing mined reserves.

Year over year, our gold reserves increased by roughly 12%.

While silver reserves increased approximately 3%.

Over the past five years, we have invested roughly $245 million in exploration during a time when many companies have underinvested in this critical component of the business.

Over that time, our gold equivalent reserves have expanded by nearly 2 million ounces or roughly 34% net of depletion.

In addition, our gold equivalent resources have increased nearly 4 million ounces or approximately 80%.

Eva will provide some additional comments on our exploration successes in our year end reserve and resource results in a few minutes.

Just a few quick thoughts as we look ahead to 2023.

Overall, the key for US this year is obviously execution not only at Rochester with the completion of construction and ramp up post expansion.

But across the entire portfolio to achieve our objectives that can transition the company back to positive free cash flow.

We anticipate 2023 will be comprised of two very different halves. During the first half capital intensity is expected to remain high.

While we experienced weaker seasonal operating results from our two open pit operations.

The first half also includes our normal first quarter outflows relating to 2022 tax.

Interest and compensation driven payments.

During the second half of the year capital intensity is expected to sharply decline in production levels are expected to increase as we began the commissioning and ramp up process at Rochester.

Overall 2023 production is expected to increase over last year, driven by Rochester's stronger second half and by an expected strong bounce back year at wharf after a lower grade year in 2022.

So quickly wrap up we remain confident in the key pillars of what we think is a unique strategy in our sector.

And exclusively North American and U S centric footprint.

Contrarian multiyear commitment to exploration that continues to generate meaningful results.

Investments in expansions that are designed to deliver sector, leading growth and have transformative impacts on the business.

In the metals mix that offers meaningful and growing exposure to silver.

And unrelenting focus by our team on executing this strategy is bringing us closer and closer to that point of transformation that everyone has been working so hard for.

With that I'll turn it over to Mick.

Thanks Mitch.

I'll start by echoing michel's comments on the great job. Our teams have done this last year to deliver guidance amid challenging circumstances.

With the right people in the right shape executing the right strategy, we feel confident in our ability to consistently deliver significant long term value.

Our journey to zero harm progressed well in 2022.

With the teams delivering the best environmental Health and safety performance in the history of the company.

What a fantastic achievement to be protocols.

But that journey is not over as we continue to control exposures as we drive to get to zero as quickly and sustainably as possible.

Turning to a brief recap of our fourth quarter production summary on slide six beginning with Palmary Hall.

Higher gold grades and uptick in mill throughput led to a nice finish to the year.

Full year gold and silver production came in on the high end of guidance range outcomes for gold and silver finished closer to the high end of guidance as Tom rehab for inflationary headwinds all year.

Despite these challenges the team delivered nearly $46 million of free cash flow in 2022.

Looking ahead guidance for 2023 anticipates, a similar year in terms of gold production silver production guidance is significantly higher this.

Despite continued easing certain foundry, whose input costs or 2023 cost guidance reflect caution as overall costs remain volatile.

Yeah.

Moving to Rochester.

The 30 plus percent increases we saw in gold and silver production in the fourth quarter were driven by significantly higher grades due to the mine sequencing. Please don't put forward in September and October but began to break through the latter half of the quarter.

This surge in grades made the difference in helping Rochester exceed its gold production guidance for the year and coming in at the high end of its silver production guidance.

Fourth quarter adjusted costs for silver and gold on a co product basis were down versus the previous quarter due to high attributable metal sales.

We have elected to defer providing 2023 cost guidance of Rochester until mid year, given the transitional nature of the year ahead.

It will be a lot of moving parts as we start placing crushed ore on stage six leach pad and fell on February the first.

We turned on the Merrill Crowe plant during Q2 2023.

We begin placing walk through the new crushing circuit later in the summer.

The number of prints visible in the Peewee 11 photo slates demonstrate clearly that construction is at peak levels on the Cushing Carnival.

The work is proceeding.

The project remains on budget Nonscheduled steel erection and equipment installation is preceding and booked a cone crushers and the secondary crusher area.

As well as about PHP G. All crushers and the tertiary crusher area.

Slide 12 in the presentation highlights the progress on our key milestones for 2023.

The Merrill Crowe process plant remains on track for completion at the end of the first half of 2023 in line with the P 85 project schedule.

Mechanical equipment setting process plant building cladding control systems programming and factory testing are all now complete.

Electrical cable and piping installation of well a bit weird.

I'm also pleased to report that the construction project is now past one 5 billion that was as of January 31st without a loss time incident.

Turning to Kensington.

Once again, great job by the team to reach a new all time record in mill throughput.

New leadership, there continues to make strong bulk and bodes well for the future of this key asset.

Challenging recoveries through most of 2022 led Kensington to just missing the low end of the production guidance.

2023 guidance reflect similar levels of production and cost.

With the previously discussed infusion of capital at Kensington. This year will be a busy period of development to set the made up for a strong future.

Finishing briefly with Wolf.

The team overcame some significant snowfalls in the quarter to finish within expectations near the high end of its 2022 guidance range.

2023 guidance reflects a return to more typical gold production rates with similar cause ranges setting the stage for stronger anticipated cash flow in the year ahead.

With that I'll pass the call over to Tom.

Thanks, Nick.

Turning to slide four I'll begin with a review of our consolidated financial results before touching on our 2023 guidance in the balance sheet.

As expected Coors improved fourth quarter financial results were driven by our highest gold production of the year and the $62 million gain on sale from Sterling crowd.

Higher prices along with gains from our gold hedges led to a 96% increase in our EBITDA quarter over quarter.

Speaking of hedging our 2022 program provided $24 million of net gains.

13 million of which was realized in the fourth quarter.

Subsequent to year end, we took advantage of some short term momentum in gold and silver prices to add additional downside price protection for 2023.

Inflation remains a headwind on our sector's financial performance.

While we have seen some moderation in diesel prices slide five demonstrates the continued pressure on our key cost buckets.

Accordingly, our 2023 outlook continues to assume a challenging year for operating costs.

I am pleased to report that course capital cost exposure Poa 11 continued to decrease with approximately $605 million of the estimated capital now committed and $495 million incurred as Mitch and Mike Both mentioned the project remains on track and on budget with approximately.

At least 75% of the remaining capex expected to be incurred during the first half of the year.

Turning to 'twenty to 'twenty three guidance.

Our guidance remains consistent with our December 2022, Investor day, as we approach the free cash flow inflection point post completion of Poa 11, Mitch.

Mitch and Mike have already hit on the key messages around production and operating costs Poa 11 capital and the tale of two half this year I want to highlight a couple of additional very important items within the guidance, which we expect will deliver NAV growth and reduce overall risk for the company.

We have allocated value accretive capital for additional underground.

Mine development and exploration at Kensington in Palm rail, which is expected to extend mine lives and reduce risk at both mines.

To accommodate these extended mine lives both sites are investing in new tailings capacity during 2023.

Obtaining that crucial P O a one permit.

And then at Kensington last year has allowed us to progress on the aggressive multi year program at the mine, which includes this permitted tailings capacity.

At Palmer, a hold the new tailings capacity will be inside the old open pit, which is a significant and buyer mental derisking milestone.

Turning to the balance sheet Slide 16 provides a good snapshot of our financial position featuring total potential liquidity of over $500 million.

We do however remain concerned in the short term about the overall macro environment for gold and silver prices and continued operating cost inflation.

This concern coupled with our tale of two halves of 2023 has led us to take several actions to keep our balance sheet flexible. During these final few months of capital intensity at Rochester.

The key elements of our financing strategy include.

We recently monetized, our remaining position in Victoria gold for $40 million.

Our revolving credit facility, which has $280 million of capacity.

Our hedging program designed to.

Provide downside commodity price risk protection during this period of capital intensity.

We head into 2023 with approximately 180000 ounces of gold hedged at 90 $861 per ounce and $3 2 million ounces of silver hedged at $24 55 per ounce and we put a new ATM in place for growth potential proceeds of up to $100 million.

These key initiatives taken to enhance our total potential liquidity leave us feeling comfortable that the balance sheet will provide the required flexibility to deliver the industry, leading high return growth that will transform our company.

I'll now turn it over to Ethan.

Thanks, Tom as Mitch said earlier successful exploration in 2022 led to an increase in our global reserves with growth at each site.

Looking at a few key highlights.

Kensington the multiyear exploration plan described in our December Investor day is already bearing fruit with reserves, increasing by an impressive 56%.

The majority of this growth came from up at Kensington.

T 38, and 30 P M.

These zones remain open and we will continue to expand and sell into all of these areas since the 2023.

In addition to Kensington at least our resource and reserve additions at that Myra and less deposit along with the Johnson deposit so opportunities for growth in 2023 and beyond.

Detailed geological modeling is increasing our understanding of all the positive.

Kensington and they are hopeful that this will help the sector to both higher grade and New Zealand.

I don't know high grade silver tip exploration project. We also saw notable growth, but silver lead and zinc measured and indicated resources, increasing by 70, 369, and 81% respectively year over year.

2022 was an exciting year for exploration, but the following notable achievement.

Firstly expansion drilling increased mineralization at the southern Delaware zone to approximately 500 meters vertical extent and 1800 meters along strike as shown on slide 10.

Mineralization, but it also intersected in multiple stratigraphic units, thereby increasing the amount of the stratigraphic column that doesn't mean, a bunch of mineralization.

Opened up significantly more opportunities for stack mentos and multiple chimneys.

Secondly, the discovery of new kidney structures, they need the discovery mantle cell and <unk>.

Or at least sculpt drilling in the saddle zone generates new kidney targets for follow up in 2023.

We believe silvertip has good potential to be a long life mine and right now we have visibility in how to build a sufficient reserve base to enable a decision to proceed once economics are sufficiently compelling.

We see that continued growth at silvertip as opportunity to expand Coors future global production reduce costs and boost free cash flow.

I'll now pass the call back to Mitch.

Thanks Eva.

Before moving to the Q&A.

I want to highlight slide 17 that summarizes our clear priorities for 2023.

As I mentioned at the outset execution remains front and center in this pivotal year.

By successfully delivering on these objectives, we plan to reach the end of 2023 on the cusp of a new growth phase for the company.

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

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

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

Our first question comes from Michael Dudas from vertical Research partners. Please go ahead.

Good morning, everyone.

Hi, Mike.

I know 2023 could consume enough Mitch.

Regarding Rochester what.

What's the hurdle or whats the pinch point you guys are seeing over the next few months that gives.

The marketplace confidence that.

Your targets on on construction completion, and the ramp will occur within what you guys were talking about today.

Yeah. Good question.

This is the it's a busy year with a lot of moving parts out there all of this coming together.

Here now with the first half focused on.

Stage six leach pad, which is now complete we're stacking ore on that Merrill Crowe comes next in the second quarter.

Russia mid.

Mid summer and then we start putting rock through it and ramping it up.

Throughout the second half of the year.

Mick do you want to give a little bit of detail on some of the other moving parts that are that are going on there throughout the year. Yeah. Yeah exactly so we completed starting on page four and moved across the past six months.

Schedule. It was a great achievement milestone on February one.

And then now we'll continue to Leach pad also we'll see some milk from that throughout the first half of the year, but we're stopping now and building up inventory on part six breakthrough to that.

Middle of the year, when we expect to commission the heap Leach and the Merrill Crowe and then we'll start seeing that.

And that will come out of inventory in the second half of the year as per the plan from a project perspective were still on the P. Five project schedule.

Yes.

We went through.

The normal challenging Nevada winter.

Continue stay on truck, we're still on that track and from our Mon power and loading perspective for the project T. I C. He would have done a fantastic job at it.

Reloading and covering any attrition on that project and what we're fully manned up to get the rest of the project and throughout the year.

Just to add on to that Mike.

The conversation around here has has started to transition quite noticeably less about construction activities and schedule and more about operational readiness.

Plans around the ramp up schedule and everything that needs to go into ensuring that this thing ramps up smoothly throughout the back half of the year to deliver on on that second half production growth and set us up for or what should be that inflection point in cash flow as we as we head into 2024. So it's.

Theres been a noticeable shift in terms of what the where the priorities are and where we're the new focus areas.

Are out there now so that's exciting to see.

That's very encouraging Mitch my follow up is.

Can you just discuss on silvertip, some pretty pretty positive results and any changes in thoughts from Investor day to how you're thinking about the project today timing or or structure. Recognizing you know job one is getting Rochester done.

Yeah, you said it right there job one is in 2020 three is poa 11 execution.

Priorities at Silvertip. This year really are twofold, minimizing that the holding costs.

We prioritize poa 11, and continuing to expand.

The resource up there, which we have a lot of confidence in we've seen it grow.

Significantly since since we acquired it and even year over year, Eva mentioned the percentage growth in the different metals, just just year over year, we have a lot of confidence that that will continue it.

It'll be a bit of a smaller program this year compared to last year targeting a little bit more.

On the expansion side to step out a bit more.

With the thought being that as we do that.

And we have a lot of confidence that we can that's just going to help help us put together.

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In a few more years that will justify the capital that would go into expanding and starting that up.

As a another operation, but so the priority for now is is keep growing the resource.

Which I think has some.

Confidence in and a couple of things you want to maybe say about that Eva.

Yeah, I mean, we had we had a great year in 'twenty, you said teach out there telling my check we really our understanding of the deposits really developed.

Television itself is becoming quite an important part of the story at the moment. So we've extended mineralization now extends 500 meters.

Hello strike extent to date.

Still open is 18 800 meters. So that in itself is opening up the southern server zone is very good.

And it's something that can add significantly to the tonnes. There that's a vertical or body. Its chimney. So it's essentially an easier mining scenario as far as this is all in addition to that we get some sky tells under the discovery zone.

To date has been a mature I don't endorse a sip horizontal zone and we found some some mutual needs under the assets you can follow up on this year.

And also time to decide on dividends too rich we are scheduling our scheduling over the last few years intersected mineralization and that's another few kilometers of them extend that we can expand into.

Mike just to pull the lens back then.

11 this year.

Get back to positive free cash flow lower cost reduced debt.

Keep expanding that resource at silvertip in the meantime get to a point, where we have an attractive business case at silvertip at which point then we can.

You'll have some options to think about whether we.

Go it alone whether we bring in a partner or whether that's a strategic partner or financial partner operating JV nonoperating, JV, but we need that compelling business case.

Two to get to that point and drilling is the way to get there and so that's the kind of the progression and priorities as we sit here today.

It sounds very prudent Mitch appreciate your thoughts everyone. Thank you okay. Thanks, Mike.

As a reminder, if you have a question. Please press Star then one.

Yeah.

There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Mitchell Krebs for any closing remarks.

Okay, well, hey, we appreciate everybody's time today during this busy reporting period, and we look forward to talking with you all after after.

After the first quarter in the springtime, Thanks, again and have a good day.

Conference is now concluded. Thank you for attending today's presentation you may now disconnect.

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Yeah.

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