Coeur Mining, Inc. (NYSE:CDE) Q1 2024 Earnings Call Transcript

Coeur Mining, Inc. (NYSE:CDE) Q1 2024 Earnings Call Transcript May 2, 2024

Coeur Mining, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. And welcome to the Coeur Mining First Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please also note, today’s event is being recorded. I would now like to turn the conference over to Mitch Krebs, President and Chief Executive Officer. Please go ahead.

Mitch Krebs: Okay. Hello, everyone and thanks for joining our call. Before we start, I want to point out our cautionary language on forward-looking statements in today’s slide deck and refer to our SEC filings on our Web site. I’ll kick off with a quick overview on Slide 3 before turning the call over Mick, Tom and Aoife. Overall, we had a solid first three months of the year. Both Palmarejo and Wharf had strong quarters compared to planned, which puts the company in a great position for a successful 2024. Slide 4 does a nice job of showing where production stood after the first quarter compared to the quarter-by-quarter guidance profile we provided earlier this year. We often talk about the strategic importance of being a multi-asset company and having a balanced portfolio of operations, and the first quarter was a great example of that.

Palmarejo’s and Wharf’s outperformance helped to offset Rochester’s planned transitional quarter over to the new crusher, which began to process fresh ore on March 8th. Commercial production was achieved just three weeks later, which was a great accomplishment. But it’s what has been happening underneath the hood there that leads to our excitement for the balance of 2024 and beyond. More on Rochester in a minute. On a companywide basis, overall revenue increased 14% year-over-year, while adjusted EBITDA jumped 76%. Capital expenditures dropped off significantly during the quarter with the Rochester expansion now in the rearview mirror. We’re on track to flip to positive free cash flow in the second half of the year, which will be earmarked for debt repayment.

That deleveraging process can be further accelerated assuming current silver and gold prices continue, leading to a rapid and dramatic improvement in our overall financial condition and outlook. In the middle of all of these positive catalysts stands Rochester, which is routinely processing and placing over 70,000 tons of ore per day and occasionally exceeding run rate throughput levels as we put the new crushing circuit through its paces. The rapid ramp up curve is a real testament to the knowledge and operating experience the team is bringing to bear at this world class operation. Before turning the call over to Mick for some additional Rochester details, I want to touch briefly on our progress and plans at some other key initiatives that are expected to augment the near term growth we anticipate from Rochester.

First up is Kensington, which is in its final full year of elevated investment aimed at extending its mine life and enhancing its operational flexibility. Positive exploration results and impressive underground development progress are pointing to the potential for a substantial mine life extension by the end of this year, which Aoife will talk more about in a few minutes. Over the medium term, we continue developing a comprehensive drilling and development plan at Palmarejo on the recently acquired lands located to the east of the current operation. The goal is to hit the ground running once the acquisition of these concessions from Fresnillo is completed hopefully later this year. The nearest of the two acquired blocks to Palmarejo’s existing infrastructure sits just outside the boundaries of the Franco-Nevada gold stream and has the potential to materially supplement our production and cash flow profile within the next three years.

Over the longer term, excitement continues to build at our high grade Silvertip polymetallic exploration project in British Columbia, which Aoife will cover shortly. The convergence of all of these catalysts, higher commodity prices, a completed Rochester, a stable suite of US Centric mines in North America and a world class Canadian exploration project sets us apart from our peers and leaves us very well positioned. Finally, we published our 2023 ESG report last week, which is summarized on Slide 16. The report does a great job detailing our leadership in this area and highlights our efforts to continue raising the bar as we try to keep pursuing a higher standard. With that, I’ll turn the call over to Mick.

Mick Routledge: Thanks, Mitch. Before reviewing our first quarter operating results, I’ll have a recommendation to spend some time with Coeur’s 2023 ESG report, if you haven’t already. While Rochester’s construction was a significant priority over the last three years, I’m an operator at heart and experience is taught that building a very strong foundation in sustainability, responsibility and safety delivers operational success. In addition to the strong results Mitch highlighted, I’m particularly proud to call out two headlines from the ESG report. First, our number one position among our peer group in key safety indicators for the second year in a year and second, our decision to adopt the global industry standard on tailings management.

One of only 17% of non-ICMM member companies in the industry to do so. Setting the pace is not always the easy thing to do but it is the right thing to do, and we’ll continue to dedicate ourselves to leading in both these areas. Turning to our quarterly results. We are pleased with the solid start to the year. As Slide 4 illustrates, 2024 production is expected to be significantly weighted towards the second half, consistent with the production guidance we provided earlier this year. Rochester’s ramp up and day-to-day operating improvement will drive most of that change in quarterly production. Staying with Rochester, silver and gold production in the first quarter totaled nearly 700,000 and 5,800 ounces respectively, right in line with our expectations.

Following the fourth quarter [flush] of ounces from all placed closest to the new pad 6 liner, our focus in 1Q was commissioning the crusher and starting the placement of ore in the cells using only crushed ore from the new circuit, which commenced on March 8th. The crushing circuit runs when we want it to run and we’re maximizing our planned balance to [reframe] and optimize operations. What is really stood out in a way is the tremendous flexibility of the new three stage line, having intermediate stockpiles and all feed can bypass certain stages as needed, giving the team unprecedented levels of control over ultimate size fraction of the ore going to pad 6. Mining rates and refining capacity are more than keeping up with the increased throughput.

Looking ahead, we remain on track to reach the conclusion of the ramp up by the end of the second quarter. The priority in the second half of the year will be on optimizing the mining and processing rates and [ [gaining] in push size to maximize recoveries. Rochester remains on track for 2024 guidance. It’s an exciting time and we are pleased with our progress, but we are keeping our heads down as there remains more work to begin to get this operation properly positioned for its long run in Northern Nevada. Moving on to Palmarejo on Slide 23. The team hit the ground running in the first quarter, reaching its highest quarterly growth in silver production levels in several years. Higher than expected growth from Guadalupe and Independencia grew a strong quarterly free cash flow and positions us well for the balance of 2024.

Continued high diesel prices in Mexico and other headwinds on the cost side of Palmarejo remain a challenge. The team continues to focus on mining and plant efficiency programs aimed at [leaning] in costs and with continued inflationary pressures in Mexico. Moving to Kensington. The focus in the first quarter was on stabilizing the operation following the challenging 2023 as our multiyear investment in mine development continues. Mitch mentioned the positive results on that front with our investment now about 71% complete for the current scope of the project. We are seeing a clear path to substantial mine life extension there and perhaps more importantly to the prospect of increased work phases underground and with it more consistent performance.

Lastly at Wharf, results were ahead of plan with the first quarter benefiting from [Indiscernible] events [placed on each]. Due to seasonality, the first quarter is typically [Indiscernible] lowest of the year, so we’re particularly pleased to see the mine off to a good start in 2024. With three mines performing well and Rochester well positioned to complete the ramp up, we remain comfortable with our 2024 production guidance. With that, I’ll pass the call over to Tom.

Tom Whelan: Thanks, Mick. I’ll touch briefly on our first quarter financial results before spending a moment discussing our financial position and balance sheet, including our plans to materially delever beginning in the third quarter. As detailed on Slide 9, higher year-over-year gold production led to a 14% increase in consolidated revenue and a 76% increase in adjusted EBITDA, driven by the strong starts to the year at Palmarejo and Wharf, along with continued favorable metals prices. As expected, we had lower Q1 production at Rochester due to the decision to dismantle the Stage IV crusher during 4Q 2023. The dismantling of the Stage IV crusher is now complete, which has provided access to higher grades from the Yankee pit.

Turning to costs, on Slide 11. We continue to see moderating inflationary pressures across our US operations. However, we are experiencing inflationary pressures in Mexico. Costs in Mexico have also been affected by the continued strong peso. Operating cash flow during the quarter was impacted by two 1 time annual payments totaling $22 million, the annual EBITDA mining tax in Mexico and the company wide 2023 annual incentive payouts, along with the $8 million semiannual interest payment on our senior notes. Turning to the balance sheet. The company is poised for a sustained period of positive free cash flow following the successful ramp up at Rochester, as Mick described earlier. Capital expenditures at Rochester were approximately $20 million during the first quarter, a $45 million decrease from the average quarterly Rochester CapEx in 2023, which contributed to the lowest quarterly capital expenditures level at Coeur since the fourth quarter of 2020.

As noted on Slide 12, we ended the quarter with an improved net debt to EBITDA ratio of 3.2 times and approximately $225 million drawn on our $400 million revolving credit facility. We would note that we do expect to draw further on the revolver during the second quarter as we await the breakthrough of silver ounces at Rochester. However, beginning in the third quarter, the company expects to begin aggressively paying down the revolver and our prepaid gold sales agreements as we drive towards achieving our long term leverage targets of total debt to EBITDA of 1 times and net debt to EBITDA of nil. While our work is not yet done, we entered 2024 a significantly stronger company with improving flexibility to fund our robust asset portfolio and maximize our potential in a strengthening commodity price environment.

Two final important reminders. No ATM is currently in place or is being contemplated and the company’s remaining hedges roll off at the end of the second quarter commensurate with the Rochester ramp up to full nameplate capacity. I’ll now pass the call to Aoife.

Aoife McGrath: Thanks, Tom. And good morning, everyone. To continue the good news story presented by Mitch, Mick and Tom, exploration is off to a great start in 2024. A key highlight of this quarter is the drilling at Kensington, where the program is going very well and the rigs are overperforming relative to budgeted footage. At lower Kensington, the recently identified Zone 50 is being traced over additional strike length and is continuing to be a focus for exploration to add to mine life in the very near term. In upper Kensington, results from already outlined portions of Zone 30 continue to impress and excitingly, potential for new parallel zones has recently been identified and is being investigated. At the nearby Elmira deposit, infill and extension drilling continue to intersect wide and rich zones, especially in the upper portions of the deposit.

There is high confidence that inferred resources here will be converted this year. By the end of 2024, we anticipate extending mine life to approximately five years, representing roughly a doubling since the start of the program two years ago. At Rochester, drilling commenced early in the second quarter with a program there designed to test high grade potential on recently identified structures around the Rochester pit. Preparation work for drilling at Nevada Packard, located south of Rochester, is also well underway. At Silvertip, we began the year with a comprehensive project review that included one of the world’s foremost carbonate replacement deposit experts. Significant leaps forward are being taken in our understanding of the controls to mineralization and this new knowledge is guiding the planning for Coeur’s busiest summer program ever.

We aim to drill much more aggressive step outs from known deposits and to identify high potential targets. Ultimately, the goal is to ensure rapid resource growth over the next few years in order to allow a restart decision on this world class high grade deposit. At Palmarejo, our aggressive 2024 programs are well underway with a key focus being scout and expansion drilling across the district in order to fast track the growth of our inferred pipeline. This will include scout drilling on three new targets outside the area burdened by the Franco Nevada stream. At Wharf, we’re finalizing preparations for brownfield drill programs aimed at adding very high return ounces to our mine life. With that, I’ll hand the call back to Mitch.

Mitch Krebs: Thanks, Aoife. Before moving to the Q&A, I want to quickly highlight Slide 13 that summarizes our top priorities for the remainder of the year. Following seemingly every conceivable challenge thrown our way, we’ve arrived at this inflection point that we’ve been working toward for almost four years. With the safe ramp up and optimization initiatives at Rochester remaining job one, we will continue pursuing the opportunities at our other assets I mentioned earlier. As we reach the free cash flow inflection point in the second half, we look forward to beginning the deleveraging process and ending the year with a lot of momentum as we head into what should be a very strong 2025. Our US centric exclusively North American precious metals assets offer investors a unique investment proposition that is extremely well positioned for success, particularly in this current metals price environment and with silver’s supply demand fundamentals now better than I’ve ever seen them.

With that, let’s go ahead and open it up for questions.

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Q&A Session

Operator: [Operator Instructions] And our first question will come from Michael Dudas with Vertical Research Partners.

Michael Dudas: I have three quick questions. First, Mitch, relative to Rochester, it seems like things are going quite well, you’re hitting some milestones. As you reach this end of second quarter milestones and looking at second half, how do you feel relative to productivity to getting kind of a more normalized basis on this mine given all the changes that occurred the last three years or so?

Mitch Krebs: Yes. I’ll hand that one over to Mick in a second. But I think it’s fair to say that we get into the second half of the year at that run rate of around 88,000 tons a day. There’ll still be a lot of optimization work to do, particularly around crush size and making sure we get to where we want to get there in terms of more of a 5.8 inches average product size out there onto the new Stage VI leach pad. So, there’ll be some dialing in to be done but we’ll still see that pretty significant drop off in our cost structure driven mostly by the volume pickup. And then hopefully, we’ll be heading into 2025 with some of those tweaks behind us and set up to see even some further improvements on the productivity and cost side. Mick, did I leave anything for you?

Mick Routledge: Yes, a little bit. Q2 is really about getting open, being steadily running at that average rate and it’s an average rate of 88. So we’re already seeing that run a little bit higher than that, which gives us a good opportunity to really steady that rate over the 88,000 tons for the second half of the year. At which point when we dial in the crush size, if you remember the technical report was 5.8 and we’re seeing things that and some confidence that we should be able to dial into that 5.8 crush size. We don’t know exactly how quickly but we certainly expect that to be dialed in well through the second half of this year. And then if that all comes together then we should land on recovery curves and we should see the performance that we expected to see.

Michael Dudas: Secondly, regarding Palmarejo, I’m encouraged about some of the activity you’re doing there on the exploration front. The thought on some of the opportunities outside the royalty boundary, which should be very helpful given where current gold prices are. Do you see some interesting opportunities in line of sight there to kind of work that through over the next couple of years into the mine plans?

Mitch Krebs: Yes, we share your excitement. In my mind, there are sort of three levels of opportunities there. There’s the extensional stuff that’s right to the east of that, Franklin, Nevada property line or the AOI boundary and those are extensions of things like Nacion and Independencia where we are currently mining. So those represent more kind of near term opportunities. And then if you skip over further to the east, the company we acquired back in 2015, Paramount Gold and Silver, which gave us all that land over there to the east, they had a large resource over in what’s called the Guazapares area. So I think with — in the medium term, we look at that as an opportunity to get in there, twin some of that historical drilling and get a resource onto our books in the medium term.

And then longer term, in between those two, our team has been busy out there sampling and mapping and developing some drill targets that we think represent some big longer term opportunities to add new sources of production out there to the east. Aoife, anything you want to add to that?

Aoife McGrath: No, I think you’ve fully covered it, Mitch. But yes, there are definitely short, medium and long term opportunities out there. And just to reiterate that it’s a typical case, I suppose, in exploration. Until the work is — actually the basic groundwork is done, you don’t fully understand the prospectivity and we’ve been really busy over the last two years doing that mapping and sampling. And as we get to understand the area to the east, a lot more we’re seeing the same level of prospectivity, especially in higher places than we see on the project. So we’re very happy with how that’s progressing.

Michael Dudas: And just my third to finish up here. Good to see that the hedging roll off here in Q2. Given where prices are and maybe further, what are your thoughts on any hedging potential going forward? And what would be the rationale behind doing and not so doing it?

Mitch Krebs: Our thinking there, Mike, right now is we’ve had hedges in place during the construction of the Rochester expansion to service sort of an insurance policy in essence, as we’ve gone through this period of capital intensity. For now, we have nothing, as you pointed out, beyond the end of the second quarter and don’t have any current plans to add anything, at least as we sit here today. But Tom, anything you want to…

Tom Whelan: No, I think yes, that’s correct. People understood the need both for our equity holders as well as our creditors understood the importance of hedging, but no plans to hedge once the ramp-up is complete?

Operator: And our next question will come from Mike Parkin with National Bank.

Mike Parkin: Just couple of questions mostly tied to Rochester. A couple of other questions were answered already on the first line of questioning. With Nevada, Barrick seems to certainly talk about labor tightness. Is that something you’re seeing at Rochester or are you guys managing pretty well on staffing?

Mitch Krebs: We were just talking about that earlier this morning, Mike. We have had to add some people out there with this expansion, although not that many. And the team has not had an extremely difficult time filling those roles. I’d say where we do see things similar to Nevada gold mines is in some of those skilled trades that I think not only mining but other industries are challenged to find electricians, mechanics, welders, things like that, that’s a more challenging part of the labor pool. But in terms of what we’ve had to do at Rochester, we’ve had a lot of success on the labor front. But Mick, anything you want to add to that?

Mick Routledge: I mean, a super efficient expansion, of course, only 20% increase in the headcount. And that 20%, we managed to get those folks all on early to support the operational readiness program. And that’s why we really saw that commission and this ramp up going so well, everyone was really conversant with the project. And now we’re just seeing really quite typical turnover, I mean, everywhere, specialist skilled flag electrical and sometimes — and wait a little bit longer to get the right person on the team. But otherwise there we’re not seeing anything that’s really [Indiscernible] a lot of concern.

Mitch Krebs: A lot of excitement out there, as you can imagine, Mike, good long mine life, good culture, long track record out there in the community. So it has a lot going forward and it’s a place people enjoy working. So we’ve got a lot going for us out there.