Snow Lake Resources Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 8, 2024

There are 7 speakers on the call.

Operator

Good day and welcome to the Second Quarter 2024 Financial Results for Coair Mining Conference Call. All participants will be in listen only mode. Please note this event is being recorded. Would like now to turn the conference over to Mr. Mitchell Krebs, President and CEO of Coeur Mining.

Operator

Please go ahead.

Speaker 1

Hello, everyone, and thanks for joining our call. Before we start, I want to point out our cautionary language regarding forward looking statements in today's slide deck and refer you to our SEC filings on our website. I'll kick off with some highlights on Slide 3 before turning the call over to the team and then we'll open it up for questions. The main focus during the Q2 was getting Rochester ramped up and positioning the company to make the transition to positive free cash flow in the second half of the year. We were successful in that effort with Rochester now consistently crushing and placing around 90,000 tons per day, which should drive sharp production increases and unit cost reductions in the second half.

Speaker 1

Rochester's silver and gold production both jumped nearly 40% in the 2nd quarter, which was a great sign that the team out in Nevada is building momentum heading into the back half of the year. Nick will provide some additional details on Rochester in a few minutes. Our 3 other operations are also on track for solid years as we pass the midway point. Palmarejo generated another strong free cash flow quarter, Wharf remained consistent and on plan and Kensington is now establishing a good rhythm after a couple of years of elevated investment and implementing several operational enhancements, which Mick will cover in greater detail. Our leading leverage to higher prices was on full display during the quarter.

Speaker 1

Prices in the 2nd quarter were about 10% higher year over year, yet our quarterly adjusted EBITDA jumped 136% and our LTM adjusted EBITDA increased 90% to $192,000,000 On the back of Rochester's ramp up, Kensington is set to have its own free cash flow inflection point in the second half of next year. The elevated levels of underground development and drilling over the past 2 years are expected to drop off mid next year, leaving Kensington positioned to deliver positive free cash flow with greater operational flexibility and a longer mine life. Mick and Aoife will both touch on the progress at Kensington. It was great to close the acquisition last month of 2 key concessions from Fresnillo and consolidate the land package to the east of Palmarejo. Aoife will talk in a couple of minutes about our plans and priorities for this large prospective land position that sits outside the Franco Nevada Gold Stream boundary and provides a whole new set of higher margin mine life extension opportunities at Palmarejo.

Speaker 1

Aoife will also cover the objectives and progress from the summer exploration program underway at Silvertip. We continue to believe that the convergence of all of these catalysts, higher commodity prices, a ramped up Rochester, a stable suite of U. S. Centric mines full of organic growth opportunities and a world class Canadian exploration project, along with our impending transition to positive free cash flow followed by a period of aggressive debt reduction sets us apart from our peers and leaves us in a great place heading into the second half. Nick, over to

Speaker 2

you. Thanks, Mitch. Rochester's successful ramp up and consistent contributions from across our portfolio have the company well positioned at the midway point of 2024. More importantly, Koehler's deeply embedded safety culture continues to show through in our overall safety performance. I'm pleased to report that a clean slate of work in June marked 1 year of the operation without the lost time incident.

Speaker 2

Also in June, 7 individuals at Rochester were honored with safety awards by the Nevada Mining Association. Congratulations to the team there for their contributions to pursuing a higher standard in safety. Turning to our Q2 results on Slide 4 and kicking off with Rochester. Buildup production in the 2nd quarter increased to 973,000 ounces, while gold production increased to over 8,000 ounces, driven by more crushed tons placed with the new circuit. As reported on July 11, placement defenses during the Q2 was lighter than initially planned.

Speaker 2

But Rochester remains on track to deliver on 2024 production gains. Over the 1st several weeks of the Q3, throughput rates have regularly achieved or exceeded expected average running capacity of 88,000 tons per day and the team continues to take full advantage of down periods to optimize and refine the operation. We crushed and placed nearly 2,000,000 tons in July and we remain well positioned to deliver crushing and placement rates of 7000000 to 8000000 tons per quarter in the second half and into 2025. Concurrent with delivering these higher crushing replacement rates, our focus in the second half of twenty twenty four will be on working down material crush size towards a targeted 5eight of an inch in order to maximize recoveries. Moving on to Palmarejo, the mining followed up a very strong Q1 with another solid 3 months delivering over 25,000 ounces of gold and nearly 1,600,000 ounces of silver.

Speaker 2

In June, the team broke ground on a 3rd access portal at Hidalgo, which is expected to significantly enhance our underground main development and exploration efforts at this future ore source located just north and west of Independencia. Following the completion of the transaction with Fresnillo, the operating team is working closely with the exploration team on plans to pursue near term development opportunities, which Ita will discuss further in a moment. At Kensington, the operation continues to regain momentum where significant improvements have been realized in long hole drilling capacity, pace placement and getting more stope feed to the surface. As Mitch mentioned, the Kensington team have gone the hard yards to position the operation as a long lived revitalized source of free cash flow generation starting in the second half of next year. The multiyear capital development investment continues to advance well with progress ahead of schedule with additional funds being allocated to the program to provide more operating flexibility and to access new ore zones.

Speaker 2

The program now stands about 82% complete for the current scope of the project. Finishing up with Wharf, strong grades drove increased gold production to 22,000 ounces in the quarter, while adjusted CAS decreased 29% compared to the Q1 to an impressive $8.22 per ounce. When Wharf was acquired by Coeur in 2015, reserves stood at approximately 560,000 ounces. At year end 2023, 9 years later, Wolf's gold reserves stood at over 760,000 ounces with even further exploration upside. The team there has recently identified 2 new opportunities near existing mining areas aimed at substantially extending Wharf's already long life.

Speaker 2

The 2 targets, North Foley and Juno will be drill tested over the remainder of 2024 2025 to demonstrate the scope of the potential opportunity. With that, I'll pass the call over to Tom.

Speaker 3

Thanks, Nick. I'll begin with a brief review of our Q2 financial results before spending a moment on our refreshed cost guidance as we hit the midway mark of 2024. And I'll finish with an update on our plans for delevering the balance sheet on the back Rochester's and the overall company's return to free cash flow. As detailed on Slide 10, Core's rapidly improving financial results are due to the three way combination of stronger gold and silver production, higher metals prices and declining levels of capital spending at Rochester. With Rochester continuing to settle into steady state operation and the rest of the portfolio delivering 100% unhedged gold and silver production, that free cash flow inflection point is upon us.

Speaker 3

We remain on track to achieve 2024 production guidance at each of our operations and have made the following refinements to our 2024 cost guidance. At Palmarejo, higher grades combined with easing inflationary pressures and a weaker Mexican peso have resulted in a reduction in its 2024 CAS guidance. 2024 CAS guidance at Wharf has also been reduced as a result of better than expected crusher performance and mining efficiencies due to ongoing business improvement initiatives. At Rochester, we increased our CAS guidance to reflect excess trucking capacity used during the first half of the year to place profitable, but higher cost run of mine material, which helped to offset the lighter than planned tons placed on Stage 6 through the first half of the year. In addition, overall 2024 CapEx and exploration guidance has also been adjusted to reflect the following.

Speaker 3

At Rochester, we have increased the full year capital guidance to reflect an earlier than planned final payment to our major contractor from the recently completed expansion. We also accelerated equipment purchases to lock in savings and there were a handful of post startup modifications. At Kensington, we increased our full year capital range to reflect accelerated underground mine development and exploration investments, which reflect higher than planned productivity by both our underground mine development and drilling contractors. And at Wharf, we increased our full year exploration guidance to reflect drilling we plan to carry out at the recently identified opportunities that Mick just mentioned. This allocation of capital is consistent with our capital allocation framework as highlighted on Slide 13.

Speaker 3

Turning to the balance sheet on Slide 12, we ended the quarter with approximately $275,000,000 drawn on our $400,000,000 revolving credit facility. Our balance sheet ratios have already seen significant improvements since the high watermark 1 year ago and we now sit below 3 times net debt to EBITDA for the first time in over 2 years. We expect to begin aggressively paying down the revolver as cash flows begin to accelerate over the second half of the year as we drive towards our long term leverage targets of total debt to EBITDA of 1 times and net debt to EBITDA of NO. I will now pass the call to Aoife.

Speaker 4

Thanks, Tom. Starting at Palmarejo on Slide 8, the newly acquired concession from Fresnillo provide us with full access to the 4 Northwest trending mineralized belts in the district. Of these belts, the mine trend has seen the most historic exploration with a high percentage of resource and reserve ounces coming from deposits here. The new Independencia sewer claim block highlighted in the red oval in the center of the map contains the southeast extension of the mine trend. It sits directly adjacent to our existing mining infrastructure and contains the continuation of a number of key veins, including Independencia and La Nacion.

Speaker 4

Fresnillo conducted drilling on this block and we are hopeful that with additional exploration, we can outline new resources in the very near term. Mapping is already well underway and re logging of Fresnillo Core and incorporating it into Core's database and geological models are immediate aims with drilling planned for early 2025. The new Guazapare block of concessions outlined in the large red oval on the top right of the map is the most easterly northwest trending belt of mineralization at Panarea. It surrounds multiple advanced exploration targets containing significant drilling and historic resources that were added to Coors portfolio through the 20 15 acquisition of Paramount Gold and Silver. This new block of Fresnillo Concessions allows full access to these historic resources and opens up significant down debt and the long strike opportunities.

Speaker 4

Validation of these historic resources and extension along strike and down depth is a short to medium term exploration focus. Between the Northwest trending mine and Guazapare's trends of mineralization exists the Camucin Escondida trend. This is the 3rd of 4 identified balsa palmarejo and has a number of key exploration targets that are expected to span the short to long term exploration focus. Other key news for the quarter includes commencement of the largest summer program ever at Silvertip. We are undertaking a 3 pronged approach this year, including near mine extensions to known mineralization via underground drilling, larger step outs structures to rapidly add resources via surface drilling and regional scale exploration to identify silvertip look alikes and larger structures with potential to host larger ore bodies.

Speaker 4

We look forward to providing an update on the program later in the year. At Kensington, the multiyear program is progressing well and is outlining new zones in Upper and Lower Kensington and is showing continuity of mineralization between Elmira and Elmira South. Continue to be very encouraged for ongoing mine life growth throughout this program. With that, I'll hand the call back to Mitch.

Speaker 1

Thanks, Aoife. 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 looking forward to delivering a strong and safe second half highlighted by higher production levels, positive free cash flow and lower debt levels as we build up momentum heading into what should be a fantastic 2025. With that, let's go ahead and open it up for questions.

Operator

We will now begin the question and answer session. Our first question comes from Joseph Reagor of ROTH Capital Partners. Please go ahead.

Speaker 5

Hey, Mitch and team. Thanks for taking my questions.

Speaker 1

Hi, Joe.

Speaker 5

Hi. So first thing on Rochester, you guys suggested the cost guidance there and there was some note about that being related to placement timing. Can you give us a little more color on that? Like what exactly is driving that? And if there was any changes to your expectations as far as costs excluding that item?

Speaker 1

Yes, sure. I'll take a crack at it. And then, Mick, maybe you can follow-up. It's really, Joe, a function of the denominator versus the numerator. So no real changes at all in any of the inputs.

Speaker 1

It was really a function of timing of ounces placed out on to Stage 6. In the Q2, we took a few more downs than planned to knock out some items that had been identified during the ramp up to try and make sure we've got a good clean second half ahead of us. And so just by a function of the timing of tons being put out there on Stage 6, that's really the driver behind what we decided to do with the cost guidance in the back half of the year for Rochester. Mick, anything you want to add?

Speaker 2

Yes. We're really happy with the ramp up. And as Mitch said, we took the opportunity to really do the work so that once we got up to that nameplate capacity and run rate, we could stay there while in the second half optimizing the size PSD, so we can get those recoveries up. So everything is going the way we expect it to, just a little bit delayed on a few of those ounces to the pot.

Speaker 1

And I guess just to follow-up one last thing, Joe, there. It was I think in the comments we made or maybe in the release, just with some of that the downtime then, we took the opportunity to with the trucks to haul some run of mine material. So that was also a part of the equation as we thought about second half cost guidance for Rochester.

Speaker 5

Okay. That's helpful. On the land that was acquired near Palmarejo, when do you think the earliest timeframe would be where you pull your first ounce out of the ground there?

Speaker 1

Good question. We'll probably start seeing some drilling 1st part of next year, particularly in that nearer section that's outlined on that slide in the materials. Of course, a lot of the underground development then will have to come on the heels of defining mineralization further there really on the southeastern extension of both Independencia and Nacion, which would probably put us into 2026 as far as the first window of seeing some ounces out of that near area that we just acquired from Fresnillo. Aoife, Nick, anything

Speaker 2

to add? Yes. The good thing is that underground, it's close to infrastructure. It's already areas that we're mining. So it's really extensions of those areas.

Speaker 2

So as Mitch said, there's some work to do. We'll have to characterize it and we'll have to develop towards it, but it's not too far away. Yes.

Speaker 4

The first program that we're going to undertake there is some re logging of that old phrase Neo core, and that's going to happen imminently. We've been mapping and sampling throughout that total land package this year and we would aim to get the drills in there pretty early next year.

Speaker 5

Okay. Sounds good. And then last thing, as cash flow increases and you guys are able to focus on debt repayment, what's the cash balance you guys would like to cover? And how much debt would you guys like to wipe out over the next couple of years?

Speaker 1

Yes. Tom, do you want to talk about how we see the balance sheet and where we're trying to get over the longer term?

Speaker 3

Yes. Good morning, Joe. Just I just go back to our comments. We're always aiming for a total debt to EBITDA long term of one time and a net debt to EBITDA of nil. And so to get there, when you look at where our senior notes balance looks like right now, just under a shade of shade under $300,000,000 that kind of marries up to what we think long term EBITDA of the company is going to be on a go forward basis.

Speaker 3

So once the free cash flow starts happening here in the second half of the year, it's all going to be geared towards repaying that revolver. I mean, how fast could we get that revolver paid? How fast could we get to those that long term goal? I think it would be a stretch to say we'd have it done by the end of 2025, but certainly in 2026. It's not out of the question though in 2025 if commodity prices were to bounce back up and stay at levels just a little bit higher than this.

Speaker 3

So and in terms of the minimum cash, we probably want to always have at least $50,000,000 on the balance sheet operating in 3 jurisdictions. It's probably nicer to be maybe a little bit higher than that, but the bare minimum we need is 50,000,000

Speaker 2

dollars Okay.

Speaker 5

Good stuff, guys. I'll turn it over.

Speaker 1

Yes. Thanks,

Operator

Our next question comes from Mark Ferrari of National Bank Finance. Please go ahead.

Speaker 6

Hi, guys. Just wondering how the Rochester crushing circuit is performing on a reliability basis? If you guys are seeing any problem areas?

Speaker 1

Yes. Mick, do you want to give an update on kind of July, August and then how you see the back half of this year going and then into 2025?

Speaker 2

Yes. Really, we're seeing good things. I mean, we're still only 4, 5 months into what would be a longer ramp up and we hit the main plate. We're really happy about that. We're seeing consistent numbers on a daily basis, running at that sort of 90,000 to 100,000 tons per day.

Speaker 2

And so last month, even with a few downs, we delivered nearly 2,000,000 tons to the pad. Our expectation is north of that for the rest of the year and expecting to land between 7,000,000 and 8,000,000 tons per quarter. And that's really set and worked well because during that period of 78,000,000 tons, we are continuing to optimize for size fraction. We're already seeing that getting dialed in a little bit and we're seeing some really good results coming from July and a good start to August. And so it's given us a lot of confidence that we'll hit the 32,000,000 tons in 2025, and we'll have that size fraction dialed into the 5 eights and be getting the recoveries that we expect going forward.

Speaker 2

So yes, overall, everything is doing what we said it would do and we're pretty happy with the performance.

Speaker 1

Yes, the first half theme was stabilized and now the second half theme is optimized. And I think it's fair to say we're comfortably into that optimized mode there at Rochester.

Speaker 2

Yes, there's a few little jobs to do, but there are a day here, a couple of days there to fine tune as we go through the back end of the year and we'll optimize that size production.

Speaker 6

Okay, perfect. That's great color. That's all for me. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Mitchell Krebs for any

Speaker 1

closing remarks. Okay. Well, hey, we appreciate everybody's time today, and we look forward to

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