Coeur Mining Q2 2024 Earnings Report

Coeur Mining EPS Results

• Actual EPS: -$0.01
• Consensus EPS: -$0.02
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: -$0.06

Coeur Mining Revenue Results

• Actual Revenue: $222.03 million
• Expected Revenue: $242.18 million
• Beat/Miss: Missed by -$20.15 million
• YoY Revenue Growth: +25.30%

Coeur Mining Announcement Details

• Quarter: Q2 2024
• Date: 8/7/2024
• Time: After Market Closes
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 11:00AM ET

Coeur Mining (NYSE:CDE) is a publicly traded precious metals mining company headquartered in Chicago, Illinois. The company specializes in the exploration, development and production of silver and gold deposits, with a focus on high-grade underground and open-pit operations. Through a combination of operating mines and advanced exploration projects, Coeur Mining seeks to deliver consistent production of silver and gold bullion while maintaining industry standards for safety, environmental stewardship and cost management.

Coeur Mining’s portfolio includes five principal operating mines and several exploration projects across North America and Australia. Key assets comprise the Palmarejo mine in Chihuahua, Mexico; the Kensington mine in Alaska; the Rochester mine in Nevada; the Wharf mine in South Dakota; and the Silvertip mine in British Columbia, Canada. These operations feature both underground and surface mining techniques and are supported by regional processing facilities. In addition to its producing mines, Coeur maintains a pipeline of advanced exploration properties designed to leverage existing infrastructure and extend the life of current operations.

The modern Coeur Mining entity was established in 2004 following a corporate restructuring of Coeur d’Alene Mines, a company with roots in the historic Silver Valley of Idaho. Since that time, the company has grown through targeted acquisitions and organic exploration, bolstering its asset base and expanding its geographic footprint. Notable milestones include the acquisition of the Rochester and Wharf mines, as well as the recent addition of the Silvertip project in British Columbia. These strategic moves have diversified Coeur’s production profile and enhanced its ability to pursue new discoveries.

Under the leadership of President and Chief Executive Officer Mitchell J. Krebs, Coeur Mining emphasizes sustainable mining practices, community engagement and responsible resource development. The company employs industry best practices to manage environmental impacts and works closely with local stakeholders to support social and economic initiatives in host regions. Through disciplined capital allocation and a commitment to operational excellence, Coeur Mining aims to generate long‐term value for shareholders while upholding its core principles of safety and integrity.

Coeur Mining Q2 2024 Earnings Call Transcript

Key Takeaways

• The Rochester ramp-up is now consistently crushing and placing around 90,000 tons per day, driving a nearly 40% jump in silver and gold production in Q2 and setting the stage for further unit cost reductions.
• Coeur expects a transition to positive free cash flow in the second half of 2024 as Rochester stabilizes and Palmarejo, Wharf and Kensington deliver steady operational results.
• 2024 cost guidance was refined with lower CAS at Palmarejo and Wharf due to higher grades and efficiency gains, while Rochester’s CAS was adjusted for stage timing and targeted ore placement.
• The balance sheet improved to below 3× net debt to EBITDA, with $275 million drawn on the revolver, and management aims for a long-term target of 1× total debt to EBITDA and net debt of zero by 2026 through aggressive revolver repayment.
• Significant growth catalysts include the acquisition of two key Fresnillo concessions at Palmarejo for near-term mine life extensions and a record summer exploration program at Silvertip to expand the resource base.

Presentation

[Operator]

Good day, and welcome to the second quarter 2024 financial results for Coeur Mining conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Mr. Mitchell Krebs, President and CEO of Coeur Mining. Please go ahead.

[Mitchell Krebs, CEO at Coeur Mining]

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 second quarter 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.

[Mitchell Krebs, CEO at Coeur Mining]

Rochester's silver and gold production both jumped nearly 40% in the second quarter, which was a great sign that the team out in Nevada is building momentum heading into the back half of the year. Mick will provide some additional details on Rochester in a few minutes. Our three 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.

[Mitchell Krebs, CEO at Coeur Mining]

Prices in the second quarter were about 10% higher year-over-year, yet our quarterly adjusted EBITDA jumped 136%, and our LTM adjusted EBITDA increased 90% to $192 million. 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 two 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 two key concessions from Fresnillo and consolidate the land package to the east of Palmarejo.

[Mitchell Krebs, CEO at Coeur Mining]

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. 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. Mick, over to you.

[Mitchell Krebs, CEO at Coeur Mining]

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, Coeur's deeply embedded safety culture continues to show through in our overall safety performance. I'm pleased to report that a clean slate at Wharf in June marked 1 year of the operation without a lost time incident. 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 second quarter results on slide 4 and kicking off with Rochester. Silver production in the second 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.

[Mitchell Krebs, CEO at Coeur Mining]

As reported on July 11, placement of ounces during the second quarter was lighter than initially planned, but Rochester remains on track to deliver on 2024 production gains. Over the first several weeks of the third quarter, 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 million tons in July, and we remain well positioned to deliver crushing and placement rates of 7-8 million tons per quarter in the second half and into 2025. Concurrent with delivering these higher crushing and placement rates, our focus in the second half of 2024 will be on working down material crush size towards a targeted 5/8 of an inch in order to maximize recoveries.

[Mitchell Krebs, CEO at Coeur Mining]

Moving on to Palmarejo, the mine followed up a very strong first quarter with another solid three months, delivering about 25,000 ounces of gold and nearly 1.6 million ounces of silver. In June, the team broke ground on a third access portal at Hidalgo, which is expected to significantly enhance our underground mine 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 Aoife 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, paste placement, and getting more stope feed to the surface.

[Mitchell Krebs, CEO at Coeur Mining]

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 multi-year 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. The program now stands at 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 first quarter to an impressive $822 per ounce. When Wharf was acquired by Coeur in 2015, reserves stood at approximately 560,000 ounces.

[Mitchell Krebs, CEO at Coeur Mining]

At year-end 2023, nine years later, Wharf's gold reserves stood at over 760,000 ounces, with even further exploration upside. The team there has recently identified two new opportunities near existing mining areas, aimed at substantially extending Wharf's already long life. The two targets, North Foley and Juno, will be drill-tested over the remainder of 2024 and 2025 to demonstrate the scope of the potential opportunity. With that, I'll pass the call over to Tom.

[Thomas Whelan, CFO at Coeur Mining]

Thanks, Mick. I'll begin with a brief review of our second quarter 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 de-levering the balance sheet on the back of Rochester's and the overall company's return to free cash flow. As detailed on slide 10, Coeur'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.

[Thomas Whelan, CFO at Coeur Mining]

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 VI through the first half of the year. In addition, overall 2024 CapEx and exploration guidance has also been adjusted to reflect the following.

[Thomas Whelan, CFO at Coeur Mining]

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. Turning to the balance sheet on slide 12, we ended the quarter with approximately $275 million drawn on our $400 million revolving credit facility.

[Thomas Whelan, CFO at Coeur Mining]

Our balance sheet ratios have already seen significant improvement since the high watermark one year ago, and we now sit below three times net debt to EBITDA for the first time in over two 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 one times and net debt to EBITDA of nil. I will now pass the call to Aoife.

[Aoife McGrath, VP Exploration at Coeur Mining]

Thanks, Tom. Starting at Palmarejo on slide 8, the newly acquired concession from Fresnillo provide us with full access to the four 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 Sur 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 Nación. Fresnillo conducted drilling on this block, and we are hopeful that with additional exploration, we can outline new resources in the very near term.

[Aoife McGrath, VP Exploration at Coeur Mining]

Mapping is already well underway, and re-logging of Fresnillo core and incorporating it into Coeur's database and geological models are immediate aims, with drilling planned for early 2025. The new Guazapares 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 Palmarejo. It surrounds multiple advanced exploration targets, containing significant drilling and historic resources that were added to Coeur's portfolio through the 2015 acquisition of Paramount Gold and Silver. This new block of Fresnillo concessions allows full access to these historic resources and opens up significant down-depth and along-strike opportunities. 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 Guazapares trends of mineralization exists the Camuchín-Escondida trend.

[Aoife McGrath, VP Exploration at Coeur Mining]

This is the third of four identified belts at 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 three-pronged approach this year, including near-mine extensions to known mineralization via underground drilling, larger step outs on known structures to rapidly add resources via surface drilling, and regional scale exploration to identify Silvertip lookalikes and larger structures with potential to host larger ore bodies. We look forward to providing an update on the program later in the year. At Kensington, the multi-year 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.

[Aoife McGrath, VP Exploration at Coeur Mining]

We continue to be very encouraged for ongoing mine life growth throughout this program. With that, I'll hand the call back to Mitch.

[Mitchell Krebs, CEO at Coeur Mining]

Thanks, Aoife. Before moving to the Q&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. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.

[Joseph Reagor, Analyst]

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

[Mitchell Krebs, CEO at Coeur Mining]

Hi, Joe.

[Joseph Reagor, Analyst]

Hey. So first thing, on Rochester, you guys adjusted the cost guidance there, and it 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 cost, excluding that item.

[Mitchell Krebs, CEO at Coeur Mining]

Yeah, sure. I'll, I'll take a crack at it, and then, Mick, maybe you can, 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. It was really a function of timing of ounces placed out onto stage six. In the second quarter, 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.

[Mitchell Krebs, CEO at Coeur Mining]

And so just by a function of the timing of tons being put out there on stage six, 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?

[Michael Routledge, COO at Coeur Mining]

Yeah, we're really happy with the ramp up. But 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's going the way we expect it to. Just a little bit delayed on a few of those ounces to the pad.

[Mitchell Krebs, CEO at Coeur Mining]

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.

[Joseph Reagor, Analyst]

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

[Mitchell Krebs, CEO at Coeur Mining]

Good question. We'll probably start seeing some drilling, first part of next year, particularly in the 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 La Nación, which would, you know, probably put us into 2026, as far as the first window of seeing some ounces out of that nearer area that we just acquired from Fresnillo. Aoife, Mick, anything you want to add?

[Michael Routledge, COO at Coeur Mining]

Yeah, the great thing is that underground, it's close to infrastructure. It's already areas that were mining, so it's really extensions of those areas. So as Mitch said, there's, 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.

[Aoife McGrath, VP Exploration at Coeur Mining]

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

[Joseph Reagor, Analyst]

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 or you know, over the next couple of years?

[Mitchell Krebs, CEO at Coeur Mining]

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

[Thomas Whelan, CFO at Coeur Mining]

Yeah. Morning, Joe. Just, I just go back to our comments. We're always aiming for a total debt to EBITDA long-term of 1x and a net debt to EBITDA of nil, nil. And so, you know, to get there, when you look at where our senior notes balance looks like right now, just under a shade of, shade under $300 million, that kind of marries up to what we think long-term, EBITDA of the company is gonna be on a go-forward basis. So, once the free cash flow starts happening in the second half of the year, it's all gonna be geared towards repaying that revolver. I mean, how fast can we get that revolver paid? How fast can we get to those, that long-term goal?

[Thomas Whelan, CFO at Coeur Mining]

I think it'd be a stretch to say we'd have it done by the end of 2025, but certainly in 2026. You know, it's not out of the question, though, in 2025, if the commodity prices were to bounce back up and stay at levels just a little bit higher than this. So... In terms of the minimum cash, you know, we probably wanna always have at least $50 million on the balance sheet. You know, operating in three jurisdictions, it's probably nicer to be maybe a little bit higher than that, but at bare minimum, we need $50 million.

[Joseph Reagor, Analyst]

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

[Mitchell Krebs, CEO at Coeur Mining]

Yeah, thanks, Joe.

[Operator]

Once more, if you have a question, please press Star, then One. Our next question comes from Mark Ferrari of National Bank Financial. Please go ahead.

[Mark Ferrari, Analyst]

Hi, guys.

[Mitchell Krebs, CEO at Coeur Mining]

Hi, Mark.

[Mark Ferrari, Analyst]

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

[Mitchell Krebs, CEO at Coeur Mining]

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

[Michael Routledge, COO at Coeur Mining]

Yeah. Really, we're seeing good things. I mean, we're still only four or five months into what would be a longer ramp-up, and we hit the nameplate. We're really happy about that. We're seeing consistent numbers on a daily basis, running at that sort of 90-100,000 tons per day. And so, you know, last month, even with a few downs, we delivered nearly 2 million tons to the pad. Our expectation is north of that for the rest of the year, expecting to land between 7 and 8 million tons per quarter. And that's really setting us up well, because during that period of 7-8 million tons, we are continuing to optimize for size fraction.

[Michael Routledge, COO at Coeur Mining]

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. So it's given us a lot of confidence that we'll hit the 32 million tons in 2025, and we'll have that size fraction dialed into the 5/8 and be getting the recoveries that we expect going forward. So yeah, overall, everything's doing what we said it would do, and we're pretty happy with the performance.

[Mitchell Krebs, CEO at Coeur Mining]

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

[Michael Routledge, COO at Coeur Mining]

Yeah. There's a few little jobs to do, but they're 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 fraction.

[Mark Ferrari, Analyst]

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

[Michael Routledge, COO at Coeur Mining]

Cheers.

[Operator]

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

[Mitchell Krebs, CEO at Coeur Mining]

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

Participants

Executives

• Aoife McGrath, VP Exploration
• Michael Routledge, COO
• Mitchell Krebs, CEO
• Thomas Whelan, CFO

Analysts

• Joseph Reagor, Analyst
• Mark Ferrari, Analyst