Coeur Mining, Inc. (NYSE:CDE) Q3 2023 Earnings Call Transcript
Coeur Mining, Inc. (NYSE:CDE) Q3 2023 Earnings Call Transcript November 9, 2023
Operator: Good day and welcome to the Coeur Mining Third 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 Mitch Krebs, President and CEO. Please go ahead.
Mitchell Krebs: Good day, everyone and thanks for joining our third quarter 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. 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 million on total production of approximately 78,000 ounces of gold and 2.3 million ounces of silver. Obviously, the key headline is the completion of the expansion at Rochester. The first 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. They recovered over 500,000 ounces of silver and 8,000 ounces of gold in October alone, roughly 2 to 3x higher than in prior months so far this year. Some of you were able to witness first-hand 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 million tonne per year processing rate, Rochester is expected to be North America's largest open pit heap leach operation. And here in the U.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 Coeur 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 will be to start reducing our leverage levels now that the recent period of elevated investment is starting to fall away. 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. Aoife will provide some additional details shortly. With that, I'll turn the call over to Mick.
Michael Routledge: 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 expansion project. Beginning with Rochester, the third quarter was characterized by the full-scale effort to integrate the newly expanded infrastructure into 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 [ph] October silver and gold results that Mitch mentioned earlier, position us for a very strong fourth quarter 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 2024. 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 is helping to ensure that we have the best possible workforce in place to deliver on our goals. The expansion to increase throughput, 2.5x 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 Coeur is the expansion offers us all the growth benefits of a large new mine but with a degree of familiarity and extensive learnings gained that cannot be matched from the stand-alone new mine.
Our people, our facilities and infrastructure and the deep well of technical expertise that we are drawing from is a key competitive advantage. Looking back at the build Coeur's culture of CFD [ph] and accountability served as a rock-solid foundation for a truly excellent safety result at this construction project over 2.5 million hours with just a single lost time incident. Turning to Slide 4 and looking at Palmarejo. Tonnes 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 in the open pit backfill project on budget and ahead of schedule.
Its completion secures tailings and waste rock storage capacity for the remainder of Palmarejo's mine 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 day 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 [ph] placement continues to exceed targets. The fourth quarter is expected to be similarly improved but the pace [ph] issues from earlier this year have impacted full year results, leading us to refine Kensington's production guidance to between 81,000 and 85,000 ounces. Finishing up with Wharf, third quarter production was as expected and the operation is well positioned for a good finish to the year.
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'll pass the call over to Aoife for a review of exploration.
Aoife McGrath: Thanks, Mick 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, the strike length has been increased by 760 feet and we have intersected sub-parallel 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 950-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 their 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. These structures formed part of [indiscernible] and up to 2-mile wide corridor that extends from north of the Rochester pit south to and including Nevada Packard pit [ph]. 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.
Thomas Whelan: Thanks, Aoife. I will begin with a brief review of our third quarter financial results before providing a balance sheet update. Turning to the financial highlights on Slide 15. Third 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 [ph] per ounce. Operating cash flow swung to a negative $2 million as we continue to build up significant inventory on the new leach pad at Rochester as well as the timing of the semi-annual interest payment on our [indiscernible] senior notes. As noted by Mitch and emphasized by Mick, we are expecting strong fourth 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 and Kensington, helped drive down consolidated gold cast by almost $200 per ounce quarter-over-quarter. Turning to the balance sheet. We ended the quarter with total liquidity of $280 million, comprised primarily of cash and cash equivalents of $53 million and total available borrowing capacity under the revolving credit facility of $220 million. We finished the quarter with a slightly lower net debt-to-EBITDA ratio versus the end of the second quarter. 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 fourth quarter at Rochester.
The expected flush of balances at Rochester that we've been discussing on previous conference calls and consistent with our annual guidance is taking place during this quarter as we ramp up the Merrill-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 third quarter. The company's hedging program remains a key price risk mitigation tool during this period of capital intensity and ramp up at Rochester. We have almost 70% of our hedgeable fourth quarter gold production locked in at $1,977 per ounce and nearly 50% of our fourth quarter silver production hedged at $25.47 per ounce.
As of September 30, the hedge book sits with an unrealized gain of approximately $12 million on the remaining 2023 hedges. Combined with the realized gains year-to-date, we expect just under $20 million of total gains from our 2023 hedging activities. I wanted to highlight 2 final key data points related to the Rochester expansion. We have incurred $704 million and have paid $648 million of the POA 11 [ph] capital cost as at September 30, 2023, leaving approximately $60 million to $80 million to be paid during the final quarter of the year. Importantly, we remain within the guided capital cost range of between $710 million and $730 million. I'll now pass the call back to Mitch.
Mitchell Krebs: Thanks, Tom. Slide 18 summarizes our top priorities for the remainder of the year. Safely and efficiently ramping up Rochester during the fourth quarter remains job 1. With another stronger quarter at Kensington and consistent performance from Palmarejo and Wharf, we are well positioned to deliver a strong fourth 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. As we now begin to deliver the benefits from this more than $1 billion of 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.
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