Reaffirms Production Guidance; Updates Cost and Capital Expenditure Guidance
CHICAGO–(BUSINESS WIRE)–Coeur Mining, Inc. (�Coeur or the Company) (NYSE: CDE) today reported third quarter 2021 financial results, including revenue of $208.0 million and cash flow from operating activities of $21.8 million. The Company reported GAAP net loss from continuing operations of $54.8 million, or $0.21 per share, which included a $26.0 million non-cash write-down of Mexican value-added tax (VAT) refunds and non-cash unrealized losses of $35.7 million on strategic equity investments, primarily related to Coeurs 18% equity ownership of Victoria Gold Corp. (Victoria) during the quarter. On an adjusted basis1, Coeur reported EBITDA of $48.8 million, cash flow from operating activities before changes in working capital of $34.8 million and net loss from continuing operations of $2.6 million, or $0.01 per share.
Key Highlights
Our third quarter results reflect our strategy of elevated near-term investment in our balanced platform of North American assets to generate attractive returns and long-term, sustainable free cash flow1, from lower cost, longer life precious metals assets, said Mitchell J. Krebs, President and Chief Executive Officer. During the quarter, Wharf was our standout performer by delivering its second-highest quarterly cash flow figures since we acquired it in early 2015. Additionally, Wharf recently celebrated one year without a recordable safety incident. Mr. Krebs continued, With a strong expected fourth quarter underway, we remain on track to achieve our 2021 production guidance at each of our operations.
Our sector-leading level of investment in exploration continues to focus on delivering resource and reserve growth to further extend mine lives and generate new potential growth opportunities. Our key near-term catalyst remains the Plan of Operations Amendment 11 (`POA 11′) expansion at Rochester in northern Nevada, where we continue to generate and apply key learnings from the existing operation to best position the expanded operation for long-term success once construction is completed. Despite the current inflationary environment, we believe Rochester remains a transformative, well-funded source of growth for the Company on which we remain laser focused.
Preliminary capital estimates to expand and restart the Silvertip operation in northern British Columbia were received during the quarter and came in higher than we anticipated, reflecting the current inflationary environment, supply and labor disruptions, and schedule constraints. However, the extent of our ongoing exploration success and commitment to our capital allocation framework is leading us to investigate the possibility of a larger expansion and restart to take advantage of a potentially much larger resource than we had originally contemplated when we acquired the high-grade Silvertip mine. Although this will require additional time to assess while we carry out further drilling, it will have the benefits of allowing us to prioritize a successful completion of the Rochester expansion, preserving balance sheet flexibility and potentially allowing for many of these macroeconomic factors to stabilize.
Finally, we have signed an agreement to sell the La Preciosa project in Mexico to Avino, which operates the nearby Avino mine. We believe this transaction will accelerate value creation from this asset by allowing the Avino team to incorporate La Preciosa into its nearby Avino operation. Moreover, this transaction is consistent with our capital allocation framework and allows us to prioritize higher-return growth from our U.S. and Canadian exploration and development projects while retaining upside to La Preciosa through equity participation, the retention of royalties and contingent payments, concluded Mr. Krebs.
Financial and Operating Highlights (Unaudited)
| (Amounts in millions, except per share amounts, gold/silver ounces produced & sold, and per-ounce metrics) | 3Q 2021 | 2Q 2021 | 1Q 2021 | 4Q 2020 | 3Q 2020 | ||||||||||
| Gold Sales | $ | 147.7 |
| $ | 146.2 |
| $ | 138.3 |
| $ | 162.0 |
| $ | 167.1 |
|
| Silver Sales | $ | 60.2 |
| $ | 68.7 |
| $ | 63.8 |
| $ | 66.4 |
| $ | 62.6 |
|
| Consolidated Revenue | $ | 208.0 |
| $ | 214.9 |
| $ | 202.1 |
| $ | 228.3 |
| $ | 229.7 |
|
| Costs Applicable to Sales3 | $ | 134.3 |
| $ | 132.6 |
| $ | 108.1 |
| $ | 118.6 |
| $ | 112.8 |
|
| General and Administrative Expenses | $ | 8.7 |
| $ | 10.5 |
| $ | 11.6 |
| $ | 8.4 |
| $ | 7.8 |
|
| Net Income (Loss) | $ | (54.8) |
| $ | 32.1 |
| $ | 2.1 |
| $ | 11.9 |
| $ | 26.9 |
|
| Net Income (Loss) Per Share | $ | (0.21) |
| $ | 0.13 |
| $ | 0.01 |
| $ | 0.05 |
| $ | 0.11 |
|
| Adjusted Net Income (Loss)1 | $ | (2.6) |
| $ | (0.8) |
| $ | 13.9 |
| $ | 19.1 |
| $ | 38.2 |
|
| Adjusted Net Income (Loss)1 Per Share | $ | (0.01) |
| $ | 0.00 |
| $ | 0.06 |
| $ | 0.08 |
| $ | 0.16 |
|
| Weighted Average Shares Outstanding | 254.7 |
| 252.1 |
| 244.5 |
| 244.3 |
| 243.8 |
| |||||
| EBITDA1 | $ | (14.2) |
| $ | 84.6 |
| $ | 49.7 |
| $ | 76.7 |
| $ | 77.3 |
|
| Adjusted EBITDA1 | $ | 48.8 |
| $ | 52.7 |
| $ | 65.9 |
| $ | 84.0 |
| $ | 90.8 |
|
| Cash Flow from Operating Activities | $ | 21.8 |
| $ | 58.1 |
| $ | (4.4) |
| $ | 67.3 |
| $ | 79.5 |
|
| Capital Expenditures | $ | 71.3 |
| $ | 78.2 |
| $ | 59.4 |
| $ | 37.4 |
| $ | 23.0 |
|
| Free Cash Flow1 | $ | (49.4) |
| $ | (20.2) |
| $ | (63.8) |
| $ | 29.8 |
| $ | 56.5 |
|
| Cash, Equivalents & Short-Term Investments | $ | 85.0 |
| $ | 124.1 |
| $ | 154.1 |
| $ | 92.8 |
| $ | 77.1 |
|
| Total Debt4 | $ | 442.4 |
| $ | 414.2 |
| $ | 412.1 |
| $ | 275.5 |
| $ | 301.1 |
|
| Average Realized Price Per Ounce Gold | $ | 1,645 |
| $ | 1,651 |
| $ | 1,664 |
| $ | 1,663 |
| $ | 1,754 |
|
| Average Realized Price Per Ounce Silver | $ | 24.18 |
| $ | 26.60 |
| $ | 26.19 |
| $ | 24.21 |
| $ | 24.15 |
|
| Gold Ounces Produced | 87,083 |
| 87,275 |
| 85,225 |
| 96,377 |
| 95,995 |
| |||||
| Silver Ounces Produced | 2.5 |
| 2.6 |
| 2.4 |
| 2.8 |
| 2.6 |
| |||||
| Gold Ounces Sold | 89,804 |
| 88,501 |
| 83,112 |
| 97,400 |
| 95,283 |
| |||||
| Silver Ounces Sold | 2.5 |
| 2.6 |
| 2.4 |
| 2.7 |
| 2.6 |
| |||||
Financial Results
Third quarter 2021 revenue totaled $208.0 million compared to $214.9 million in the prior period and $229.7 million in the third quarter of 2020. The Company produced 87,083 and 2.5 million ounces of gold and silver, respectively, during the quarter. Metal sales totaled 89,804 ounces of gold and 2.5 million ounces of silver. Average realized gold and silver prices for the quarter were $1,645 and $24.18 per ounce, respectively, compared to $1,651 and $26.60 per ounce in the prior period and $1,754 and $24.15 per ounce in the third quarter of 2020.
Gold and silver sales accounted for 71% and 29% of quarterly revenue, respectively. The Companys U.S. operations accounted for approximately 64% of third quarter revenue.
Costs applicable to sales3 remained relatively consistent quarter-over-quarter at $134.3 million. General and administrative expenses for the quarter totaled $8.7 million compared to $10.5 million in the prior period, primarily due to lower employee-related costs.
Coeur invested approximately $20.0 million ($15.4 million expensed and $4.6 million capitalized) in exploration during the quarter, compared to roughly $18.6 million ($12.4 million expensed and $6.2 million capitalized) in the prior period, reflecting an increase in drilling activity at Kensington, Rochester and Silvertip. Notably, the Company completed approximately 326,500 feet (99,500 meters) of expansion and infill drilling during the period, establishing another new Company record. See the Operations and Exploration sections for additional detail on the Companys exploration activities.
Operating costs related to COVID-19 mitigation and response efforts declined to $0.6 million during the third quarter, compared to $2.3 million in the prior period and $4.0 million in the third quarter of 2020. These costs were primarily driven by employee-related expenses at Kensington and Palmarejo, and are included in Pre-development, reclamation, and other expenses on the Companys income statement. Coeur has maintained rigorous health and safety protocols across its operations and in surrounding communities aimed at limiting the exposure and transmission of COVID-19 which has led to minimal business interruptions.
The Company recorded an income tax expense of $6.4 million during the third quarter. Cash income and mining taxes paid during the period totaled approximately $8.0 million.
Quarterly operating cash flow totaled $21.8 million compared to $58.1 million in the prior period, largely driven by lower metal sales and changes in working capital. Changes in working capital during the quarter were $(13.0) million, compared to $26.6 million in the prior period, largely due to the buildup of leach pad inventory at Rochester, timing of interest payments as well as a cash outflow of $7.4 million associated with Coeurs prepayment agreement at Kensington. The Company expects the remaining $7.6 million cash outflow under the arrangement to occur in the fourth quarter.
Capital expenditures during the third quarter were $71.3 million compared to $78.2 million in the prior period. Expenditures related to the POA 11 expansion project at Rochester totaled $39.0 million during the quarter, compared to $33.2 million in the second quarter. Sustaining and development capital expenditures accounted for approximately 26% and 74%, respectively, of the Companys total capital investment during the quarter.
Capital Projects Update
Rochester Expansion
Overall progress under the current scope of the project was approximately 42% complete at the end of the period. During the third quarter, the Company completed crushing of over-liner material for the new Stage VI leach pad and commenced foundation work for the Merrill-Crowe process plant and crusher corridor.
As of September 30, 2021, the Company has committed approximately $351 million of capital since the inception of the expansion project in the third quarter of 2020, including 78 executed contracts valued at approximately $339 million. There are a total of four packages yet to be awarded, including two structural, mechanical, piping, electrical and instrumentation (SMPEI) construction contracts for the Merrill-Crowe process plant and crushing circuit, respectively.
As previously disclosed, Coeur began experiencing signs of inflationary pressures on recent bids received for the remaining uncommitted contracts. The Company is in the process of reassessing its options to mitigate these pressures by (i) re-scoping and combining these remaining contracts to capture potential cost savings and efficiencies, and (ii) modifying its commercial approach to awarding the remaining uncommitted contracts.
Coeur currently estimates that the overall impact of inflationary pressures, including the two SMPEI contracts, could potentially add up to 10% – 15% to the total construction capital estimate for the expansion project. The total construction capital estimate for POA 11 of approximately $453 million, as previously disclosed, includes $35 million of 2020 budgeted expenditures, $397 million as reflected in Coeurs Canadian National Instrument 43-101 Technical Report for Rochester dated December 16, 2020 and roughly $20 million of project enhancements reported in the second quarter of 2021.
Coeur has been using Rochesters existing crusher system and the Stage IV leach pad as a full-scale test bed to optimize performance and further de-risk the POA 11 expansion project.
Through these efforts, the Company has identified a potential opportunity to enhance future operating flexibility by incorporating pre-screens into the flowsheet for the newly constructed crushing circuit. While the Company completes detailed engineering related to implementing pre-screens into the POA 11 expansion in the coming months, Coeur intends to install pre-screens on the existing crusher system during the first half of 2022, which is expected to improve the performance of the existing crushing system and Stage IV leach pad while providing additional experience and knowledge that can potentially be applied to the new crusher corridor as part of the POA 11 expansion. If the Company determines that pre-screens are a value-accretive scope change to the project, Coeur currently estimates that commissioning and ramp-up of the new crushing circuit could be extended by three to six months.
Silvertip Expansion and Restart
During the quarter, the Company received preliminary capital estimates for an accelerated expansion and restart, which were higher than originally anticipated and reflect overall inflationary pressures as well as supply disruptions and labor market tightness consistent with broader macroeconomic themes.
Coeur continues to generate positive results from its ongoing exploration program at Silvertip. Assay results continue to demonstrate the potential for significant resource growth with over two miles (3.5 kilometers) of north-south strike length now delineated, more than triple the original resource strike length. As highlighted in the Companys news release published on September 9, 2021, recent drilling has encountered flat-lying, manto-style mineralization with meaningful thicknesses that connects to the vertical massive sulfide feeder structures in both the Southern Silver and Discovery South zones, demonstrating the potential to grow resource tonnage with additional drilling. Recent drilling south of the Southern Silver zone has cut 11 horizontal manto-style massive sulfide horizons with greater than 10% sphalerite, further suggesting the mineral system may grow to the south. Additionally, ongoing metallurgical test work is validating the Companys assumptions on potential recovery rates and concentrate qualities.
Given these drilling results, the enhanced understanding of the Silvertip deposit and the potential to significantly expand the size of the resource with continued drilling, Coeur is now assessing the opportunity to significantly enhance the economics of a potential expansion and restart by re-evaluating the overall scope, including higher throughput, staging options, delivery timeline and commercial approach to the project.
Coeur anticipates this ongoing review, current macroeconomic conditions impacting capital estimates and continued exploration investment will result in the Company sequencing a potential Silvertip expansion and restart following the completion of the POA 11 expansion at Rochester. Coeur believes the benefits of this sequencing includes (i) allowing for an acute focus on successful completion of the Rochester expansion, and (ii) maximizing balance sheet flexibility.
Liquidity Update
The Company ended the third quarter with total liquidity of approximately $330.0 million, including $85.0 million of cash and $245.0 million of available capacity under its $300.0 million RCF2. The aggregate borrowing capacity under the RCF may be increased by up to $100.0 million. Additionally, the Company had $139.7 million of strategic investments in equity securities and the full $100.0 million available under its at-the-market common stock offering program established in April 2020 (ATM Program).
Hedging Update
The Company did not execute any additional hedges during the third quarter. Coeur previously completed its gold hedging program for 2021 and continues to proactively monitor market conditions to potentially layer in additional hedges on up to 50% of expected gold production in 2022. The Companys silver price exposure remains unhedged. An overview of the hedges currently implemented is outlined below:
|
| 4Q 2021 | 2022 |
| Gold Ounces Hedged | 39,675 | 132,000 |
| Avg. Ceiling ($/oz) | $1,882 | $2,038 |
| Avg. Floor ($/oz) | $1,600 | $1,630 |
Mexican VAT
Under the legacy royalty agreement between Coeurs Mexican subsidiary (Coeur Mexicana, S.A. de C.V., or Coeur Mexicana) and a subsidiary of Franco-Nevada Corporation that was terminated in 2016, the Company was entitled to receive refunds of VAT paid on each royalty payment from the tax administration in Mexico – Servicio de Administración Tributaria (SAT).
Coeur applied for and initially received VAT refunds; however, in 2011 SAT began denying the Companys VAT refund requests based on the argument that VAT was not legally due on the royalty payments. Accordingly, Coeur began to request refunds of the VAT as undue payments, which SAT also denied. The Company has since been engaged in ongoing efforts to recover the VAT from the Mexican government (including through litigation and potential arbitration as well as refiling VAT refund requests).
While the Company believes that it remains legally entitled to be refunded the full amount of the VAT receivable, based on the continued failure to recover the VAT receivable from the Mexican government and recent unfavorable Mexican court decisions which the Company and its counsel believes are contrary to legal precedent, conflicting and erroneous, Coeur wrote off the $26.0 million carrying value of the VAT receivable as of September 30, 2021. Notwithstanding the write-down, the Company intends to continue vigorously pursuing the VAT refunds, including potentially pursuing arbitration under the North American Free Trade Agreement.
Gold sales under Coeur Mexicanas current stream agreement with a subsidiary of Franco-Nevada Corporation, which took effect upon termination of the legacy royalty agreement in 2016, are not subject to VAT.
Mark-to-Market Adjustments
The Company values its strategic investments in equity securities as of the end of each reporting period. The estimated fair values of the Companys equity investments in Victoria and Integra Resources Corp. were $131.2 million and $8.5 million, respectively, at September 30, 2021 compared to $164.7 million and $9.6 million, respectively, at June 30, 2021, resulting in a non-cash unrealized loss of $35.7 million during the third quarter of 2021. This figure is included in Fair value adjustments, net on the Companys income statement.
Rochester LCM Adjustment
Coeur reports the carrying value of metal and leach pad inventory at the lower of cost or net realizable value, with cost being determined using a weighted average cost method. At the end of the third quarter, the cost of ore on leach pads at Rochester exceeded its net realizable value which resulted in an lower of cost or market (LCM) adjustment of $6.0 million (approximately $5.3 million in costs applicable to sales3 and $0.7 million of amortization).
La Preciosa Transaction
Under the Agreement entered into on October 27, 2021, Coeur is selling its La Preciosa project located in the State of Durango, Mexico to Avino. The transaction consideration includes:
In connection with the transaction, Coeur and Avino will enter into a governance agreement on closing pursuant to which, among other rights, Coeur will be granted preemptive rights to maintain its pro rata interest in Avino and the right to appoint one director to Avinos Board of Directors or a board observer so long as Coeur maintains a minimum ownership of 10% in Avino.
Contacts
Coeur Mining, Inc.
104 S. Michigan Avenue, Suite 900
Chicago, IL 60603
Attention: Paul DePartout, Director, Investor Relations
Phone: (312) 489-5800
www.coeur.com
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