Coeur Mining, Inc. (NYSE:CDE) Q2 2023 Earnings Call Transcript
Coeur Mining, Inc. (NYSE:CDE) Q2 2023 Earnings Call Transcript August 10, 2023
Operator: Hello and welcome to the Coeur Mining Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to CEO, Mitch Krebs. Please go ahead.
Mitchell Krebs: Good day, everyone. And thanks for joining our second quarter 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 Mic, Tom, and Aoife. Quarterly revenue totaled $177 million, with production of approximately 68,000 ounces of gold and 2.4 million ounces of silver. The quarter was underpinned by strong performances at a Rochester and Wharf operations offset by a weaker than planned quarter at our Kensington mine in Alaska. Through the first six 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 two key drivers for the second six 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 second quarter. 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. Meanwhile, heavy spring snowmelt and runoff in southeast Alaska along with some pace backfield 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 Nick 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 VI leach pad at Merrill-Crowe facility, which will be quickly followed by construction completion of the new III Stage crushing circuit. 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 three 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. Well, 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. Drilling results, they're point to a continuation of key mineralized zones, and the potential for a longer mined 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.
Michael Routledge: 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 footprints. Getting into quarterly operating details on Slide six and starting with Palmarejo. Goods, silver and gold grades led to solid production for the quarter, with the team overcoming a four-day power outage due to wildfires. On the cost side, the strengthening peso continued to create pressure, resulting in approximately $5 million of additional costs. Moving on to Rochester.
Better than anticipated production was driven by continued positive residual ounce production from legacy leach pads with the majority of ore placement now occurring on the new Pad 6, gold and silver production decreased as expected compared to the first quarter. Production rates will remain depressed during this transition period until first solution through the metal core plant is processed next month. Looking ahead, we expect the cushion we built up during Rochester strong first half performance 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 guidance. Getting into a bit more detail with a summary of recent milestones and what remains ahead at Rochester.
Photo by Ricardo Gomez Angel on Unsplash
Following on schedule, first quarter mechanical completion of Pad 6 and the metal core process plant, we are currently finishing wet commissioning and getting ready to start. Work on the Merrill Crusher Corridor is progressing well. Prescreen equipment and piping construction as well advanced. The stacker and feed conveyors have been erected including core sale, 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, secondary and tertiary crushers are in the final stages of electrical 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 155,000 tonnes per day.
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 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 first quarter, poor whether continue to affect overall project progress during the second quarter. The frequent periods of lightning creating a particular safety challenge. 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 million to $730 million, or about 6% to 9% above the previously estimated $607 million discussed in last quarters call. Capital pressures notwithstanding, the pace of project development continues to advance. With mechanical completion of the crusher circuit expected 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 second half production at Rochester to form more evenly between the third and fourth quarters. 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. The 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 stock sequencing.
We have worked with the team at the site to develop a solid main plan for the second half. And 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 84,000 and 95,000 ounces. Lastly, at Wharf. Results were slightly ahead of plan with the second quarter benefiting from high grade material and tons placed earlier in the year. We're very proud to mark two big milestones at Wharf. Firstly, on July 28, 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 Wharfs current permitted operations, giving us more flexibility and providing additional opportunities for mine life growth going forward.
Another milestone, the team at Wharf produced its 3 million ounces of gold on June 23. Since Coeur acquired Wharf back in 2015, the mine has generated free cash flow for the company of approximately $360 million 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 Kensington have resulted in overall gold production guidance decreasing slightly to between 304,00 and 352,500 ounces of gold. While silver production guidance remains unchanged at between 10 to 12 million ounces. Coeur remains in a strong position midway through this critical year for the company. With that, I'll pass the call over to Tom.
Thomas Whelan: Thanks, Mick. I will begin with a brief review of our second quarter financial results before providing a balance sheet update. Turning to the financial highlights on Slide 4. Operating cash flow in the second quarter swung to a positive $39 million compared to a negative $35 million during Q1 driven by solid operating performance at Palmarejo, Rochester and Wharf as well as favorable changes in working capital. Our Q2 2023 adjusted EBITDA was impacted by the challenges at Kensington that Nick 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 construction ramp-up remains one of our top priorities. We are in the last weeks of heavy spending at Rochester, while 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 million drawn on our revolving credit facility, leaving over $280 million of available credit capacity. We worked with our banks to complete an amendment to our revolver to provide additional flexibility on our key financial ratios through the first quarter 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 second quarter, raising just under $30 million 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 $1,977 per ounce and approximately 50% of our second half silver production hedged at $25.41 per ounce. And we have established a new ATM program for gross potential proceeds of up to $50 million. You add this all up, and we have approximately $415 million 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 Coeur's entire suite of high-value organic growth projects.
I'll now pass the call to Aoife.
Aoife McGrath: 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 second largest reserve after Guadalupe. At Hidalgo, we recently intersected the highest gold grades ever at Palmarejo, discovered two new veins and drilling is continuing to extend mineralization along strike with 800 meters of additional strike length added over the last 15 months. 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.
In addition to drilling, a large-scale mapping and sampling program has been underway in East Palmarejo, an area that has seen very little expiration or drilling. Two 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 million tonnes 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 or 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.
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 Silvertip look-alike targets in the district. I will now pass the call back to Mitch.
Mitchell Krebs: Thanks, Aoife. Slide 13 summarizes our top priorities for the remainder of the year, which starts with a safe and efficient commissioning and ramp-up of the expansion project at Rochester 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 multiyear 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. With that, let's go ahead and open it up for questions.
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