Coeur Mining Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 6 speakers on the call.

Operator

Welcome to the Coeur Mining Third Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's 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 Mitch Kreps, President and CEO, please go ahead.

Speaker 1

Good day, everyone, And thanks for joining our Q3 2023 earnings call. Before getting underway, 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 off with a quick overview on Slide 3 before turning the call over to Mick, Aoife and Tom. While silver is set to take a larger role with the Rochester expansion project now behind us, it was the gold side of the business that drove Stronger Third Quarter Results. Gold production increased 15% and costs per gold ounce declined 13%, which drove a material increase in our adjusted EBITDA.

Speaker 1

These results were primarily due to a bounce back quarter at Kensington as well as a strong gold quarter at Palmarejo. In total, quarterly revenue increased 10% to $195,000,000 On total production of approximately 78,000 ounces of gold and 2,300,000 ounces of silver. Obviously, the key headline is the completion of the expansion at Rochester. The 1st ounces were produced from the new leach pad and process plant during the quarter, And the focus is now on handing off the new 3 stage crushing circuit to the operating team to ramp it up as safely and quickly as possible, which Mick will talk more about in a couple of minutes. In the meantime, Rochester is delivering a significant step up in production levels.

Speaker 1

They recovered over 500,000 ounces of silver and 8,000 ounces of gold in October alone, roughly 2 to 3 times higher than in prior months so far this year. Some of you were able to witness firsthand the size and scale of this operation in September, But some recent photos starting on Slide 10 of today's presentation also do a good job of showing the newly expanded infrastructure. With crusher commissioning now underway, work has already started to remove the legacy crusher, which allows us to access higher grade ore located beneath it that we plan to mine beginning early next year. Once at the 32,000,000 ton per year processing rate, Rochester is expected to be North America's largest open pit heap leach operation. And here in the U.

Speaker 1

S, it's expected to become the country's largest source of domestically produced and refined silver at a time when silver demand for electronic applications and renewable power sources is rapidly climbing. Finally, and most importantly, it is poised to be a truly transformational operation for Core with lower cost silver and gold ounces at 2.5x higher production levels with several near mine opportunities to expand and enhance the life of mine through exploration, which Aoife will touch on shortly. With Rochester's free cash flow as a key driver, a top priority in 2024 Tom will provide a balance sheet update in a few minutes. One other comment on exploration. Drilling at Kensington accelerated during the quarter with the latest results continuing to demonstrate the near mine potential to add to its mine life.

Speaker 1

IFO will provide some additional details shortly. With that, I'll turn the call over to Mick.

Speaker 2

Thanks and good day everyone. As Mitch mentioned, the team delivered solid quarterly results capped off by improvements at Kensington and the good news regarding the end of construction at the Rochester Beginning with Rochester, the Q3 was characterized by the full scale effort to integrate the newly expanded infrastructure Our Nevada operation located in what is widely recognized as the world's number one mining jurisdiction. Our progress on those fronts has been truly impressive, with first production from the new leach pad and process plant taking place in September. The great October silver and gold results that Mitch mentioned earlier position us for a very strong Q4 And we remain on track to achieve 2023 production guidance. Commissioning of the new crusher is underway With full ramp up set to take place during the first half of twenty twenty four.

Speaker 2

Looking at Slide 9, the majority of the extensive Systems testing has now been completed, which is verifying that mining capacity can support the planned ramp up to the full 155,000 tonnes per day needed by the end of 2024. Rochester's strong reputation in Northern Nevada Helping to ensure that we have the best possible workforce and players to deliver on our goals. The expansion to increase throughput 2.5 times required a modest 20% increase in headcount, which highlights the economies of scale we expect to enjoy going forward. We are fully staffed and trained for the job ahead. Aside from the inherent positive attributes of Rochester, the true differentiator for Core is the expansion offers us all the growth benefits Our people, our facilities and infrastructure and the deep well of technical expertise that we are drawing from is a key competitive advantage.

Speaker 2

Looking back at the build, Core's culture of safety and accountability served as a rock solid foundation for a truly excellent safety result. At this construction project, over 2,500,000 hours with just a single lost time incident. Turning to Slide 4 and looking at Palmarejo. Tons milled increased with a strong contribution from Guadalupe, leading to higher recoveries, Especially on the gold side, where production increased by 16% to nearly 27,000 ounces. Palmarejo also took a big step forward in the quarter through the completion of the high compression tailings and the open pit backfill project on budget and ahead of schedule.

Speaker 2

Its completion secures tailings and waste truck storage capacity for the remainder of Palmarejo's main life. More importantly, we estimate that it will reduce overall water utilization needed for the tailings process by 16% While backfilling the legacy open pit there and providing a head start on our future reclamation efforts. Moving on to Kensington, which delivered a significantly improved quarter as excess water flows have abated and pace placement continues to exceed targets. The 4th quarter is expected to be similarly improved, but the pace issues from earlier this year impacted full year results, leading us to refine Kensington's production guidance to between 8,100,85,000 ounces. Finishing up with Wharf, 3rd quarter production was as expected and the operation is well positioned for a good finish to the year.

Speaker 2

As a result, the low end of Wharf's gold production guidance has been revised upwards by 3,000 ounces to 88,000 ounces, With the high end remaining at 95,000 ounces. With that, I will pass the call over to Aoife for a review of exploration.

Speaker 3

Thanks, Nick, and hello, everyone. As Mitch mentioned, we made some great progress in exploration during the quarter. On September 12, we released a press release that indicated the ongoing success of exploration programs at Kensington. Drilling in 2023 has demonstrated the continuation of all key mineralized structures to the south and down dip. At Lower Kensington, we intersected some of the best grade thicknesses ever encountered.

Speaker 3

The strike length has been increased by 760 feet, And we have intersected subparallel structures and linking structures with the potential to host some higher grade shoots. Drilling in Upper Kensington has discovered a new zone, Zone 30B that has already been defined over 9.50 foot strike length and 850 feet down depth. These most recent positive developments from Kensington's multiyear exploration program Followed the successful addition of 1.5 years of mine life, net of depletion at year end 2022, The first such mine life addition at Kensington since 2018. Over at Rochester and referring to Slides 11 and 12, Ongoing geology modeling work there is continuing to enhance our understanding of the controls to mineralization at this deposit. A set of high angle structures have been outlined that seem to control higher gold grades.

Speaker 3

These structures form part of a 4 mile long Up to 2 mile wide corridor that extends from north of the Rochester pit south to and including Nevada Packard pit. The opportunity for higher grades on these structures will be tested in more detail in 2024 and beyond. I'll now turn the call over to Tom.

Speaker 4

Thanks, Aoife. I will begin with a brief review of our Q3 financial results before providing a balance sheet update. Turning to the financial highlights on Slide 15. 3rd quarter revenue and adjusted EBITDA saw healthy increases compared to the prior quarter, driven primarily by increased gold sales at Palmarejo and Kensington, which also led to lower consolidated CAS per ounce. Operating cash flow swung to a negative $2,000,000 as we continue to build up significant inventory on the new leach pad at Rochester, As well as the timing of the semiannual interest payment on our 5.1eight percent senior notes.

Speaker 4

As noted by Mitch And emphasized by Mick, we are expecting strong 4th quarter production, which we expect to drive a significant increase in operating cash flow across all sites. Turning to costs on Slide 16. We continue to experience inflationary pressures, but we are aggressively managing Costs and implementing business improvement initiatives to mitigate this key risk. Despite the continued inflationary pressures, Increased throughput at Palmarejo in Kensington helped drive down consolidated gold CAS by almost $200 per ounce quarter over quarter. Turning to the balance sheet, we ended the quarter with total liquidity of $280,000,000 comprised primarily of cash and cash equivalents of $53,000,000 Total available borrowing capacity under the revolving credit facility of $220,000,000 We finished the quarter with a slightly lower net debt to EBITDA ratio versus the end of the second quarter.

Speaker 4

It is important to note that we expect higher quarter over quarter EBITDA On the back of strong Q4 production across all sites, including a monster 4th quarter at Rochester. The expected flush of ounces at Rochester that we've been on previous conference calls and consistent with our annual guidance is taking place during this quarter as we wrap up the Merrell Crowe flow rates and monetize many of the ounces placed throughout 2023 on the new leach pad. To give context to Rochester's Q4 production, we recovered 537,000 ounces of silver and over 8,000 ounces of gold during the month of October, which is more combined metal than we produced during the entire Q3. The company's hedging program remains a key price risk mitigation tool during this period of capital intensity and ramp Rochester, we have almost 70% of our hedgeable 4th quarter gold production locked in at $19.77 per ounce And nearly 50% of our 4th quarter silver production hedged at $25.47 per ounce. As of September 30, the hedge book sits with an unrealized gain of approximately $12,000,000 on the remaining 2023 hedges.

Speaker 4

Combined with the realized gains year to date, we expect just under $20,000,000 of total gains from our 2023 hedging activities. I wanted to highlight 2 final key data points related to the Rochester expansion.

Speaker 1

We have incurred

Speaker 4

$704,000,000 and have paid $648,000,000 of the POA eleven capital cost as at September 30, 2023, leaving $60,000,000 to $80,000,000 to be paid during the final quarter of the year. Importantly, we remain within the guided capital cost range of between 7.10 and $730,000,000 I'll now pass the call back to Mitch.

Speaker 1

Thanks, Tom. Slide 18 summarizes our top priorities for the remainder of the year. Safely and efficiently ramping up Rochester during the Q4 Remains job 1. With another stronger quarter at Kensington and consistent performance from Palmarejo and Wharf, We are well positioned to deliver a strong 4th quarter and achieve our full year guidance. Over the past 3 to 5 years, We have been deliberately reinvesting in the business for the long term.

Speaker 1

As we now begin to deliver the benefits from this more than $1,000,000,000 Investments in exploration and expansions, we look forward to seeing our investors benefit from our sector leading growth, especially on the silver side, longer mine lives, declining costs, transition to positive free cash flow and a more conservative balance sheet. With that, let's go ahead and open it up for questions.

Operator

We will now begin the question and answer The first question today comes from Mike Parkin with National Bank. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking my questions and nice to see Rochester banging out some pretty good numbers there in October.

Speaker 1

Yes. Hey, thanks Mike.

Speaker 5

Just a couple of accounting questions. So the CapEx that you report on your cash flow statement, is that Reconciling more with what's incurred or paid on Rochester?

Speaker 4

Mike, it's yes, definitely incurred. So that will be that hits yes. And So incurred and then the cash out the door is cash out the door and the rest sits in payable. So that's why I see the elevated accounts payable number.

Speaker 5

Right. Okay. So the accounts payable will be what's coming down in the Q4?

Speaker 4

You got it.

Speaker 5

Perfect. Okay. And then just in terms of each kinetics, I know it's kind of early days to speak to it, but Do you have any concern with the thermal load on the pad being sufficient for the winter months? So, like should we expect a little bit of a slowdown in recoveries maybe in Q1 and then a pickup As the pad warms up in the second quarter at Rochester? Mick, you want to?

Speaker 5

Hey, mate.

Speaker 2

Yes. So of course, there's some weather and winter dynamics there. But in reality, what we're seeing right now is The recoveries from all of the material that we crushed in the existing X pit, so we haven't yet ramped up the new Limerick crusher, Which is expected to deliver a different size fraction for us and actually improve the recovery. So for now, We should experience the similar recoveries that we've been getting over this last year for this material that we got on PADD 4 Here on PADD 6, as we flush out that inventory that we've been placing over the last year and then we start ramping up the crusher, we'll see that Change a little bit. The current recoveries though are landing right on the curve based on the testing that we did, all that learning from the last 2 years is really valuable.

Speaker 2

And we've been calibrating that recovery curve in preparation for this new crusher getting ramped up in the first half of twenty twenty four.

Speaker 5

True. And I guess as you're ramping up tons stacked even if there's a bit of a slowing in Winter months recovery, you're still putting way more ounces on month after month, so production is still probably going to rise month after month?

Speaker 2

So yes, we'll see the flush from the inventory from earlier in the year, of course. And so that is likely to dip just a little bit initially and then you'll See that general ramp up as we get the crusher online. We've already got about 9,300,000 tons placed on PADD 6. And so we'll be getting the answers from that, where we'll get that crusher ramped up and start again Placing new material on there at the back end of this year.

Speaker 5

Okay. And is that 90,300,000 tonnes, is that as of end of October?

Speaker 2

9.3 Yes. That's 9.3 to date.

Speaker 5

Okay. Okay. Thanks very much guys. That's it for me.

Speaker 1

Thanks, Mike.

Operator

The next question comes from Tom Luther with ACL Company. Please go ahead.

Speaker 5

When do you see your stock going up?

Speaker 1

Yes. Good morning, Nat. Yes, I'll take that. Like I said in my comments And in the release, we look forward here to seeing a few catalysts converge here As we go into 2024 with the transition into positive free cash flow, reducing the leverage levels on the balance sheet, Seeing some pretty significant growth on the silver side of the business from a U. S.

Speaker 1

Operations, so we'll see more Silver contribution in our revenue and more U. S. Contribution to our revenue, which combined with lower debt and transition to free cash flow, we think that

Speaker 5

Hello.

Operator

This concludes our question and answer session. I would like to turn the conference Back over to Mitch Krebs, President and CEO, for closing remarks.

Speaker 1

Okay. Well, thanks everybody for taking the time to talk with us today. Hard to believe, but to be saying this, but we wish everybody a safe and healthy holiday season. And we look forward to

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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