Coeur Mining Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 8 speakers on the call.

Operator

Hello and welcome to Coeur Mining Second Quarter 2023 Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to CEO, Mitch Krebs. Please go ahead.

Speaker 1

Good day, everyone, And thanks for joining our Q2 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 3 Before turning the call over to Mick, Tom and Aoife. Quarterly revenue totaled $177,000,000 with Production of approximately 68,000 ounces of gold and 2,400,000 ounces of silver. The quarter was underpinned by strong performances At our Rochester and Wharf operations, offset by a weaker than planned quarter at our Kensington mine in Alaska.

Speaker 1

Through the 1st 6 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 2 key drivers for the 2nd 6 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 Q2. 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 toward 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.

Speaker 1

Meanwhile, heavy spring snow melt and runoff in Southeast Alaska, along with some pace backfill challenges, led to a poor quarter at Kensington, which negatively impacted our company wide gold production and financial results. The team has largely addressed these challenges And we look forward to a stronger back half of the year there. Both Mick 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 6 leach pad and Merrill Crowe facility, which will be quickly followed by construction completion of the new 3 stage crushing circuit.

Speaker 1

The site photo on Slide 10 of today's presentation shows the tremendous progress made to date. The team managing this project has done an incredible job Under challenging circumstances over the past 3 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 2.5 times higher than recent rates for many years to come. While Rochester is our clear near term catalyst, we see the development and drilling at Kensington as the next leg of lower cost production growth for the company.

Speaker 1

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 Palmarejo in Mexico with recent assays returning The highest gold grades that we've ever had there. Aoife 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.

Speaker 2

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 6 and starting with Palmarejo. Good silver and gold grades led to Solid production for the quarter, with the team overcoming a 4 day power outage due to wildfires. On the cost side, The strengthening peso continued to create pressure resulting in approximately $5,000,000 of additional costs.

Speaker 2

Moving on to Rochester. Better than anticipated production was driven by continued positive residual ounce production from legacy leach parts. With the majority of ore placement now occurring on the new POD 6, gold and silver production Decreased as expected compared to the Q1. Production rates will remain depressed during this transition period until first solution through the Merrell Crowe plant is processed next month. Looking ahead, we expect the cushion we've built up during Rochester's strong first half 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 gains.

Speaker 2

Getting into a bit more detail with a summary of recent milestones and what remains ahead at Rochester. Following on schedule 1st quarter mechanical completion of PADD 6 and the Merrill Crowe process plant, we are currently finishing up wet commissioning and getting ready Work on the male long crusher corridor is progressing well. Prescreen equipment and piping construction is well advanced. The stacker and feed conveyors have been erected, including core saw secondary and tertiary stockpile stackers as well as the secondary feed conveyor. The 63 kV power transmission lines to the crusher substation have been energized.

Speaker 2

Secondary and tertiary crushers are in the final stages of Construction and programming of the crusher process control systems is also complete. On the mining side of the project, looking at Slide 9, mining rates are scheduled to increase from 65,000 tonnes per day to 155 Capacity for drilling and loading is already in place and no additional equipment is needed. The whole truck fleet will go from 14 trucks to 29 trucks, and we are currently right on plan to be at 22 trucks by the end of 2023 And 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. Much like the Q1, poor weather continued to affect overall project During the Q2, the frequent periods of lightning creating a particular safety challenge.

Speaker 2

Considering the numerous work streams involving steel erection at heights and crane 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 $710,000,000 to $730,000,000 Or about 6% to 9% above the previously estimated $670,000,000 discussed in last quarter's call. Capital pressures notwithstanding, the pace of project development continues to advance. With mechanical completion of the crusher circuit 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 2nd half production at Rochester to fall more evenly between the 3rd and 4th quarters.

Speaker 2

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. Turning 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 a planned return 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 84,095,000 ounces. Lastly, at Wharf, results were slightly ahead of plan with the 2nd quarter benefiting from high grade material and tonnes placed earlier in the year.

Speaker 2

We're very proud to mark 2 big milestones at Wolf. Firstly, on July 20, the State of South Dakota approved the permit allowing for mining of the Boston expansion. A nearly 50 acre parcel immediately to the south of Wharf's current permitted operations, giving us more flexibility and providing additional opportunities for mainline growth going forward. Another milestone, The team at Wharf produced its 3 millionth ounce of gold on June 23. Since Co.

Speaker 2

Acquired Wharf back in 2015, The mine has generated free cash flow for the company of approximately $360,000,000 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 ounces deferred at Kensington have resulted in overall gold production guidance decreasing slightly to between 304,000,352,500 ounces of gold, While silver production guidance remains unchanged at between 10,000,000 to 12,000,000 ounces, Coeur remains In a strong position midway through this critical year for the company. With that, I'll pass the call over to

Speaker 3

Tom. Thanks, Mick. I will begin with a brief review of our Q2 financial results before providing a balance sheet update. Turning to the financial highlights on Slide 4. Operating cash flow in the 2nd quarter swung to a positive $39,000,000 Compared to a negative $35,000,000 during Q1, driven by solid operating performance at Palmarejo, Rochester and Wharf, as well as favorable changes in working capital.

Speaker 3

Our Q2 2023 adjusted EBITDA was impacted by the challenges at Kensington that Mick 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 5, we continue to see inflationary pressures on labor and power costs. These inflationary headwinds combined with a stronger Mexican peso have been partially offset by lower diesel costs, which have decreased 26% versus Q2 2022. Maintaining our balance sheet flexibility throughout the POA 11 We continue 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 $80,000,000 drawn Our revolving credit facility, leaving over $280,000,000 of available credit capacity.

Speaker 3

We worked with our banks to complete an amendment to our revolver to provide additional flexibility on our key financial ratios through the Q1 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 Q2, raising just under $30,000,000 At a 21% premium to the market price, which will be allocated to fund exploration activities at Silvertip. 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 $19.77 per ounce And approximately 50% of our second half silver production hedged at $25.41 per ounce.

Speaker 3

And we have established a new ATM program for gross potential proceeds of up to $50,000,000 You add this all up and we have approximately $415,000,000 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 Core's entire suite of high value organic growth I'll now pass the call to Aoife.

Speaker 4

Thanks, Tom. As Mitch said earlier, We have had some great results from our exploration program at Palmarejo. Palmarejo is our largest mine with a land package of roughly 27,000 hectares, of which only 7% has been drilled to date. The Hidalgo deposit was defined in 2019 and has since Grown continuously to now be the 2nd largest reserve after Guadalupe. At Hidalgo, We recently intersected the highest gold grades ever at Palmarejo, discovered 2 new veins and drilling is continuing to The pace of drilling is expected to increase in the second half of the year and we are confident that further extensions to this deposit will result.

Speaker 4

In addition to drilling, a large scale mapping and sampling program has been underway in East Pamarejo, an area that has seen very little exploration or drilling. 2 high priority mineralized trends covering a combined 20 kilometers of strike length and containing multiple targets have been outlined for drilling in 2024 and beyond. Earlier in the quarter, we also issued a news release on Silvertip, our high grade polymetallic Carbonate Replacement Deposit in Northern British Columbia. Since the project was acquired in 2017, The measured and indicated resource base has nearly tripled to over 7,000,000 tons and grades continue to be amongst the highest in the world for similar type Deposits. During the quarter, detailed logging of the geology intersected in the deep hole, Testing the hub, our mineralizing source, showed geological evidence of proximity to porphyry, and we plan to continue to test for Skarn and porphyry style mineralization over the next few years.

Speaker 4

However, the main aims of drilling over the next 18 to 24 months will be to continue growing the resource base, to test additional carbonate units in the stratigraphy and to test I will now pass the call back to Mitch.

Speaker 1

Thanks Aoife. 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 to set up the operation for a solid 2024 and beyond. Although Rochester is 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 Palmarejo and Wharf, we should end 2023 well positioned to begin delivering the benefits Of these multi year 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.

Speaker 1

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

Operator

Thank you very much. We will now begin the question and answer session. Today's first question comes from Today's first question comes from Michael Dudas with Vertical Research. Please go ahead.

Speaker 5

Good morning, Mitch team.

Speaker 1

Hey, Mike.

Speaker 3

Hey, Gabe. Hi.

Speaker 5

First question on Kensington, maybe a little more details on How the grades will flow through second half of the year and as we kind of look early into 2024, What your expectation levels are relative to say what the plan would have been 6 to 12 months ago?

Speaker 1

Yes. Okay. Thanks, Mike, for the question. Mick, do you want to cover that?

Speaker 6

Yes. So really, the challenge that we had there, Michael, was Inflow of water and so it wasn't really around loss of grade, but more around timing of stops and the sequencing there And really at this time in this part of the main plan not having enough work for us to pivot to while we got through this development program. So We expect to see similar grades going through the end of the year and we're seeing good signs 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 then be planned into 2024 as we go forward.

Speaker 1

And 2024 plan It's similar full year wise roughly to what we came into 2023.

Speaker 6

Yes, yes, exactly. A little bit better because we now have Few additional lenses to plan into that package for 2024.

Speaker 5

Yes, that's encouraging. I appreciate that. Yes, yes, no, absolutely, it's very encouraging. We'll improve that mix for sure. Secondly, you mentioned about Your cost the inflation or the mix, positives and negatives on the cost side.

Speaker 5

As you're trying to add labor and bring folks For the expansion at Rochester, where are you on that process? You said you have a goal of increasing, I said by 20%, I think it was in the presentation. Is it relative to your expectation cost Availability, do you see any issues that's going to limit maybe the productivity or the plans to rock and roll as you get through as you move ramp up in 2024.

Speaker 1

Yes, good question. Mick, you want to cover that too?

Speaker 6

Yes. We're in great shape actually, Michael. For the process plant, have all the people that we needed and 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 our entry level job for Rochester and generally we'll have good access to those folks and we bring them on as we need them.

Speaker 6

So we're not overloaded on people currently will have exactly the right number to start up the process plant. And then the trucks that we'll have by the end of 2023, we have all the drivers for those trucks. And in 2024, we'll hire as we need. So we don't see any productivity impact with respect to access to people. And certainly, we've had some inflationary impacts from the cost of Contractors for the project and then people to ensure that we can get those good quality people to run this project for the long term, but we have them right now.

Speaker 5

Excellent. Thanks, Mitch. Thanks, Mick.

Speaker 1

Thanks, Mike.

Operator

The next question comes from Mike Parkin with National Bank. Please go ahead.

Speaker 7

Hi, guys. Thanks for taking my questions. Thanks.

Speaker 5

Yes. Can you just

Speaker 7

Give a sense of how Kensington is performing for like the month of July and how things are going in August? Are you kind of Ken, you addressed a little bit with the earlier question, but just trying to get a sense of where are you in terms of Normal productivity?

Speaker 1

Yes, absolutely. Good question. I'll start and then Mick, you can fill in. July It 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 heavy water, so getting that addressed Helped with July, equally, I think August is expected to be better than July.

Speaker 1

So incrementally, we're heading in the right Direction as they sort of get back closer to being on plan. But Mick, did I leave anything out that you want to mention?

Speaker 6

Yes. There were a couple of things. In that area, because we'll have a blend in the same area of development and mining at the same time, and that development program was going really well. But As we saw a lot more water, we really just had to step back a little bit in the first half and reset our methodology. Now we'll have a little bit of a change in methodology, which forward from those development contractors and when we see that higher level of water, then we can proactively grow And control those flows.

Speaker 6

That's allowing us to perform a little bit better in July, and we expect that improvement to continue going forward.

Speaker 1

One other thing I'd add on to that, Mike and Mick. Bolter Long Hole Drill availability improving New equipment on-site. That's right. That's addressed that challenge.

Speaker 6

Exactly. So that helps. We'll move a little bit And then, paste management in the upper part of the main, and we're employing a little bit of technology to support that process as well really high up in the main And as the wetness level of that paste, we have to have that a little bit higher, so we can pump higher in the main and the team have really good management We're seeing good results. So it gives a lot of confidence. It's always a work in progress, of course, with miners, but it's going really well.

Speaker 7

Okay. So it sounds like the water inflow is in the function of coming down the ramp access or ventilation. It's more Just saturation of the surface and then eventually seeping into the mine. Is that correct?

Speaker 6

A little bit of both, mostly though from the drilling program and then the Frechette soaks the ground and then it comes into the areas that were 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 some of the flooding and that hasn't impacted our operation, 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, where it certainly was challenging H1.

Speaker 7

So is there anything that you could do to like 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 Just leave it and I hope it's not a 100 year event again kind of thing.

Speaker 6

Yes. I mean, look, Since Aoife came on, we're getting a higher and higher visibility around the structures and the systems That will remain in through in Kensington and that knowledge is helping us to look for and track We have potential additional water may come from. I don't know if Yifo wants to comment on that.

Speaker 7

Yes. Thanks, Nick. We've also employed some new technology on the drill rigs, they're called AquaGuard and they prevent inflow into the hole. So we're deploying those with pretty good success at the moment now as well. And there's just particular areas for some structures seem to be more water bearing than others and we're mapping those out pretty rapidly and getting a much better understanding.

Speaker 7

So, like Mick said, there's a number of fronts we're working on to mitigate that. Okay. That's great. And then with respect to the Wharf land area expansion, Is that going to see a conversion of any resources to reserves because of that? Or is it something that Some more drilling, like how should we kind of think about that mine life extending and the involvement of that?

Speaker 1

Yes, I'll start, Mick, then you can fill in. It doesn't change the 8 year mine life that we have, but it's obviously something we needed In order to begin the stripping and then the mining in 2024 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 into the plan in 2024. Mick, anything you want to add?

Speaker 6

Yes. We already had a lot of that In our plan already because we made a good assumption that we'd get the permissions to be able to mine that area because it's we'll have such a strong relationship And such a good track record around permitting and access to that land in the local environment. So we built it in, but That doesn't mean that we won't find some nice opportunities as we get into the mining in that area because we drill it enough to characterize it. And then once we Stop mining it, we'll optimize it and investigate what else we've got there. But at the moment, in the plan should be executed through next year.

Speaker 7

Okay. And then more switching over towards the balance sheet. Can you give us a sense that you've announced this ATM this morning? We've seen quite a bit of activity recently with like debt to equity conversion. Can you give us a sense Can you give us a sense and you've also done some seemingly very well timed hedges for both gold and silver as well.

Speaker 7

What's your thoughts going forward? Do you feel like the funds from the ATM are sufficient to kind of get you over the hump in addition The remaining room on the RCF or is there additional levers that you're thinking of pulling That being maybe potential more debt to equity conversion, boosting prepay, boosting Hedges, just looking for some general color there.

Speaker 1

Yes, yes. You kind of highlighted most of the levers That we have or tools that we have in the toolbox to make sure that we can manage our liquidity levels through this last period of elevated Capital, we feel like we've got the flexibility that we need now to get over, like you said, the hump And get to the other side of the Rochester expansion, so that we can start to see some free cash flow and begin delevering the balance sheet In 2024, but Tom, do you want to add anything to

Speaker 3

the question? Yes, I think the key was the We only have $80,000,000 drawn on the revolver at June 30. So that leaves $280,000,000 And we sort of look at What's left on Rochester with the revised guidance, $140,000,000 to $160,000,000 So again, the plan would be to fund that Primarily through the revolver and then as fast as Mick and the team can 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 these other levers to make sure that we don't come up short.

Speaker 3

And on balance, we've got great partners in our bankers who had no issue. They understood the challenge at Rochester and gave us that extra flexibility through to the end of the Q1 'twenty four. And so we're feeling pretty comfortable.

Speaker 1

I'd characterize it as kind of incremental at this point, smaller dollar amounts and Obviously, that comes with less time here to go until we're done with the expansion out there in Nevada. Does that answer your question, Mike?

Speaker 7

Yes. Just a follow-up there. We've seen some recent increase in the accounts payable sitting at 100 and We expect that to kind of come back down. Historically, it looks like you're it does move around quite a bit, but maybe Something closer to 100 ish million in about a year's time. Is that fair to assume?

Speaker 1

Yes, you're spot on there. Tom, do you want to Yes,

Speaker 3

look, we're of course managing the payables well. It's a big invoice from TIC that comes in Every month and as you might suspect, we're looking through that and coming through that pretty carefully. Having said that, there have been no issues On that front, but we're obviously not going to pay the bill any sooner than it's required. And as we're in the last of this big spending, those bills every month are Pretty significant. So, but yes, we're almost through it.

Speaker 3

We'll revert back to sort of more normal working capital levels by the end of the year.

Speaker 7

And is that typical kind of construction terms too in terms of Do you have the ability on those payables? Is it 90 days, 180? Maybe you can't say because of Privacy restrictions with the contractor, but do you have an ability to defer it full year or is The nature of the term is basically shorter.

Speaker 3

Okay. I would say it's pretty standard commercial terms. We have a great relationship there. And again, we want them to be paid to make sure that they are bringing in the 500 plus folks They're coming across the gate every day. So, now that's all I'd say there.

Speaker 7

Okay. That's fair. Yes, I think that's it for me. Thanks very much guys.

Speaker 1

Okay. No, thanks for the good questions, Mike.

Operator

Seeing no further lines in the queue, I would like to turn the conference back over to Mitch Krebs for any closing remarks.

Speaker 1

Okay. Thanks. We appreciate everybody's time this morning.

Operator

The conference has now concluded. Thank you for your participation. You may now disconnect your

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