Q2 2023 Coeur Mining Inc Earnings Call
Hello, and welcome to core mining second quarter 2023 financial results Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad to withdraw from the question queue. You May Press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to CEO Mitch Krebs. Please go ahead.
Good day, everyone and thanks for joining our second quarter 2023 earnings call.
Before we start 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 kick things off with a review of the main quarterly highlights on slide three before turning the call over to Tom and Eva.
Quarterly revenue totaled $177 million with production of approximately 68000 ounces of gold and two 4 million ounces of silver.
The quarter was underpinned by strong performances in our Rochester, and wharf operations offset by a weaker than planned quarter at Kensington mine in Alaska.
Through the first six months, we produced about 42% of our full year gold production guidance and about 45% of our full year silver production guidance, which highlights our expectations for a strong second half.
The company's two key drivers for the second six months of the year are expected to be the ramp up of Rochester, as construction and commissioning activities wrap up and a stronger second half from Kensington.
Water and weather impacted both Rochester, and Kensington during the second quarter out in Nevada at Rochester.
We're very pleased to report that the expansion was approximately 97% complete as of July 31, and is moving quickly towards completion.
However, downtime from lightning and rain in northern Nevada, combined with an ongoing shortage of skilled labor and related productivity challenges is driving an increase in the number of contractor hours required to finish up the project this quarter.
Meanwhile, heavy spring snow melt and runoff in southeast Alaska, along with some paste backfill challenges led to a poor quarter at Kensington, which negatively impacted our company wide gold production and financial results.
The team has largely address these challenges and we look forward to a stronger back half of the year there.
Both Mike and Tom will provide some additional color on these two operations in a few minutes.
At Rochester, the focus is quickly shifting to commissioning and ramp up efforts now that construction activities are beginning to wind down.
We are now just weeks away from delivering initial silver and gold production from the new stage, six leach pad and Merrill Crowe facility.
Which will be quickly followed by construction completion of the new three stage crushing circuit.
The sight photo on slide 10 of todays presentation shows the tremendous progress made to date.
The team managing this project has done an incredible job under challenging circumstances over the past three years.
After visiting there a couple of weeks ago I was impressed once again by the sheer scale of this operation once ramped up Rochester will be one of the largest open pit heap leach mines in the world projected to deliver lower cost silver and gold ounces at production levels, two and a half times higher than recent rates for many years to come.
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Well Rochester is our clear near term catalysts, we see the development and drilling at Kensington is the next leg of lower cost production growth for the company.
Drilling results there point to a continuation of key mineralized zones and the potential for a longer mine life in Alaska.
And just earlier this week.
We issued an update on the excellent exploration results from Palm Laredo in Mexico.
With recent assays, returning the highest gold grades that we've ever had there.
Eva will provide some additional details in a few minutes.
Through significant multiyear investments in expansions and exploration at our North American assets, we're rapidly nearing the point, where we expect to see the benefits of these investments accrue to our stockholders.
With that I'll now turn the call over to Mick.
Thanks Mitch.
Across our whole asset portfolio, we see a great track record of excellence, including long term trusted relationships with our key stakeholders that allow us to continue to develop our mines and secure key permits like the recent Boston expansion success at wharf, providing great opportunities.
For further growth within our operating footprint.
Getting into quarterly operating details on slide six and starting with pulmonary who.
Good silver and gold grades led to solid production for the quarter with the team overcoming a 40, a power outage due to wildfires.
On the cost side, the strengthening peso continued to create pressure, resulting in approximately $5 million of additional costs.
Moving on to Rochester.
Better than anticipated production was driven by continued positive residual ounce production from legacy Leach pads.
With the majority of all placement now occurring on the new part six.
And silver production decreased as expected compared to the first quarter.
Production rates will remain depressed during this transition period until first solution through the metal cool plant is process next month.
Looking ahead, we expect the cushion we built up during Rochester strong first half performance to sustain the mine over the course of pre commissioning commissioning and ramp up activities. During the second half helping to keep Rochester production on track for 2023 guidance.
Getting into a bit more detail with a summary of recent milestones and what remains ahead of what Chester.
Following on the schedule first quarter mechanical completion of pod six on the Merrill Crowe process plant. We're currently finishing up wet commissioning and getting ready to start.
Work on the mail on Krisher corridor, it's progressing well.
Prescreen equipment and piping construction is well advanced the stuck out in feed can be as have been erected including Corso secondary and tertiary stockpiled stuck us as well as the secondary feed Colombia.
The 63 kv power transmission lines to the crusher substation has been energized.
Secondary and tertiary crusher is or in the final stages of electrical construction and programming of the crush of process control systems is also complete.
On the mining side of the project looking at slide nine may.
Mining rates are scheduled to increase from 65000 tons per day to 155000 tons per day.
Capacity for drilling and loading is already in place new additional equipment as needed.
The whole truck fleet will go from four <unk> to 29 trucks and we're currently right on plan to be at 22 trucks by the end of 2023.
The full complement by the end of 2024.
Headcount for the expansion is less than a 20% increase and all additional people for the processing plant are already on board.
Yeah.
Much like the first quarter poor weather continued to affect overall project progress during the second quarter.
The frequent periods of lightning, creating a particular safety challenge.
Considering the numerous work streams involving steel erection of heights, and Korean operations on the Crusher corridor.
Taken together with ongoing inflationary pressures and skilled labor availability and productivity challenges.
We expect the total project capital to come in between $710 million to $750 million.
Or about 6% to 9% above the previously estimated at $607 million discussed in last quarter's call.
Capital pressures notwithstanding the piece of project development continues to advance.
With mechanical completion of the Crusher circuit are expected in the current quarter and ramp up to take place over the remainder of this year and into early 2024.
In the near term, we expect second half production at Rochester to four more evenly between the third and fourth quarters.
Additionally, we anticipate costs in the second half of the year to be similar to the first half of the year as we complete the project and begin ramping up.
Tuning to Kensington, a slow start to the year persisted in the second quarter with higher than expected water flows in key production areas further impacting our plant returned to optimal stope sequencing.
We have worked with the team at the site to develop a solid mine plan for the second half.
Recent performance indicators are looking more favorable.
But improved performance is not expected to meet the original 2023 production guidance as a result full year guidance has been revised to between eight 4090 5000 ounces.
Lastly at wharf.
<unk> was slightly ahead of plan with our second quarter benefiting from high grade material tons placed earlier in the year.
We're very proud to Mark two big milestones.
Firstly on July 20th the state of South Dakota approved permit, allowing for mining of the Boston expansion.
And nearly 50 acre parcel immediately to the central pool current permitted operations, giving us more flexibility and providing additional opportunities for mainly growth going forward.
Amid a milestone.
The team at Wharf produced its three millionth ounce of gold on June 23rd.
Since cool quiet wharf back in 2015. The main has generated free cash flow for the company of approximately $360 million and continues to play a key role as a cornerstone of stable gold production in the heart of the United States.
Looking to the balance of the year the youngsters to food Kensington have resulted in overall gold production guidance decreasing slightly to between 304350 2500 ounces of gold while.
Silver production guidance remains unchanged at between 10 to 12 million ounces.
<unk> remains in a strong position midway through this critical year for the company.
With that I'll pass the call over to Tom.
Thanks, Nick.
I'll begin with a brief review of our second quarter financial results before providing a balance sheet update.
Turning to the financial highlights on slide four operating cash flow in the second quarter swung to a positive $39 million compared to a negative 35 million during Q1, driven by solid operating performance at Palmer Ao, Rochester, and wharf as well as favorable changes in working capital are key.
Q2, 'twenty twenty-three adjusted EBITDA was impacted by the challenges at Kensington that Nick discussed however.
We are set for a strong second half of the year at all sites, including Kensington, which should lead to significantly higher EBITDA levels.
Turning to costs on slide five we continue to see inflationary pressures on labor and power costs.
These inflationary headwinds combined with the stronger Mexican peso.
It had been partially offset by lower diesel costs, which have decreased 26% versus Q2 2022.
Maintaining our balance sheet flexibility throughout the Poa 11, construction ramp up remains one of our top priorities.
We are in the last weeks and heavy spending at Rochester, while we continued to invest in other organic growth opportunities across our portfolio, including our Kensington multiyear development plan and a resumption of drilling at silvertip.
As highlighted on slide 11, some key features of our financial flexibility include we ended the quarter with only $80 million drawn on our revolving credit facility, leaving over $280 million of the available credit capacity.
We worked with our banks to complete an amendment to our revolver to provide additional flexibility on our key financial ratios through the first quarter of 2024.
We'd like to thank our syndicate banks for their continued support and confidence.
We completed an innovative financing of Canadian flow through shares during the second quarter, raising just under $30 million at a 21% premium to the market price, which will be allocated to fund exploration activities at silvertip are.
Our hedge book remains a key price risk mitigation tool during this period of capital intensity and ramp up at Rochester.
We have almost 70% of our non Franco Nevada related second half gold production hedged at 1900 and $77 per ounce and approximately 50% of our second half silver production hedged at $25.41 per ounce.
And we have established a new ATM program for gross potential proceeds of up to $50 million.
You add this all up and we have approximately $415 million of total potential liquidity, leaving us confident that the actions, we're taking will not only see rochester through the finish line, but will also support Coors entire suite of high value organic growth projects.
I will pass the call to Ethan.
Thanks, Tom.
As Nick said earlier, we've had some great results from our exploration program at pulmonary huh.
Hi, Mary how is their largest mine with a land package if it actually 27000 hectares of which only 7% has been drilled to date.
It's out of the deposits was defined in 2019 and has since grown continuously to now be the second largest retires after guadalupe.
Acetaldol, we recently intersected the highest gold grades ever at Palomar I Huh.
Discovered two new vein and drilling is continuing to extend mineralization along strike with 800 meters of additional strike length added over the last 15 months.
It tastes of drilling is expected to increase in the second half of the year and we are confident that further extensions to this deposit will reach out.
In addition to drilling and large scale mapping and sampling program has been underway in east Camarillo, an area that has seen very little exploration or drilling.
Two high priority mineralized trends covering a combined 20 kilometers of strike length and containing multiple targets has been outlined for gelling in 2024 and beyond.
Earlier in the quarter, we also issued a news release on silver Cat.
Our high grade poly metallic carbonate replacement deposits in northern British Columbia.
Since the project was acquired in 2017, the measured and indicated resource base has nearly tripled to over 7 million tonnes and grades continue to be amongst the highest in the world for similar type deposit.
During the course sharing detail later and the geology intersected in the deep zone testing the hub a mineralized <unk> source show geological evidence of proximity to a parfait and we plan to continue to test for scan and porphyry style mineralization over the next few years.
However, the main aims of drilling over the next 18 to 24 months it would be to continue growing the resource base to test additional carbonate units in this to take the state and to test silvertip lookalike targets in the district.
I will now pass the call back to Mitch.
Thanks Eva.
Slide 13 summarizes our top priorities for the remainder of the year, which starts with the safe and efficient commissioning and ramp up of the expansion project at Rochester to set up the operation for a solid 'twenty 'twenty four and beyond.
Although Rochester as a primary focus in the second half delivering stronger performance at Kensington and generating results from the development and drilling program. There is a close second.
Together with steady performance from Palmer Ao and wharf, we should end 2023, well positioned to begin delivering the benefits of these multiyear investments which include higher production, particularly for silver lower costs free cash flow and lower debt levels.
With a constructive macro backdrop for both gold and silver we believe our strategy is well timed and well suited to drive outperformance for our stockholders in coming years.
With that let's go ahead and open it up for questions.
Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the key.
To withdraw from the question queue you May Press Star then two.
At this time, we will pause momentarily to assemble a roster.
Today's first question comes from.
Please excuse me.
Today's first question comes from Michael Dudas with vertical research. Please go ahead.
Good morning, Mitch team.
Hey, Mike.
Hey.
First question on Kensington, maybe little more details on how the grades will flow through second half of the year and as we kind of looked early into 2024.
What your expectation levels are relative to say what the plan would have been.
Six to 12 months ago.
Yeah, Okay. Thanks, Mike for the question Mick do you want to.
Cover that yeah.
And really the challenge that we had the Michael It was internal work and so it wasn't really around the loss of grid, but more around timing of stopes in the sequencing there.
And really at this time in this part of the mine plan not having enough work fronts to pivot to while we go through this development program. So we expect to see similar grades going through the end of the year and we're seeing good things around that and we expect to get a few of those ounces back in 2023.
And the majority of those vast majority of those will that'd be planned into 2020 full as we go forward in 2024 plan.
Is similar full year wise roughly to what we came into 2023, yes, yes.
Yes, exactly nailed it little bit better because we now have a few additional emphasis to planning to that.
And to that package for 2024.
Okay.
Yeah, that's encourage us that help create that yeah, yeah, no absolutely encouraging will improve that mix for sure.
Lee you mentioned about your cost inflation.
Inflation or the mix of the needle positive or negative on the cost side as you're trying to add labor and bring folks on for the expansion at Rochester.
Where are you on that process. You said you have a goal of increasing it by 20% I think it was in that number in your presentation.
As you know relative to your expectation cost availability of.
Do you see any issues, that's going to limit maybe the productivity or.
The plans to rock and roll as you work it through manageable ramp up in 2024.
Yeah. Good question Mick you want to cover that too yeah. We're in great shape actually may go for the process plant. We have all the people that we needed that was that was less than it is an additional 40 people overall.
But what we do have to do is as we bring on the trucks for the mining side of the business then we hire new truck drivers that's O N.
E level job for Rochester in January we'll have good access to those folks and we bring them on as we need them. So why not overloaded on people currently will have exactly the right number to start a process plant and then add the trucks that we will have by the end of 2023, we have all the drive us for those trucks and in 2024 wheel higher Roes we need.
And we don't see any productivity impact with respect to access to people and certainly we've had some inflationary impacts from cost of contractors for the project and then people to ensure that we can get those good quality people to run this project from a long term and but we have them right now.
Okay.
Excellent. Thanks, Mitch Thanks Mick.
No. Thanks, Mike next.
The next question comes from Mike Parkin with National Bank. Please go ahead.
Hi, guys. Thanks for taking my questions Yeah.
You give a sense of how Kensington is performing or like the month of July how things are going in August or are you kind of get.
Thank you you just addressed a little bit with.
The earlier question, but just trying to get a sense of.
Where are you in terms of normal productivity.
Yeah, absolutely. Good question I'll start and then make you can fill in.
July was a.
Pretty significant step up from June a lot of that has to do with getting that water.
Under control up in the upper levels of the Kensington.
Area, where we mine an area called zone, 12, which is where we were delayed in mining because of the the heavy water.
So getting that a.
Dressed help.
Help with with July .
Equally I think August is is expected to be better than than July so incrementally we're heading in the right.
Direction as they sort of get back closer to being on plan, but make did I leave anything out that you want to mention there.
We're a couple of things in that area, because we will have a blend in the same area of development mining at the same time and not development program was growing really well, but as we saw more what I would really just step back a little bit in the first half and reset one methodology that will have a little bit of a change in methodology, which probes forward.
Actual most development contract as and when we see that higher level of water. Then we can proactively groot and control those floors, that's allowing us to perform a little bit better in July and we expect that improvement to continue going forward. Just one other thing I'd add on to that Mike can make.
Bolter long hole drill availability, improving yeah, new equipment on site. That's right. That's address that challenge exactly so that helps will move a little bit faster than past management and the part of the mine and we're employing a little bit of technology to support our process.
As well a really high up in the main.
Wet witness level of that piece that we have to have that little bit highest who can pump higher in the main and the team have really good management plan for that machine. Good results. So it gives you a lot of confidence.
It's always a work in progress of course, well maintenance work, there and it's going really well.
Okay. So it sounds like the water inflows and a function of.
Coming down the ramp access or ventilation, it's more just saturation.
The surface and then eventually seeping into the mine is that correct.
A little bit of both mostly though from the drilling program and then the frechette Socs the ground and then it comes into the areas that we're mining so that's where the majority of the inflow came from and we saw some pretty high and unusual flows this year and you've seen some of the news in the local environment around them.
Floating and that hasn't impacted our operation, but but it gives you an indication of how wet it was up there in the early part of the year and so we're managing that well now, but it certainly was a challenge in each one.
So is there anything that you could do to mitigate the risk of that being as severe going forward like maybe lessening the egress through some of the infrastructural.
Pathways going forward or is it.
I'll just leave it in the Opex.
100 year event again kind of thing.
Yeah, I mean look at EBIT since Eva came on we will get them, a higher and higher and.
<unk> ability around the structures and the systems that were maintenance through in <unk>.
In Kensington and that knowledge is helping us to to look for in truck.
We have potential additional water control or even.
He wants to.
Yeah. Thanks, Nick we've also employed that new technology on the actual drill rigs there called applegarth, they prevent inflow into that.
So we're deploying those that's pretty good success at the moment that though.
And then just particular areas substructure seemed to be more water than others and where she is.
And getting a much better understanding.
It makes sense as the number of until working on to mitigate that.
Okay, that's great.
And then with respect to the war.
Land area expansion is that going to.
See a conversion or if any resources to reserves because of that or is that something that you know some more drilling like how should we think about that mine life, extending and the involvement of that.
Yeah I'll start make then you can fill in.
It doesn't change the eight year mine life that we have but it's obviously something we needed.
In order to begin stripping and then and then the mining in 2024 and that in that Boston area. So getting that now gives us a chance to maybe get a little bit ahead on the stripping.
So that we can get in there there's some slightly better grade in Boston that will then come in to the plan in in 2024.
Nick anything you want to add yes.
We already had a lot of that.
Plan already because we made it a good assumption that we'd get the commissions to be able to make in that area because it's such a strong relationship and such a good track record around permitting and access to that land and the local environment. So we built it in but that doesn't mean that we'll find some.
This opportunity is as we get into the mining in that area, because we drill it enough to characterize it and then once we start mining it will optimize it and investigate what else we got there.
At the moment in the plan.
Should be executed.
Through next year.
Okay.
And then more switching over to towards the balance sheet can you give us a sense like you've announced this ATM. This morning.
We've seen quite a bit of activity recently with bank debt to equity conversion can.
Can you give us a sense of any balls so dunson.
Johnson, seemingly very well timed hedges for both gold and silver as well.
What's your thoughts going forward do you feel like the funds from the ATM.
Isn't that kind of get you over the hump in addition to.
Yeah.
The remaining room on the Rcs or is there additional levers that you see.
Thinking of appalling you know that.
Being maybe potential more debt to equity conversion.
Boosting prepay boosting hedges just looking for some general color there.
Yeah, Yeah, you kind of highlighted most of the levers that we that we have are tools that we have in the toolbox to make sure that we can manage our liquidity levels through this this last period of elevated.
Capital.
We feel like we've got the the flexibility that we need now to get over like you said the hump and.
And get to the other side of the Rochester expansion. So that we can start to see some free cash flow in and begin delevering the.
The balance sheet.
In 2024, but Tom do you want to add anything to yeah. Good question I think the key was the.
Well, we only have $80 million drawn on the revolver at June 30, so that leaves $280 million and we sort of look at what's left on Rochester with the revised guidance of 140 to 160. So again the plan would be to fund that.
Primarily through through the revolver, and then fastest Nick and the team can get get Rochester ramped up that's when we start repaying the debt, but in the meantime, we've always said, we're not going to come up short and so.
We've got all of these other leavers to make sure that we don't come up short and that you know about where we're at with that but great.
<unk> got great partners in our bankers had no no issue they understood the challenge at at Rochester, It and gave us that extra flexibility through the end of the first quarter 'twenty four.
And so we're feeling pretty comfortable.
I'd characterize it as kind of incremental at this point smaller.
Smaller dollar dollar amounts and obviously that comes with less time here to.
To go until we're we're done with the with the expansion out there in Nevada.
Does that answer your question Mike.
Yeah, just a follow up there we've seen some recent increase in the accounts payable sitting on $143 million at the end of June and some of that.
Associated with the completion of Rochester me to expect that to kind of come back down historically it looks like you're.
Oh, it does move around quite a bit, but maybe something closer to a 100 ish million in about a year's time is that fair to assume.
Yeah, you're spot on there Tom do you want to let.
That little further yeah look we're of course, managing the payables, while it's a big invoice from GIC that comes in every every month and as you might suspect we're looking through that and.
In combing through that pretty carefully.
Having said that there've been no issues.
On that front, but we're obviously not going to pay the bill any sooner than is required and as you as we're in the the last of this big spending those bills every month, they're pretty insignificant so, but yeah, we're almost or it will revert back to sort of more normal working capital levels.
By the end of the year.
And in fact, our typical kind of construction.
Arms to it in terms of durability on those payables.
Payables or is it 90 days 180.
Can't say because of the.
Privacy restrictions.
The contractor, but do you have.
And the ability to defer your full year or is that.
Nature of the churn.
Basically shorter.
Okay, I would say pretty standard commercial terms.
Great relationship there and.
Again, we want them to be paid to make sure that they are bringing in high Thunder plus folks here or come across the gate ever every day so.
Now that's all I'd say there.
Okay. That's.
That's fair.
Yeah, I think that's it for me thanks, very much guys.
Okay no. Thanks for the good questions Mike.
As a reminder to ask a question you May Press Star then one.
Seeing no further lines in the queue I would like to turn the conference back over to Mitch Krebs for any closing remarks.
Okay. Thanks, we appreciate everybody's time this morning.
Have a great rest of the summer and look forward to speaking again following the release of our third quarter results. This fall have a good day.
The conference has now concluded. Thank you for your participation you may now disconnect your line.
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