Q3 2024 Coeur Mining Inc Earnings Call

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Speaker Change: Good day and welcome to the Core Mining 3rd Quarter 2024 Financial Results Conference Call.

Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

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

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

Mitch Krebs: Good morning, everyone, and thanks for joining our call today to discuss our third quarter results.

Mitch Krebs: I'll start off with a few comments, starting on slide 3, before turning the call over to Mick and Tom.

Mitch Krebs: We obviously had a very strong quarter, which represented the free cash flow inflection point that we've been anticipating.

Mitch Krebs: Our strong results were driven by production increases at our four operations, higher gold and silver prices, and double-digit declines in our cost per ounce.

Mitch Krebs: This golden locks environment led to double-digit quarter-over-quarter and year-over-year increases and multi-year highs in quarterly revenue, adjusted EBITDA, net income, and free cash flow.

Mitch Krebs: We applied most of the free cash flow to paying down $50 million of our revolving credit facility.

Together with LTM adjusted EBITDA now approaching 300 million dollars, we're now seeing our leverage ratios quickly drop as we de-lever the balance sheet.

Mitch Krebs: Tom will go into a bit more detail on our balance sheet plans and priorities in a few minutes.

Thank you.

Speaker Change: Adding to our momentum and to these multiple converging catalysts was our announcement last month of our agreement to acquire Silvercrest Metals to create a global leader in the silver industry.

Mitch Krebs: with over 700 million dollars of EBITDA and free cash flow of approximately 350 million dollars.

Mitch Krebs: Since the announcement on October 3rd, we've received positive feedback from both Core and Silvercrest shareholders about the combination and for creating a silver industry leader at a time of extremely strong fundamentals for this essential metal.

Mitch Krebs: We expect formal shareholder votes to take place around year-end and for the transaction to close late in the first quarter.

Mitch Krebs: Looking ahead quickly and highlighting our top priorities, a key focus remains on continuing the progress at Rochester to set ourselves up for what should be a very strong 2025.

Mitch Krebs: Rochester achieved its key operational metrics during the third quarter and remains on track to achieve its full year guidance ranges.

Mick will provide some additional details on Rochester.

Speaker Change: Overall, we've reconfirmed our company-wide full year guidance ranges, which implies another strong quarter to end the year and an opportunity to further reduce our debt levels by year end.

Mick, over to you.

Thanks, Mitch.

Mick: Operating strength across our portfolio, continued easing costs, and accelerated contributions from the Rochester expansion led to CUR's strongest quarterly results in over a decade.

Beginning with Rochester.

Mitch Krebs: The positive trend lanes we outlined last quarter showed continued momentum in the third quarter.

Mitch Krebs: production of both silver and gold increased by roughly 20% compared to the prior quarter

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Speaker Change: The team has been achieving targeted tones placed since July, and they continue to focus on dialing in pressure controls, process fine-tuning, and industrial hygiene management.

Mitch Krebs: We are systematically taking advantage of runtime data and down periods to optimize and refine the operation to prepare the lane for its long multi decade run going forward.

Mitch Krebs: Slide 22 details the excellent progress being made on reducing per tonne costs at Rochester.

Mitch Krebs: With double-digit percentage decreases in mining, processing, and JMA, highlighted how the scale of the expanded operation is driving down Rochester's cost profile as expected.

Mitch Krebs: A number of you on this call saw first hand in September the scale and power of the circuit in operation.

Mitch Krebs: What we are beginning to see manifest through the circuit is the finesse to complement that raw power.

Mitch Krebs: Particle crush size optimization remains the primary focus during the second half of the year and on that front, the percentage of crushed material reaching the five-eighths target approached 75% during the latter part of the quarter, well within expectations for this point of the year.

Mitch Krebs: Our three other operations are also on track for a good finish to the year.

Mitch Krebs: Palmarijo generated a strong quarter of free cash flow with gold and silver production increasing 8% and 14% respectively compared to the second quarter.

Mitch Krebs: The team made good strides on a couple of key projects to position the main for future success.

Mitch Krebs: with the first being the breakthrough and connection of the new Hidalgo portal near the end of the third quarter.

Mitch Krebs: Following completion of associated development ramps, the Hidalgo access portal is expected to unlock new zones within the independencia deposit and enhance overall mining flexibility and efficiency.

Mitch Krebs: We've also made good early progress on getting after the newly acquired claims from Fred Newell that closed early in the third quarter.

Mitch Krebs: The concessions adjacent to current mining areas, collectively known as an independency of sewer block, presented the most immediate near-term development opportunity.

Mitch Krebs: The pace of mapping, drilling, and development planning work continues to accelerate and it's important to note that these prospective areas sit completely outside the Franklin Nevada Gold Stream boundary.

Moving to Kensington.

Mitch Krebs: The mine's multi-year underground development and drilling investment continues to progress and remains on track to wrap up by the middle of next year, which is expected to leave Kendington well-positioned to deliver sustained free cash flow with greater operational flexibility.

Mitch Krebs: Exploration Drilling also continues to demonstrate success towards our goal of building up to a five-year main length by year end.

Finishing up with Wolfe.

Mitch Krebs: Positive reconciliation and timing of all placement led to an extremely strong quota.

Mitch Krebs: Gold production of nearly 34,000 ounces set an all-time record high in the Maine's 42-year history, generating quarterly free cash flow of $49 million and bringing the year-to-date free cash flow total to $75 million.

Mitch Krebs: We expect a more typical fourth quarter for Wharf, which is still a very, very good outcome.

Mitch Krebs: The two new exploration targets at Wharf we introduced last quarter continue to demonstrate strong potential to materially increase mine life and an operation that continues to exceed expectations.

Mitch Krebs: Drilling at the North Forey in Juneau targets continued during the quarter from two surface drill rigs, with recent assays showing good continuity in areas west of the historic Juneau pit.

Mitch Krebs: Overall, WRF continues to deliver and show the potential to keep delivering for years to come.

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

Thanks, Nick.

Tom: As discussed on prior calls, the long-awaited free cash flow inflection point for CORE arrived this quarter. Higher revenues, lower unit costs, and lower CAPEX were all expected and delivered.

Mitch Krebs: During the third quarter, we saw 15% higher metal prices and a 12% decrease in operating costs per ounce.

Mitch Krebs: to $1,113 per ounce of gold and $15.67 per ounce of silver.

Mitch Krebs: These two factors were a powerful one-two punch that led to $69 million of free cash flow and $126 million of adjusted EBITDA in the third quarter alone, showing the power of the portfolio.

Mitch Krebs: With Rochester still in the optimizing phase and the addition of Last Cheap Set as free cash flow, we expect even stronger results in 2025.

Mitch Krebs: Of course, freecast low inflection point is projected to be sustained during the fourth quarter based on continued higher metals prices and production growth at the higher cost Rochester and Kensington mines.

Mitch Krebs: As we have stated consistently, we will be allocating free cash flow to reducing our debt levels, beginning with our revolving credit facility, which sat at $225 million drawn at quarter end, a $50 million reduction from the prior period.

Mitch Krebs: As shown on slide 11, our net debt to EBITDA ratio has plunged below two times for the first time in three years.

Mitch Krebs: This, of course, does not include the very healthy Silvercrest balance sheet, which has approximately $160 million of cash in bullion as of September 30, 2024.

Mitch Krebs: By mid-2025, we expect to have the revolver fully repaid and could likely be in a position to begin a period of building up cash on the balance sheet.

Whether it's to reinvest in high-return brownfield exploration,

support the future development of Silvertip.

repay the $290 million of 5-1-8 notes.

Mitch Krebs: or a return of capital to shareholders in some form or a combination of all of the above, we will continue to abide by our long-stated capital allocation framework and continue to focus on generating returns greater than our cost of capital.

Mitch Krebs: Returning briefly to the recently announced definitive agreement to acquire Silvercrest, the short-term focus has been on finalizing required regulatory filings. We're actively planning for a smooth integration so we can hit the ground running upon closing, likely in late Q1 2025.

Mitch Krebs: I'll now pass the call back to Mitch. Thanks, Tom. Before moving to the Q&A, I want to quickly highlight slide 12 that summarizes our top priorities for the remainder of the year.

Mitch Krebs: with the continued optimization of Rochester, pursuing the closing of the Silvercrest acquisition, and planning for the integration of Las Chispas at the top of the list.

Mitch Krebs: We look forward to delivering a strong and safe fourth quarter highlighted by even higher production, another quarter of positive free cash flow, and further debt reduction, which should leave us well-positioned for a very strong 2025.

Speaker Change: With that, let's go ahead and open it up for questions.

Speaker Change: 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.

Mitch Krebs: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble on a roster.

Speaker Change: The first question comes from Joseph Rieger with Ross Capital Partners. Please go ahead.

Hey Mitch and team, thanks for taking the questions.

Yeah, hey Joe, good morning.

Good morning.

Speaker Change: First thing on Rochester, and I apologize if you guys touched on this, I joined a couple minutes late.

Speaker Change: Is this leach cycle that you guys have modeled internally matching what you're seeing as far as production in the third quarter, given that we don't have the exact timing of how the ore was stacked?

Speaker Change: Yeah, thanks for the question. I'll start and then, Nick, you can...

Speaker Change: You can add to it. In short, it is, Joe, you know, as we get that crush size down to the target by the end of the year of 5.8s.

Speaker Change: You know obviously the recoveries will improve as we as we do that But in this period of time where we've gone from kind of focusing on stabilizing things out there

Speaker Change: and running at a bit of a higher size fraction. You know, the recoveries are obviously lower to start and then they'll improve as we get that crush size down and they have been tracking according to what we would, what we've modeled based on those crush sizes.

Speaker Change: So, things are tracking as we'd expected. Nick, anything you want to...

Speaker Change: We had a great period of a couple of years with the ex-PIP to really try and model and upgrade recovery curves.

Speaker Change: and that gave us insight into the larger size fractions all the way down to the fine material and so far we're seeing that those recoveries are tracking on that recovery curve. As we said earlier in the year we focused on getting the tonnage up and hitting the tonnes run rate by the middle of the year and that was at a larger size fraction so you know we're regularly hitting 100,000 tonnes per day which is making me really happy but now we're focused on dialing that in as Mitch said to the five-eighths.

Speaker Change: The size fraction. And we're not quite there yet, but we're heading in the right direction. We're seeing some really good results there, but we're going to see that those, those recoveries are going to improve our time and we'll be in some momentum as we come towards the end of the year through in 2025, but overall and as planned.

Speaker Change: Okay. Fair. And then, on the Silvercrest acquisition, what are the remaining hurdles you guys have as you see it to getting this closed?

Yeah, really, three, I guess.

I don't know if they're hurdles, just steps.

Speaker Change: The three biggest hoops that we'll need to jump through between here and closing.

Speaker Change: Okay. And then one final thing on the balance sheet. You guys finished the quarter with about $77 million in cash. Is that a good number for us to assume as we're trying to forecast debt repayment that you guys will keep about that level? Do you want to grow it a little bit back towards more traditional levels around $100 million? How should we think about that?

Speaker Change: Well, my thought is, and Tom, you can go after me, but...

Speaker Change: In the first half of next year at least as we're prioritizing repayment of that revolver

that cash balance will probably stay in that zip code.

Speaker Change: But then once that revolver's fully repaid, and I think, Tom, you mentioned mid-year.

Speaker Change: By mid-year and then we should start to see some cash

Speaker Change: start to build, which we're okay with for a little while as we get through the end of next year, have Las Chispas integrated, and then we can kind of go from there.

Tom, anything to add? No? Perfect.

Okay, thanks. I'll turn it over.

Okay. Thanks a lot, Joe.

Speaker Change: Again, if you have a question, please press star then 1.

At this time, we have no further questions.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mitch Krebs for any closing remarks.

Mitch Krebs: Okay, thanks. Well, hey, we appreciate everyone's time today. I know it's super busy.

Speaker Change: reporting period today. And we look forward to discussing our fourth quarter and full year 2024 results with you in February, and we'll be able to give you a good update on the progress on the Silvercrest transaction at that point as well. So until then, have a happy and safe holiday season.