Coeur Reports Third Quarter 2013 Results
25% Increase in Gold Production and 11% Decrease in Cash Operating Costs per Ounce1 at Kensington
Rochester Positioned for Strong Fourth Quarter
CHICAGO--(BUSINESS WIRE)--Nov. 6, 2013--
Coeur Mining, Inc. (the "Company" or "Coeur") (NYSE: CDE, TSX: CDM) reported metal sales of $200.8 million, adjusted earnings1 of $(23.4) million, or $(0.23) per share, and cash flow from operating activities of $26.8 million, or $0.27 per share, during the third quarter 2013. This compares to metal sales of $204.5 million, adjusted earnings1 of $(34.6) million, or $(0.35) per share, and cash flow from operating activities of $63.3 million, or $0.63 per share, in the second quarter 2013.
The Company reaffirmed its 2013 full-year production guidance of 18.0-19.1 million ounces of silver and 250,000-258,000 ounces of gold. Coeur expects significantly higher production levels in the fourth quarter, particularly from the Rochester silver and gold mine in Nevada. Coeur is also maintaining its full-year cash operating cost1 guidance of $9.50 - $10.50 per silver ounce and $950 - $1,000 per gold ounce at Kensington, which reflects continued progress in the Company's ongoing cost reduction efforts. The Company incurred $32.7 million in capital expenditures in the third quarter and reaffirmed its 2013 full-year capital expenditure guidance of $100-$110 million.
Third Quarter 2013 Highlights
- Gold production at Kensington increased 25% compared to the second quarter and cash operating costs declined 11% to $988 per gold ounce1.
- Announced a 91.5% increase in silver reserves and 96.4% increase in gold reserves at Rochester in September 2013.
- Produced 4.2 million silver ounces and 63,766 gold ounces, a decrease of 9% and an increase of 5%, respectively, from the second quarter 2013. Metal sales were 4.9 million silver ounces and 76,466 gold ounces, a decrease of 7% and an increase of 21%, respectively, from the second quarter 2013.
- Net metal sales were $200.8 million, down 2% compared to the second quarter 2013 mostly due to declines of 8% and 6% in realized silver and gold prices, respectively, which averaged $21.06 per silver ounce and $1,329 per gold ounce in the third quarter 2013.
- Cash flow from operating activities was $26.8 million, or $0.27 per share, in the third quarter 2013 compared to $63.3 million, or $0.63 per share, during the second quarter 2013. Before changes in working capital, cash flow from operating activities was $37.3 million in the third quarter 2013 and $14.4 million in the second quarter 2013.
- Adjusted earnings1 were $(23.4) million, or $(0.23) per share, compared with $(34.6) million, or $(0.35) per share, in the second quarter 2013. Net loss for the third quarter 2013 was $46.3 million, or $0.46 per share, compared with net loss of $35.0 million, or $0.35 per share, in the second quarter 2013.
- Companywide cash operating costs were $11.38 per silver ounce1 in the third quarter 2013 and $9.66 per silver ounce1 during the first nine months of 2013. Palmarejo's cash operating costs per silver ounce1 dropped 14% in the third quarter compared to the second quarter. Higher production levels are expected to generate lower cash operating costs per silver ounce1 in the fourth quarter, particularly at Rochester.
- Repurchased approximately $15.0 million of stock during the third quarter 2013. The Company has now completed approximately $47.5 million of its $100.0 million share repurchase program authorized by the Board of Directors in June of 2012.
- Rochester recognized for outstanding achievement in safety by the Nevada Mining Association.
- Palmarejo received the Industria Limpia (clean industry) certificate by the Federal Attorney for Environmental Protection (Profepa) in Mexico.
- Additional exploration drilling is underway at Palmarejo following positive results in the existing open pit and in the Las Animas-El Salto surface deposit located just south of Guadalupe. Drilling at Kensington during the third quarter also returned additional high-grade results at the Jualin area and the Ann zone.
Mitchell J. Krebs, Coeur's President and Chief Executive Officer, said, "Our third quarter operating performance demonstrates the progress we are making in maintaining operational consistency and executing on our strategic initiatives. We are pleased with the solid performance at Palmarejo, San Bartolomé, and Kensington during the third quarter, and with the early indications of our newly-completed expansion projects at Rochester. We expect a significant increase in fourth quarter production at Rochester as permitting issues delayed the leaching of fresh material, which began October 1. We have made further progress in our four-pronged strategy designed to maximize our net cash flow: (1) identifying and implementing revenue enhancement opportunities at existing operations; (2) reducing operating and non-operating costs; (3) reducing capital spending; and (4) effectively managing working capital."
"In the third quarter, we completed value-creating projects at San Bartolomé and Rochester and implemented revenue-enhancing improvements at Palmarejo and Kensington. Our exploration program delivered very positive results at Palmarejo and Kensington, creating further prospects for high-return growth. We achieved approximately $5 million in additional operating cost reductions during the quarter, bringing our year-to-date savings to $24 million. We remain on track to spend $100-$110 million on capital projects for the full year, which is $25-$30 million below our original guidance. We made further progress in managing our working capital with a $12 million reduction in inventory, and we expect a further decrease in inventory levels during the fourth quarter."
"Going forward, we will continue to make operational and capital spending decisions with the goal of maximizing cash flow and return on invested capital. As an example of this discipline, we have decided to temporarily delay completing the underground mine development of the Guadalupe deposit at Palmarejo since the expected returns on this production do not meet our threshold in the current market environment. We expect to replace the anticipated 2014 production from Guadalupe with lower-cost production ounces from existing areas of the mine, which is a result of our successful 2013 drilling program. This decision is expected to significantly reduce Palmarejo's cash operating costs per ounce1 and capital costs, as compared to the expected costs if we were to move forward with Guadalupe at this time, allowing us to redeploy this cash flow to higher-return projects in 2014. This decision demonstrates our commitment to maximizing cash flow and returns rather than simply focusing on production ounces."
"We believe numerous opportunities remain for us to enhance revenues, reduce costs, and fund organic and external growth projects that meet our return criteria. Based on today's silver and gold prices, we continue to believe that we will generate significant after-tax operating cash flow and positive net cash flow for the next few years."
Table 1: Financial Highlights (Unaudited)
(All amounts in millions, except per share amounts,
|3Q 2013||2Q 2013||
|1Q 2013||4Q 2012||3Q 2012|
|Sales of Metal||$||200.8||$||204.5||(2||%)||$||171.8||$||205.9||$||230.6|
|Adjusted Earnings (Loss) (1)||$||(23.4||)||$||(34.6||)||32||%||$||6.8||$||26.2||$||25.8|
|Adjusted Earnings (Loss) Per Share||$||(0.23||)||$||(0.35||)||34||%||$||0.08||$||0.29||$||0.29|
|Net Income (Loss)||$||(46.3||)||$||(35.0||)||(32||%)||$||12.3||$||37.6||$||(15.8||)|
|Earnings Per Share||$||(0.46||)||$||(0.35||)||(31||%)||$||0.14||$||0.42||$||(0.18||)|
|Cash Flow From Operating Activities||$||26.8||$||63.3||(58||%)||$||12.9||$||61.7||$||79.7|
|Cash, Cash Equivalents & Short-Term Investments||$||211.4||$||249.5||(15||%)||$||332.8||$||126.4||$||143.6|
|Total Debt (net of debt discount)(1)||$||305.3||$||305.3||--||%||$||305.3||$||48.1||$||47.4|
|Weighted Average Shares||100.8||99.8||1.0||%||89.9||89.1||89.4|
|Average Realized Price Per Ounce - Silver||$||21.06||$||22.86||(8||%)||$||30.30||$||32.52||$||30.09|
|Average Realized Price Per Ounce - Gold||$||1,329||$||1,416||(6||%)||$||1,630||$||1,709||$||1,654|
|Silver Ounces Sold||4.9||5.2||(7||%)||3.1||3.6||4.5|
|Gold Ounces Sold||76,466||63,389||21||%||51,926||55,565||59,156|
Coeur's non-U.S. GAAP metric of adjusted earnings1 were $(23.4) million, or $(0.23) per share, in the third quarter 2013, compared with $(34.6) million, or $(0.35) per share, in the second quarter 2013. Third quarter adjusted earnings1 excluded a negative non-cash fair value adjustment of $20.6 million, compared to a positive fair value adjustment of $66.8 million in the second quarter 2013. Fair value adjustments are primarily driven by changes to gold and silver prices, which change the estimated future liabilities for the Palmarejo gold production royalty and the Rochester 3.4% NSR royalty. On a U.S. GAAP basis, the Company realized a net loss of $46.3 million, or $0.46 per share, in the third quarter 2013 compared with net loss of $35.0 million, or $0.35 per share, in the second quarter 2013.
Cash flow from operating activities was $26.8 million in the third quarter 2013 compared to $63.3 million in the second quarter 2013 due primarily to an increase in working capital, partially offset by the change in the fair value adjustment and other non-recurring items. Before changes in working capital, cash flow from operating activities was $37.3 million and $14.4 million in the third and second quarters 2013, respectively.
During the third quarter 2013, the Company hedged downside metal price exposure on approximately 25% and 35% of its forecasted fourth quarter 2013 silver and gold production, respectively, by purchasing put options with strike prices of $17.00/oz of silver and $1,200/oz of gold, in response to ongoing metal price volatility. In October 2013, Coeur hedged a portion of its expected first quarter 2014 production, purchasing puts covering 1.25 million ounces of silver and 25,000 ounces of gold at strike prices of $17.00/oz of silver and $1,150/oz of gold. This hedging strategy is designed to maintain upside exposure to precious metal prices and mitigate the cash flow impact of a short-term drop in metal prices.
Table 2: Operational Highlights: Production
|(silver ounces in thousands)||3Q 2013||2Q 2013||
|1Q 2013||4Q 2012||3Q 2012|
Table 3: Operational Highlights: Cash Operating Costs Per Ounce 1
|3Q 2013||2Q 2013||
Palmarejo, Mexico - Lower Cash Operating Costs per Silver Ounce1; Higher Underground Silver Grade
- Palmarejo produced 1.9 million ounces of silver and 29,893 ounces of gold at cash operating costs of $2.79 per silver ounce1 for the third quarter. In the second quarter 2013, Palmarejo produced 2.0 million ounces of silver and 28,191 ounces of gold at cash operating costs of $3.25 per silver ounce1.
- Silver and gold ore grades declined from the open pit operations compared to the second quarter 2013. However, silver grades increased substantially in the underground operations and gold grades remained constant. Higher overall silver and gold grades are expected in the fourth quarter.
- Recovery rates have increased compared to the second quarter 2013 due to the implementation of an ore blending program and plant reconfiguration.
- Further progress has been achieved in the ongoing cost reduction initiatives at Palmarejo, which have lowered cash operating costs1 in the first three quarters of 2013 compared to plan. These initiatives include reductions in outside services, contract services, reagent and consumable consumption, as well as more favorable pricing on key consumables, shorter waste haul distance, and greater maintenance cost efficiency.
- Sales and cash flow from operating activities totaled $104.5 million and $50.8 million, respectively, in the third quarter 2013, representing increases of 21% and 37%, respectively, compared to the second quarter 2013.
- Capital expenditures of $10.3 million were incurred at Palmarejo in the third quarter 2013, primarily for underground mine development at Palmarejo and Guadalupe.
San Bartolomé, Bolivia - Consistent Performance; Higher Throughput Offset Decrease in Grade
- San Bartolomé produced 1.5 million ounces of silver at cash operating costs of $12.80 per silver ounce1, which was comparable to the second quarter 2013.
- Investments to increase throughput by 10%-15% were recently completed. This expansion is intended to enable the mine to maintain annual production at approximately 6.0 million ounces of silver for the next several years.
- Sales and cash flow from operating activities totaled $28.8 million and $7.6 million, respectively, in the third quarter 2013, down 41% and 77%, respectively, from the second quarter 2013. The second quarter benefited from excess inventory carried at the start of the quarter, which boosted metal sales and provided a release of working capital. Third quarter sales were closely aligned with third quarter production.
- Capital expenditures were $4.2 million during the third quarter 2013 primarily related to the tailings and process plant expansion projects.
Rochester, Nevada - Capacity Expansion Complete; Significant Production Increase Expected in 4Q
- Rochester produced 595,268 ounces of silver and 4,824 ounces of gold, down 29% and 49% respectively, compared to the second quarter 2013. Production was temporarily affected by delays in completion of construction and permitting for the Stage III leach pad expansion. A substantial number of tons of material were placed on the expanded area of the Stage III leach pad during the third quarter, which are expected to contribute to significantly higher production in the fourth quarter 2013 and throughout 2014.
- Crushing performance improved following the addition of metal removal equipment to the crushing plant designed to remove waste contained in the stockpile material, which can lead to downtime if allowed to run through the crusher. Rochester received its highest crushing month on record for September and is expected to crush approximately 12 million tons in total in 2013.
- Cash operating costs per silver ounce1 were $35.83, considerably higher than the second quarter 2013 due to lower than planned production. However, Rochester's cash operating costs1 remain below planned levels year-to-date on a dollars spent basis. Coeur expects a significant reduction in cash operating costs1 on a per unit basis as production ramps up in the fourth quarter 2013 and throughout 2014. Further progress was achieved in the ongoing cost reduction efforts at Rochester, including reductions in reagent and consumable consumption, contract services, power consumption, as well as shorter haul distances.
- Recent investments in the existing heap leach pads at Rochester have increased total capacity by 72 million tons, which Coeur expects will enable operations to continue into the second half of 2017. The Company is in the process of obtaining permits for 120 million tons of additional pad capacity, which are expected to be received by mid-2016. This expanded capacity is anticipated to further extend Rochester's active mine life based on existing reserves through at least 2023.
- Sales totaled $24.3 million in the third quarter 2013 compared to $34.9 million in the second quarter 2013. Cash flow from operating activities of $(3.6) million in the third quarter 2013 was slightly below the $(3.4) million reported in the second quarter 2013.
- Capital expenditures of $12.3 million were spent during the third quarter 2013 on process plant equipment, the Stage III leach pad expansion, and equipment related to the crusher expansion.
Kensington, Alaska - Gold Production Increased 25%; Costs Down 11%; Improved Gold Grade
- Kensington produced 29,049 ounces of gold, an increase of 25% from the second quarter 2013. Cash operating costs per ounce1 were $988, compared to $1,115 in the second quarter 2013 due to the mining and processing of higher-grade stopes. Average mill head grade of 0.20 oz/t was 11% higher than the second quarter 2013.
- The Company made further progress in reducing costs during the third quarter, including reductions in contract services and lower underground backfill costs due to lower prices for backfill material.
- Sales increased 26% sequentially to $38.9 million in the third quarter, and cash flow from operating activities totaled $1.9 million, down from $7.6 million in the second quarter 2013 due to an increase in receivables at quarter-end caused by the timing of provisional payments related to concentrate shipments.
- Capital expenditures of $4.9 million in the third quarter were spent primarily on underground capital development and reserve category drilling.
La Preciosa, Mexico - Feasibility Work Underway
- A strong development team has been established at the corporate office and in Durango, Mexico.
- Coeur has commenced a full feasibility study, along with infill and development drilling. Upon completion of this work in mid-2014, the Company and its Board will evaluate the economics of the optimized project, assess the silver and gold market, and determine whether to proceed with construction.
- The Company spent $3.5 million during the third quarter and expects to spend an additional $21 million by mid-2014 on exploration, sustainability projects within the community, engineering, construction of an access road, and land acquisitions.
Costs associated with exploration activities for the quarter were $3.3 million (expensed) for discovery of new silver and gold mineralization and $4.6 million (capitalized) for definition and expansion of new discoveries, for a total of $7.9 million. On a year-to-date basis, total exploration costs were $26.2 million, tracking below original guidance of $40 million for the full year, consistent with the Company's initiative to reduce costs. Coeur expects to spend $37 million on exploration in 2013.
Coeur's exploration program used nine drill rigs during the quarter: four drills at Palmarejo, four at Kensington, and one at Rochester. This work resulted in completion of over 145,700 feet (44,400 meters) of combined core and reverse circulation drilling. Through the first nine months of 2013, nearly 428,000 feet (131,000 meters) of drilling was completed.
- Exploration for mineralization discovery and definition was conducted around the Palmarejo surface and underground mine area, from the surface at Guadalupe, and from the surface at the El Salto zone. Favorable results were returned from two areas at Palmarejo: Guadalupe underground and the El Salto surface.
- Hole 93, located between the Tucson and Chapotillo pits, cut 10.8 m (35.4 feet) estimated true width grading 533 silver grams per metric ton (15.5 ounces per short ton) and 4.93 gold grams per metric ton (0.14 ounces per short ton). This hole cut a mineralized, north-south structure on the eastern portion of the pits. Based on these results, additional drilling is underway as this represents potential to extend the open pit in that direction.
- In addition, drilling was performed to test the potential to expand the Palmarejo surface mine limits to the North-Northeast. Drilling in this area encountered multiple veins. Of note, results returned from hole 7 with 4.6 meters estimated true width (15.1 feet) grading 119 silver grams per metric ton (3.47 ounces per short ton) and 0.88 grams per metric ton of gold (0.026 ounces per short ton) suggest potential to expand surface mine limits. Similar to the results from hole 93, these results are being followed with additional drilling.
- Underground drilling continued at the Guadalupe deposit utilizing the north portal for drill access. Results included 16.0 meters in hole 10 (estimated true width or 52.5 feet) grading 227 silver grams per metric ton (6.6 ounces per short ton) and 3.49 gold grams per metric ton (0.10 ounces per short ton) and 6.8 meters in hole 16 (22.3 feet) grading 334 silver grams per metric ton (9.74 ounces per short ton) and 3.97 gold grams per metric ton (0.12 ounces per short ton).
- At the El Salto zone, which lies between Guadalupe and Las Animas, significant results were reported from near-surface intervals. See Table 4 below for details.
- All intervals are near-surface mineralization with multiple silver-gold zones cut in several holes. Based on these significant new results, additional holes are planned for 2014 as this represents another area of potential future open-pit resource and it is located above the Guadalupe structure.
- Drilling also commenced on the southern end of Las Animas to extend known near-surface mineralization towards the recently acquired La Curra property, where near-surface silver-gold mineralization is known. Assays are pending on the new core holes.
- An updated reserve estimate was prepared for the full Rochester property removing all restrictions imposed by the former claims dispute. This update produced a 91.5% increase in silver reserves and 96.4% increase in gold reserves at Rochester in September 2013.
- The updated reserve estimate did not include data from the recent drilling of stockpiles and in-situ mineralization, which will be reflected in a further update planned for year-end 2013.
- Drilling during the third quarter continued on expansion and definition of stockpiles. It is expected that drilling of the stockpiles will be essentially complete this year.
- In addition to the stockpiles, drilling commenced in the third quarter on new, in-situ mineralization targets. Two new targets were drilled, both providing encouraging results to be pursued in the coming months.
- During the third quarter, exploration drilling began on the Jualin area, which is located south of the Kensington mine. Drilling targeted the number 4 vein, one of several, discrete gold-bearing zones known at Jualin. Consistent with historic results, occurrences of visible gold and high-grade mineralized intervals were intersected with the first five holes completed this year. See Table 5 below for details (holes 3 and 4).
- The Company will continue drilling in the zone in 2013 and begin again in early 2014, weather permitting. Based on these grades, the Jualin area has potential to provide high-grade feed to the Kensington mill.
- Underground drilling was conducted during the quarter on the new Ann zone situated less than 200 feet to the east of the main Kensington deposit. See Table 5 below for details (hole 47). Drilling will continue in the Ann zone based on these encouraging results.
- Exploration to define and expand known mineralization focused on the southern margins of upper Zone 10 and Zone 20 in main Kensington during the quarter. Results show that Zone 10 and Zone 20 continue south of known mineralization models. See Table 5 below for details (holes 23, 24, and 49).
La Preciosa, Mexico
- Exploration commenced during the third quarter on the Company's La Preciosa property located in Durango state, Mexico. The exploration team is focused on re-logging drill core to update the geologic model of the deposit. In addition, a new program of sampling of old core holes commenced to supplement the existing assay database. Both efforts are expected to improve the model of mineralization to be used in the on-going feasibility study as well as assist in generation of new drill targets to expand and in-fill the current model.
- Additional drilling is expected to commence in the fourth quarter to test areas of projected mineralized structures on permitted Company lands that have not been previously drilled.
San Bartolomé, Bolivia
- Work continued during the quarter to focus on the main mine area to assist with grade control and definition of known mineralization. Trenching is expected to now shift to the new La Bolsa area, which occurs adjacent to and east of the Santa Rita sector, in the following months.
Table 4: Select Drilling Results at Palmarejo
See the appendix of the presentation titled "3Q 2013 Financial Results" to be posted at www.coeur.com for all drilling results for the third quarter 2013.
Table 5: Select Drilling Results at Kensington
See the appendix of the presentation titled "3Q 2013 Financial Results" to be posted at www.coeur.com for all drilling results for the third quarter 2013.
Coeur's 2013 silver and gold production guidance remains unchanged as shown in Table 6 below, and compares to 2012 silver production of 18.0 million ounces and gold production of 226,486 ounces.
Table 6: 2013 Production Outlook
|(silver ounces in thousands)||Country||Silver||Gold|
|1.||Adjusted earnings and cash operating costs are non-GAAP measures. Please see tables in the Appendix for the reconciliation to U.S. GAAP. Total debt includes short and long-term indebtedness and excludes capital leases and royalty obligations.|
Conference Call Information
Coeur will hold a conference call and webcast at www.coeur.com to discuss the Company's third quarter 2013 results on November 7, 2013 at 11:00 a.m. Eastern time.
|Dial-In Numbers:||(877) 768-0708 (U.S. and Canada)|
|(660) 422-4718 (International)|
|Conference ID:||805 93 215|
A replay of the call will be available on Coeur's website through November 21, 2013.
|Replay Numbers:||(855) 859-2056 (U.S. and Canada)|
|(404) 537-3406 (International)|
|Conference ID:||805 93 215|
Coeur Mining, Inc. is the largest U.S.-based primary silver producer and a growing gold producer. The Company has four precious metals mines in the Americas generating strong production, sales and cash flow. Coeur produces from its wholly owned operations: the Palmarejo silver-gold mine in Mexico, the San Bartolomé silver mine in Bolivia, the Rochester silver-gold mine in Nevada and the Kensington gold mine in Alaska. The Company also has a non-operating interest in the Endeavor mine in Australia. In addition, the Company has two silver-gold feasibility stage projects - the La Preciosa project in Mexico and the Joaquin project in Argentina. The Company also conducts ongoing exploration activities in Mexico, Argentina, Nevada, Alaska and Bolivia. The Company owns strategic investment positions in eight silver and gold development companies with projects in North and South America.
Posted: November 7, 2013