Coeur Mining Inc. Q1 2023 Earnings Call

Speaker 2: Good morning and welcome to the Core Mining first quarter 2023 Financial Results Conference call.

Speaker 3: All participants will be in a listen-only mode for the duration of the call. And should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad.

Speaker 4: After today's presentation, there will be an opportunity to ask questions.

Speaker 5: To ask a question, you may press star then 1 on your telephone keypad. And to withdraw a question, please press star then 2.

Speaker 6: Please also note that today this event is being recorded.

Speaker 7: I would now like to turn the conference over to the President and Chief Executive Officer, Mitch Krebs. Please go ahead, sir.

Speaker 8: Good day, everyone. 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.

Speaker 9: I'll start with the main highlights on slide 3 before turning the call over to Mick and Tom.

Speaker 10: Our results were slightly ahead of expectations, driven by strong starts to the year at our Palmoreo, Rochester, and Wharf operations, which offset a weaker quarter from our Kensington mine.

Speaker 11: As we've said, the first quarter is typically our softest quarter of the year due to weather and one-time payments.

Speaker 12: Overall, we remain on track to deliver on our full year guidance, which reflects a much stronger second half.

Speaker 13: That stronger expected second half is mostly driven by the post-expansion ramp-up of a Rochester mine out in Nevada, which remains on track for a mid-year construction completion.

Speaker 14: We're currently in the middle of the final quarter of elevated capital spending as we make the final push to wrap it up and the balance sheet remains well positioned to deliver what remains to be spent.

Speaker 15: Seeing the gold line at Rochester just ahead represents a key inflection point for the company as we anticipate capital outflows to decline, silver and gold production levels to rise, and cash flow to begin increasing.

Speaker 16: The Rochester expansion has represented a significant investment for the company and will result in one of the world's largest open pit heap leach operations.

Speaker 17: The team has done an amazing job, especially considering everything they've managed through. The project kicked off in May of 2020, was advanced throughout COVID-related restrictions, faced constant logistical and supply chain disruptions, battled decades-high levels of inflation and labor shortages, and

Speaker 18: and most recently experienced one of the most extreme winters in recent years in northern Nevada.

Speaker 19: Despite all of that, the team achieved mechanical completion of the Merrill Crow processing facility ahead of schedule during the first quarter, and even more impressively, the project is now approaching 2 million hours without a lost time incident.

Speaker 20: Turning to exploration for a few minutes, at Kensington, our development and drilling program that kicked off mid-last year is still in its early days but is having the intended results of adding near-term mine life, accelerating the amount of underground development, and identifying new targets for future drilling.

Speaker 21: Following an impressive 56% increase in gold reserves in 2022 that added a year and a half of mine life, recent drilling is indicating further extensions of several new zones in Upper Kensington, which bodes well for further mine life extensions.

Speaker 22: At Silvertip, the team completed the longest ever drill hole at the site during the first quarter, measuring about 1 kilometer. Results, particularly in the final 250 meters or so, have shown an increase in the occurrence of intrusive porphyry, suggesting the proximity of a heat source.

Speaker 23: It's also notable that we're seeing signs of other critical minerals, including indium, germanium, and gallium, as we continue enhancing our overall geologic understanding of the deposit.

Speaker 24: We believe the ultimate scale and nature of the silver tip deposit is very exciting and represents significant potential value.

Speaker 25: However, our near-term priorities are to successfully commission and ramp up Rochester, generate free cash flow and de-lever the balance sheet.

Speaker 26: We believe this is the right sequencing of priorities and will give the silver tip team time to further grow and better understand this world-class ore body.

Speaker 27: The ongoing exploration success at Kensington and Silvertip underscores the effectiveness of our multi-year drilling programs in which we've invested approximately $245 million over the past five years to extend mine lives and build the pipeline for future growth.

Speaker 28: That investment added roughly 2 million gold equivalent ounces of reserves and just over 4 million gold equivalent ounces of resources.

Speaker 29: Those ounce additions delivered during a time much of the industry was under-investing in exploration represent increases of 34% in reserves and 60% in resources.

Speaker 30: Before passing the call to Mick, I want to briefly touch on the recently enacted changes to the Mexican mining law.

Speaker 31: We're still assessing the full impact. It's obviously drawn strong opposition and is likely to face legal challenges.

Speaker 32: It appears the changes relate to new concessions as opposed to existing concessions like those at Palmarillo. We will obviously continue to engage in discussions with the government as the regulations supporting these changes are developed in the coming months.

Finally, I want to briefly mention our recently published ESG report, which outlines the results we're achieving to maintain CORE's reputation as a leader in advancing environmental, social, and governance practices.

With that, I'll now turn the call over to Mick.

Thanks Mitch.

Before discussing the operational results, I want to quickly add to Mitch's comments on ESG. Afterspeaking the

Always mindful of our mission to pursue a higher standard.

We're committed to operating safely, maintaining best-in-class governance practices, being responsible stewards of the environment, and fostering strong relationships in the communities where we operate. The numbers in the latest ESG report back up that dedication. CORE's three-year trailing average in total reportable injury frequency rate decreased by 18% in 2022 to a record low. We achieved an 8.5% reduction in GHG emissions in 10...

We're pleased with the start of the year and expect the company's 2023 production to be significantly weighted towards the second half, consistent with our production guidance we've provided earlier this year.

We gated towards a seasonally weaker first half in 2023 for the reasons Mitch mentioned earlier.

Getting into more detail of the quarter on slide six and starting with Palmer Eagle.

Production was ahead of expectations for the quarter thanks to higher silver grades and a very strong contribution from Lenasium.

Easing diesel prices, coupled with mill feed optimization efforts that led to reduced consumable consumption drove lower operating costs for the quarter.

A firming PSO led to some upward pressure on costs in the latter part of the quarter.

Overall operating costs decreased 10% on gold and 2% on silver.

Palmorejo continues to focus on mining and plant efficiency programs aimed at further reducing costs and increasing recoveries while maximising mining rates.

Moving on to Rochester.

As Mitch mentioned, the story of Rochester's first quarter was weather. Rain, snow and massive temperature swings throughout the western U.S. fought the team from start to finish. Looking ahead, we anticipate continued strength in metals recoveries to offset lower weather-related ore placement in the first quarter, helping to keep Rochester on track for 2023 gains. Despite the weather, we continued placing more ore on new Pad 6s with an expectation to place over 2 million tons on Pad 6s before starting the pre-leaching process towards the end of the second quarter.

setting the mine up for a strong third quarter as previously discussed.

As seen in the latest photos showing P11 construction, the project is currently at peak levels of activity.

With mechanical completion of the new Merrill Crow facility, our focus is now on ramping up the system, culminating in first solution through the Merrill Crow, expected around the end of the current quarter.

Advancing the new Krischer circuit remains the critical path item. Steel erection and equipment setting for the pre-screen is now well in the way and wood progress continues to be made on conveyor erection as well as piping and electrical installation along the entire mile long Krischer corridor.

Poor weather affected nearly every aspect of the project during the quarter, hampering the team's ability to move equipment, material and personnel. These issues have placed some pressure on our total expected capital cost.

and we anticipate the project to be up at the high end of our Gagons range around $670 million.

All parts of material for the Crusher Assembly are on site and we do not anticipate changes to the overall project construction completion. Turning over to Kensington, where we experienced a slow start to the year, reduced availability of drills, gold as and in the paste plant created main sequence issues leading to lower gold production in the core.

The team is working successfully to catch up on paste placement, which is improving heading availability. We anticipate bridging most of the shortfall over the next two quarters. Lastly, at WARF, results were slightly ahead of plan, with first quarter benefiting from higher grade material placed earlier in the air.

The SAIT team is doing a great job on controlling costs. Along with a decline in diesel prices, per-hounds costs were lower than anticipated. With three mains performing well in Kensington working hard to catch up over the next couple of quarters, we remain comfortable with 2023 production guidance, offered to be 320 and 370,000 ounces of gold.

and 10 to 12 million ounces of silver. Without, I'll pass the call over to Tom. Thanks, Mick.

I will quickly run through our first quarter financial results and then provide a snapshot of our financial picture during the home stretch of the Rochester expansion. As outlined on slide 4, despite lower goal production compared to a year ago, revenue was essentially flat versus the first quarter of 2022.

as we benefited from stronger metals prices. Turning to costs on slide five, we saw signs of easing costs among three of our four largest cost buckets, which gives us optimism that inflation may finally be moderating.

Finally, it is important to note that the first quarter financial results contained two one-time annual payments totaling $23 million related to the payment of the annual EBDA mining tax in Mexico and the company-wide 2022 annual incentive pay-offs, both of which impacted our financial results.

Turning over to slide 7, we've consistently referred to this current period at Rochester representing the peak level of capital intensity. We are today at the peak of the peak, representing the heaviest period of investment with nearly a million dollars per day being spent during the first half of 2023 at Rochester.

As of March 31st approximately $634 million or roughly 95% of the total expected project costs have been committed.

First approximately $634 million or roughly 95% of the total expected project cost had been committed. With about 560 million incurred.

All of our proactive balance sheet management initiatives over the last couple of years have prepared the company for this moment. As shown on Slide 12, we have total liquidity of $382 million.

And we have a significant layer of downside price risk mitigation in place for the remainder of 2023 via our metals hedges. We're confident these actions provide the necessary flexibility to complete the Rochester expansion while also advancing other key near-term growth catalysts, including development and drilling program taking place at Kensington.

have a significant layer of downside price risk mitigation in place for the remainder of 2023 via our metals hedges. We're confident these actions provide the necessary flexibility to complete the Rochester expansion while also advancing other key near-term growth catalysts, including development and drilling program taking place at Kensington. I'll now pass the call back to Mitch.

Thanks, Tom. Before moving to the Q&A, I want to quickly highlight slide 14 that summarizes our top priorities for the remainder of the year. We're now finally at the cusp of a major inflection point that we've been working toward for about three years. Our clear and critical priority during the remainder of the year is to safely and efficiently finish.

higher returns as these nuances are monetized in future periods.

At SilverTimp, we will continue enhancing our understanding of this prospective deposit and seek to further expand its size before revisiting how best to generate maximum value from this asset.

And two quick final points. I want to highlight that this year represents CORE's 95th year since it was incorporated.

Not a lot of companies are fortunate to be around to celebrate 95 years.

We're very proud of Corps' long history as an American mining company and very much look forward to what lies ahead.

Another celebration taking place here at the company this year is Worf's 40th year in operation. There's one employee, Mark Schmalling, who has worked at Worf this entire four decades, so he's celebrating his 40th work anniversary this year. Mark was Worf's employee number one back in 1983.

just before the mine began to operate with an initial mine life of 3 to 5 years. Fast forward to today and Wharf's mine life currently stands at 8 years.

three years longer than when we acquired it back in 2015 from Goldcorp. Congratulations to Worf and to Mark and thank you.

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 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

And our first question here will come from Mark Reichman with Noble Capital Markets. Please go ahead with your question. triedAnd

provide any any costs applicable to sales.

of the first three months at Rochester looking at those numbers, both on an adjusted cost applicable to sales, gold and silver. What are your thoughts kind of for the remainder of the year in terms of the cost applicable to sales at Rochester?

based on the first quarter results.

Yeah, it's first quarter we're in line with with plan. We'll have a lot of noise here in the next two quarters which is really the driver behind that decision to wait to put up cost guidance for Rochester.

until this summer. Tom, do you want to go through just a few of those moving parts in terms of the noise that we'll be seeing here in the next couple of quarters at Rochester?

So Mark, expect guidance to be issued alongside the Q2 results, but the couple of key issues that we've got is just where all the gold is coming and silver is coming from over the next three quarters. So for example, a lot of our gold is

Stage 4 residual, so i.e. ounces and tons that were placed last year. Now this quarter we have a mix, roughly half the tons went on the old Stage 4 leach pad and another half went on the current Stage 6 leach pad which were, Mick is busy ramping up and pre-commissioning and commissioning here over

On a go-forward basis, all of the tons that will be placed will go on to six, but again, recall those tons are going to be coming from the stage four X-PIT crusher. And then, of course, around mid-year when we get the whole package done, we'll start to see tons coming from the new crusher.

Expect some guidance, full guidance to accompany the second quarter. Okay, well that's helpful. Then just a follow up to that. In terms of Rochester, and I know where this tonnage is getting staged and all that, there's going to be some lumpiness in the quarterly.

numbers here on out, but would you kind of expect the third quarter to be your strongest in terms of Rochester? Kind of how are you thinking about the quarterly profile relative to the annual guidance at Rochester?

Yeah, good question. As Tom said, the first quarter benefited from some of that carryover off of the old stage four. That will deteriorate a bit in the second quarter. Then in the third quarter we'd expect to see a pretty decent

spike up on the back of beginning to leach that fresh ore off of 6, the newly stacked material on 6.

which should actually create the third quarter being the highest quarter of the year production-wise out of Rochester because of that initial surge in ounces. And then meanwhile we'll be as quickly and methodically as possible ramping up the crushing rates

of the crusher during the back half of the year to try and end the year, you know, as close to that run rate of 30 million ton plus a year crushing and stacking rate. So Mick, anything I didn't cover there that might help answer Mark's question? Yeah, I mean it's really it was about getting the heat leach in the Merrill Crowe and constructed and ready to go pre-commissioned and then

today as we described in the materials and we expect to have about 3 million tons by the time we start up the Meryl Crow as per the plan. So everything's going as per plan right now.

That's all very helpful. Thank you very much.

all very helpful. Thank you very much. Thanks, Mark.

And as a reminder, if you have a question, you may press star then 1 to join the queue. Our next question will come from Michael Syperko with RBC Capital Micros. Please go ahead with your question. Michael and his team areMurphy nemesis.

Thank you and thank you for taking my questions team. Maybe if I could just follow up on that question about the ramp up at Rochester. Maybe I'm not understanding. I hear you when you say that the third quarter

on the new pad, shouldn't we expect to see a gradual increase into the end of the year and then into 2024 or what am I misunderstanding there sorry.

No, that's okay. Mick, you want to… Yes, so as we construct the base of the heap leach pad before we put it into operation, we'll have to put some higher-sized fraction in there to make sure that French drain works really well. But we're effectively loading several million tons of material on there before we put any kind of cyanide leach.

irrigation onto it. So when we start that process that's going to give you that wave of additional ounces in Q3 but that will drop back as we then finish off the construction of the main crusher, the limited crusher and then we bring that in. But as you appreciate with any large scale capital project like this there is a ramp up curve and we expect to be driving up that ramp up curve.

across that second half of the year. And as we do that, then we'll load more and more tons onto that heat bleach pad, and that will gradually build MAKO for sure, but we should see a lift in Q3. It'll dip back down a little bit, and then we'll see that gradual ramp up.

through the end of the year into 2024. Okay, so it's a shorter leach cycle for that initial material that you're putting on, and then as that grows, then you'll get into the more typical leach cycle. Is that the right way to look at it?

So, typically, you get the best benefit from your material on pad in the first 60 to 90 days. So, yes, we'll see that for all of that material that was placed in a normal operation, you'll be placing that continually and then seeing each of those blocks drop off. But with this, we're placing it all before we start. So, you get that all at once and then...

facility and cash on hand for the completion of Rochester and the ramp up. Can you just refresh us maybe on any key covenants attached to the facility, anything that could prevent any kind of drawdown in a sort of a worst-case scenario.

and any other levers that you might have the option of pulling on that you might want to pull on in the near term with respect to the balance sheet.

Now, good question, fair question. As you alluded to there, Mike, we are sitting here at this point pretty comfortable with the balance sheet relative to where we are at Rochester. Just as a refresh, that revolver has a $390 million size. There's $30 million of LCs against that, which leaves $360 million of LCs.

quarter right now before things start to step down starting in the second half of the year. In terms of other levers we could pull, you know, the hedging that we have in place has been a real key risk mitigate. You know, there are other things around. We've done some opportunistic things.

the first quarter. That's an example of these incremental tools at this point that we still have to make sure that we manage in a comfortable way here through this critical final quarter. Tom, did I leave anything out that you'd want to add? Yeah, no, no.

Okay, great. Maybe if I could switch gears one more time, and then I promise I'll pass it on. On Kensington, you talked a bit about what impacted production in the quarter. Can you talk about what the mitigation is? Do you have to do...

Do you have to do anything more? Do you need more equipment? Is there more time required for development or is it just that availability that impacted the throughput? And how do you expect production to sort of ramp over the rest of the year in line with guidance? Yeah. Make you want to answer Mike's question. Yeah.

and we're onboarding some development contractor groups to help us with that process in the early part of the year. As you know, onboarding new people sometimes takes a little bit of time, so they took a little bit of time to get up and get the momentum up, but we wanted them to do that very safely.

very effectively and now we're seeing that they're fully on board and they're getting the job done as per the plan. And so that's a big mitigation for us as we go forward because as they develop and they're developing towards areas that may provide additional stops and opportunities for us throughout the year to recover and get back on that plan for Kentingdon. And just to piggyback off of Mick's comments.

And Rochester obviously gets a lot of attention as a near-term growth catalyst, deservedly so, but there's a lot going on at Kensington in terms of this development and drilling program. I think we're invested... Kensington is our largest allocation of exploration funds this year.

There's a hefty chunk of underground development capital, and it really does set Kensington up as that kind of medium-term catalyst for us. So, we'll see a lot of near-term growth out of Rochester for sure, but as we continue to execute this program at Kensington and keep extending that mine life, opening up some additional underground flexibility and working areas, Kensington's going to come in after Rochester and form an ice.

kind of medium-term wave of growth out of that asset. So, there's a lot going on up there, a lot of moving pieces as Mick was alluding to.

Okay, great. In the near term, what you're seeing in April and May inspires confidence in that full year guidance number. Is that fair to say?

April was still suffering from some of those challenges. The plan is as we get into the second part of this quarter and then into the third quarter and beyond is when we start to really see ourselves catching back up.

Yes, absolutely. Over the next couple of quarters, and of course the power of the portfolio, Rochester is doing really well. We're moving along and we'll have a good balance of focus across the sites to support Kensington to get back up that curve. Okay, fantastic. Thanks again for taking my questions.

No, thanks, Mike. Appreciate it. And this will conclude our question and answer session. I'd like to turn the conference back over to Mitch Krebs for any closing remarks.