Coeur Mining Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 11, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Core Mining First Quarter 2023 Financial Results Conference Call. All Please also note that today, this event is being recorded. I would now like to turn the conference over to the President and Chief Executive Officer, Mitch Krebs, please go ahead, sir.

Speaker 1

Good day, everyone. Before I begin, please note our cautionary language will be placed 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 3 before turning the call over to Mick and Tom. Our results were slightly ahead of expectations, driven by strong starts to the year at our Palmarejo, Rochester and Wharf operations, which offset a weaker quarter from our Kensington Mine. As we've said, the Q1 is typically our softest quarter of the year due to weather and one time payments.

Speaker 1

Overall, we remain on track to deliver on our full year guidance, which reflects a much stronger second half. That stronger expected second half is mostly driven by the post expansion ramp up of our Rochester mine out in Nevada, which remains on track for a mid year construction completion. 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. Seeing the goal 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. The Rochester expansion has represented significant investment for the company and will result in one of the world's largest open pit heap leach operations.

Speaker 1

The team has done an amazing job, especially considering everything they've managed through. The project kicked off in May of 2020, participants were in the range of $1,000,000,000,000,000,000,000,000, which was driven by the impact of the company's financial results. Of the extreme winters in recent years in Northern Nevada. Despite all of that, the team achieved mechanical completion of the Merrill Crow processing facility will be ahead of schedule during the Q1 and even more impressively, the project is now approaching 2,000,000 hours without a lost time incident. Turning to exploration for a few minutes.

Speaker 1

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. 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. At Silvertip, the team completed the longest ever drill hole at the site during the Q1, measures are in the range of approximately 1 kilometer. Results, particularly in the final 2 50 meters or so, have shown an increase in the occurrence of intrusive porphyry suggesting the proximity of a heat source. 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 1

We believe the ultimate scale and nature of the Silvertip deposit is very exciting and represents significant potential value. However, our near term priorities are to successfully commission and ramp up Rochester, generate free cash flow and delever the balance sheet. We believe this is the right sequencing of priorities and will give the Silvertip team time to further grow and better understand this world class ore body. The ongoing exploration success at Kensington and Silvertip underscores the effectiveness of our multiyear drilling programs in which we've invested approximately $245,000,000 over the past 5 years to extend mine lives and build the pipeline for future growth. That investment added roughly 2,000,000 gold equivalent ounces of reserves and just over 4,000,000 gold equivalent ounces of resources.

Speaker 1

Those ounce additions delivered during a time much of the industry was underinvesting in exploration represent increases of 34% in reserves Before passing the call to Mick, I want to briefly touch on the recently enacted changes to the Mexican Mining Law. We're still assessing the full impact. It's obviously drawn strong opposition and is likely to face legal challenges. It appears the changes relate to new concessions as opposed to existing concessions like those at Palmarejo. We will obviously continue to engage in discussions with the government as the regulations supporting these changes are developed in the coming months.

Speaker 1

Participants will be available on the call.

Speaker 2

Finally, I

Speaker 1

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.

Speaker 3

Participants are ready to discuss the financial results. I want to quickly add to Mitch's comments on ASG. 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 our dedication. Kohl's 3 year trailing average and total reportable injury frequency rate decreased by 18% in 2022 to a record low.

Speaker 3

We achieved an 8.5% reduction in GHG emissions intensity compared to the baseline, on track to meet our stated goal of a 35% GHG emissions net intensity reduction by the end of next year. These milestones and many others we achieved this year reflect not only our commitment to core ESG principles, participants will highlight the overall improvement in every facet of our business. Turning over to our quarterly results. We're pleased with the start to the year and expect the company's 2023 production to be significantly weighted towards the second half, consistent with our production guidance we provided earlier this year. We guided towards a seasonally weaker first half in 2023 for the reasons Mitch mentioned earlier.

Speaker 3

Getting into more detail of the quarter on Slide 6 and starting with Palmarejo. Production was ahead of expectations for the quarter, Thanks to higher silver grades and a very strong contribution from La Nacion. Easing diesel prices, coupled with mill feed optimization efforts that led to reduced consumable consumption drove lower operating costs for the quarter. Affirming 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.

Speaker 3

Palmarejo continues to focus on mining and plant efficiency programs aimed at further reducing costs and increasing recoveries while maximizing mining rates. Moving on to Rochester. Better than anticipated production was driven by continued positive residual effects of the solution breakthrough experienced in the last quarter as well as continued benefit of site slope irrigation on PADD IV. As Mitch mentioned, the story of Rochester's Q1 was weather. Rain, snow and massive temperature swings throughout the Western U.

Speaker 3

S. Forward the team from start to finish. Looking ahead, we anticipate continued strength in metals recoveries to offset lower weather related ore placement in the Q1, helping to keep Rochester on track for 2023 guidance. Before starting the pre leaching process towards the end of the second quarter, setting the Maine up for a strong Q3 as previously discussed. With mechanical completion of the new Merrell Crowe facility, our focus is now on ramping up the system, culminating in first solution through the Merrell Crowe expected around the end of the current quarter.

Speaker 3

Advancing the new crusher circuit remains the critical path item. Steel erection and equipment setting for the prescreen is now well underway and good progress continues to be made on conveyor erection as well as piping and electrical installation 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 guidance range around $670,000,000 All parts and 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, boulders and in the Pierce plant created main sequencing issues, leading to lower gold production in the quarter. The team is working successfully to catch up on paste placement, which is improving heading availability.

Speaker 3

We anticipate bridging most of the shortfall over the next two quarters. Lastly, at Wharf, results were are slightly ahead of plan with 1st quarter benefiting from higher grade material placed earlier in the year. The site team is doing a great job on controlling costs. Along with the decline in diesel prices, per ounce costs were lower than anticipated. With 3 mains performing well in Kensington working hard to catch up over the next couple of quarters, we remain comfortable with 2023 production guidance of between 320,000

Speaker 4

Thanks, Mick. I will quickly run through our Q1 financial results and then provide a snapshot of our financial picture during the home stretch of the Rochester As outlined on Slide 4, despite lower gold production compared to a year ago, revenue was essentially flat versus the Q1 of 2022 as we benefited from stronger metals prices. Turning to costs on Slide 5, We saw signs of easing costs among 3 of our 4 largest cost buckets, which gives us optimism that inflation may finally be moderating. Participants are in the range

Speaker 1

of $1,000,000 Finally, it is important

Speaker 4

to note that the Q1 financial results contain 2 one time annual payments totaling $23,000,000 related to the payment of the annual EBITDA mining tax in Mexico and the company wide 2022 annual incentive payouts, 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 $1,000,000 per day being spent during the first half of twenty twenty three at Rochester. As of March 31, approximately $634,000,000 or roughly 95% of the total expected project costs had been committed, with about $560,000,000 incurred. All of our proactive balance sheet management initiatives over the last couple of years have prepared the company for this moment.

Speaker 4

As shown on Slide 12, we have total liquidity of $382,000,000 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. I'll now pass the call back to Mitch.

Speaker 1

Thanks, Tom. Before moving to the Q and 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 3 years. Our clear and critical priority during the remainder of the year efforts to safely and efficiently finish up what remains to be done at Rochester and successfully ramp it up during the second half of the year. In addition to Rochester, we also need to deliver results across the rest of the portfolio, while investing in high value exploration priorities, of our businesses are in the range of $1,000,000 especially at Kensington to set us up for higher returns as these new ounces are monetized in future periods.

Speaker 1

At Silvertip, we will continue enhancing our understanding of this prospective deposit and seek to further expand its size before revisiting how best to generate And 2 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 Core's long history as an American Mining Company participants are in the line with us today and very much look forward to what lies ahead. Another celebration taking place here at the company this year is Wharf's 40th year in operation. There is one employee, Mark Schmaling, who has worked at Wharf this entire 4 decades, so he is celebrating his 40th work anniversary this year.

Speaker 1

Mark was Wharf's employee number 1 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 Worf's mine life currently stands at 8 years, 3 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.

Operator

We will now begin the question and answer session. And our first question here will come from Marc Reichman with Noble Capital Markets. Please go ahead with your question.

Speaker 5

Good morning and thank you for taking my question.

Speaker 1

Yes. Hi, Mark.

Speaker 5

So the first question is, The company did not provide any costs applicable to sales for 2023, at least for Rochester. And I was just wondering now that you have kind of the 1st 3 months at Rochester looking at those numbers, post on an adjusted costs applicable to sales, gold and silver, what are your thoughts kind of for the remainder of the year in terms of the costs applicable to sales at Rochester based on the Q1 results.

Speaker 1

Yes. 1st quarter, we're in line 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 out 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.

Speaker 4

Sure. So Mark, expect guidance to be issued alongside the Q2 results. But the couple of key issues that we've got is just

Speaker 2

Where all

Speaker 4

the gold is coming and silver is coming from over the next three quarters. So for example, A lot of our gold is coming off of Stage 4 residual, so I. E. Ounces and tons that were placed last year. Now this quarter, We have a mix, roughly half the tonnes went on the old Stage 4 leach pad and another half went on the current Stage 6 leach pad, which where Mick is busy ramping up and pre commissioning and commissioning here over the Q2.

Speaker 4

And so on a go forward basis, all of the tons that will be placed will go on to 6. But again, recall those ounces or tons are going to be coming from the Stage 4 at ex pitcrusher. And then of course around mid year when we get the whole package done, we'll start the tons coming from the new crusher. So again, expect some guidance, full guidance to accompany the 2nd quarter.

Speaker 5

Okay. Well, that's helpful. And then just a follow-up to that. In terms of Rochester, and I know you know kind of where these 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 3rd 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.

Speaker 1

Yes, good question. As Tom said, The Q1 benefited from some of that carryover off of the old Stage 4. That will On the back of beginning to leach that fresh ore off of 6, the newly stacked material on 6, Which should actually create a higher the Q3 being the highest quarter of the year production wise Out of Rochester because of that sort of initial surge in ounces. And then meanwhile, we'll be sort of as quickly and methodically as possible, ramping up the crushing rates out of the crusher during the back half of the year to try and end the year It's close to that run rate of 30,000,000 ton plus a year crushing and stacking rate. So Mick, anything I didn't cover there that might help answer Mark's question?

Speaker 3

Yes. I mean, it's really it was about getting the heap leach in the Merrill Crowe constructed and ready go pre commissioned and then we expect to be commissioning that towards the end of this quarter. So that's the main driver behind that 3rd quarter flush. And then in parallel, we continue with the Crush Act corridor and we get that ready to start providing those tons. We'll have about 2,000,000 tons on when we start pre leaching and one early there today as we described in the materials And we expect to have about 3,000,000 tons by the time we start up the Merrill Crowe as per the plan.

Speaker 3

So everything's going as per plan right now.

Operator

Our next question will come from Michael Cyprysko with RBC Capital Markets.

Speaker 2

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 Q3 should be the strongest, but if on a go forward basis, All of the ore is 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?

Speaker 1

That's okay. Mick, you want to?

Speaker 3

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 size fraction in there to make sure that French drain works really well, but we're effectively loading several 1,000,000 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, that will drop back as we then finish off the construction of the crusher, the main crusher, the Limerick 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.

Speaker 3

And As we do that, then we'll load more and more tons onto that heap leach pad and that will gradually build, Michael, for sure, but we should see the lift in Q3, it will dip back down a little bit and then we'll see that gradual ramp up through the end of the year into 2024.

Speaker 2

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?

Speaker 3

So typically, you get the best Benefit from your material on pad in the 1st 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 pleased to get all before we start. So you get that all at once and then beyond that, the normal cycle.

Speaker 2

Okay. Okay. Clear enough. Thank you for that. If I could switch gears for a second and ask About liquidity, very clear in the presentation by my math and I think obviously yours, You have ample room under the facility and cash on hand for the completion of Rochester and the ramp up.

Speaker 2

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

Speaker 1

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 $390,000,000 size. There's $30,000,000 of LCs against that, which leaves $360,000,000 of capacity. We ended the Q1 with $60,000,000 drawn, So there's $300,000,000 of availability. The key covenant there really is the net debt to EBITDA ratio of 4.5 So we've got some room there as we move through really this critical quarter right now before things start to step down starting in the second half of the year.

Speaker 1

In terms of other levers that we could pull, the hedging that we have in place has been a real key risk mitigant. There are other things around. We've done some opportunistic exchanges on some of our senior notes as they've traded down that has created an opportunity for inbound holders looking for liquidity of those notes, we did just a small number of those, I think, just after the end of The Q1, 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? Yes.

Speaker 1

No.

Speaker 2

Okay, great. Maybe if I could switch gears one more time and then I promise 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 anything more?

Speaker 2

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? Yes. Mick, do

Speaker 1

you want to answer Mike's question.

Speaker 3

Yes. So absolutely, you hit the nail on the head that the majority of those impacts came from how we described it in the documentation. The mitigation really though is as we talked about this multi year development program that we're looking to increase the mine life at 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 and 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 stopes and opportunities for us throughout the year to recover and get back on that plan for Kensington.

Speaker 1

And just to piggyback off of Mick's comments, 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. 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 is going to come in after Rochester and form a nice 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.

Speaker 2

Okay, great. And in the near term, like what you're seeing in, I suppose, April May Inspire's confidence in that full year guidance number. Is that fair to say?

Speaker 1

April was still suffering from some of those challenges. The plan is as we get into the 2nd part of this quarter And then into the Q3 and beyond is when we start to really see ourselves catching back up.

Speaker 3

Do I have that about 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

Speaker 1

then? No. Thanks, Mike. Appreciate it.

Operator

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.

Speaker 1

Okay. Well, hey, we appreciate everybody's time this morning. Thank you, and we look forward to speaking with you all again this summer to discuss our Q2 results. Thanks again, and have a great day.

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