Coeur Mining, Inc. (NYSE:CDE) Q3 2024 Earnings Call Transcript

Coeur Mining, Inc. (NYSE:CDE) Q3 2024 Earnings Call Transcript November 7, 2024

Operator: Good day for the financial results conference call. All participants will be in listen-only mode. Should you need assistance, to ask a question, you may press star then one on your telephone keypad. Please note this event is being recorded. I would now like to turn the conference over to Mitch Krebs, CEO. Please go ahead.

Mitch Krebs: Good morning, Evan, and thanks for joining our call today as we discuss our third quarter results. Before we start, we want to quickly outline our cautionary language regarding forward-looking statements in today’s slide deck and refer you to our SEC filing on our website. Before turning the call over to Mick Routledge, we obviously had a very strong quarter, which represents the free cash flow inflection point that we have been anticipating. Our strong results were driven by production increases at our four operations, higher gold and silver prices, and double-digit declines. This Goldilocks environment led to double-digit quarter and year-over-year increases and multiyear highs in free cash flow, new revenue, and adjusted EBITDA.

We allocated most of the free cash flow to pay down $50 million of our revolving credit facility. With LTE and EBITDA now approaching $300 million, we are now seeing our ratio quickly drop as we deleverage the balance sheet. Tom Whelan will go into a bit more detail on our balance sheet plans and priorities in a few minutes. Adding to our momentum and to these multiple converging catalysts was our announcement last of our agreement to acquire Silvercrest, with 1 million ounces of silver and 432,000 ounces of gold, with over $700 million of EBITDA and free cash flow of approximately $350 million. Since the announcement on October 3rd, we have received positive feedback from both Core and Silvercrest shareholders about the combination and for creating a silver industry leader at a time of extremely strong fundamentals for this essential metal.

We expect formal shareholder votes to take place around year-end and for the transaction to close late in the first quarter. Looking ahead quickly and highlighting our top priorities, the key focus remains on continuing the progress at Rochester to set ourselves up for what should be a very strong 2025. Rochester achieved its key operational metrics during the third quarter and remains on track to achieve its full-year guidance ranges. Mick will provide some additional details on Rochester. Overall, we have reconfirmed our company-wide full-year guidance ranges and an opportunity to further reduce our debt levels by year-end. Mick, over to you.

Mick Routledge: Thanks, Mitch. Operating strength across our portfolio continued, easing costs, and accelerated contributions from the Rochester expansion led to Coeur’s strongest quarterly results in over a decade. Beginning with Rochester, the positive trend lines we outlined last quarter showed continued momentum in the third quarter. Production of both silver and gold increased by roughly 20% compared to the prior quarter. The team has been achieving targeted tons placed since July, and we continue to focus on dialing in pressure controls, process fine-tuning, and industrial hygiene management. We are systematically taking advantage of runtime data and down periods to optimize and refine the operation to prepare the line for its long multi-decade run going forward.

Slide 22 details the excellent progress being made on reducing per-ton costs at Rochester, with double-digit percentage decreases in mining, processing, and G&A, highlighting how the scale of the expanded operation is driving down Rochester’s cost profile as expected. A number of you on this call saw firsthand in September the scale and power of the circuit in operation. What we are beginning to see manifest through the circuit is the finesse to complement that raw power. Particle crush size optimization remains the primary focus during the second half of the year, and on that front, the percentage of crushed material reaching the five-eighths target approached 75% during the latter part of the quarter, well within expectations for this point of the year.

Our three other operations are also on track for a good finish to the year. Palmarejo generated another strong quarter of free cash flow, with gold and silver production increasing 8% and 14%, respectively. The team made good strides on a couple of key projects to position the mine for future success, with the first being the breakthrough in connection of the new Hidalgo portal work near the end of the third quarter. Following completion of associated development ramps, the Hidalgo access portal is expected to unlock new zones within the Independencia deposit and enhance overall mining flexibility and efficiency. We have also made good early progress on getting after the newly acquired claims from Fresnillo, which closed early in the third quarter.

The concessions adjacent to current mining areas, collectively known as the Independencia Sewer Block, present the most immediate near-term development opportunity. The pace of mapping, drilling, and development planning work continues to accelerate, and it is important to note that these prospective areas sit completely outside the Franco-Nevada Gold Stream boundary. Moving to Kensington, the higher gold price helped drive a $42 million swing back to positive free cash flow in the quarter to $18 million. Multiyear underground development and drilling investment continues to progress and remains on track to wrap up by the middle of next year, which is expected to leave Kensington well-positioned to deliver sustained free cash flow with greater operational flexibility.

Exploration drilling also continues to demonstrate success towards our goal of building up to a five-year mine life by year-end. Finishing up with Wharf, positive reconciliation and timing of ore placement led to an extremely strong quarter. Gold production of nearly 34,000 ounces set an all-time record high in the mine’s 42-year history, generating quarterly free cash flow of $49 million and bringing the year-to-date free cash flow total to $75 million. We expect a more typical fourth quarter for Wharf, which is still a very, very good outcome. The two new exploration targets at Wharf introduced last quarter continue to demonstrate strong potential to materially increase mine life at an operation that continues to exceed expectations. Building up the North Forty and Juno targets continued during the quarter from two surface drill rigs, with recent assays showing good continuity in areas west of the historic Juno pit.

Overall, Wharf continues to deliver and show the potential to keep delivering for years to come. With that, I’ll pass the call over to Tom.

Tom Whelan: Thanks, Mick. As discussed on prior calls, the long-awaited free cash flow inflection point for Coeur arrived this quarter. Higher revenues, lower unit costs, and lower CapEx were all expected and delivered.

Mick Routledge: During the third quarter, we saw

Tom Whelan: 15% higher metal prices and a 12% decrease in operating costs per ounce to $1,113 per ounce of gold and $15.67 per ounce of silver. These two factors were a powerful one-two punch that led to $69 million of free cash flow and $126 million of adjusted EBITDA in the third quarter alone, showing the power of the portfolio. With Rochester still in the optimizing phase and the addition of Las Chispas as free cash flow, we expect even stronger results in 2025. Coeur’s free cash flow inflection point is projected to be sustained during the fourth quarter based on continued higher metals prices and production growth at the higher-cost Rochester and Kensington mines. As we have stated consistently, we will be allocating free cash flow to reducing our debt levels, beginning with our revolving credit facility, which had $225 million drawn at quarter-end, a $50 million reduction from the prior period.

Mick Routledge: As shown on Slide 11, our net debt to EBITDA ratio has plunged

Tom Whelan: below two times for the first time in three years. This, of course, does not include the very healthy Silvercrest balance sheet, which has approximately $160 million of cash and bullion as of September 30, 2024. By mid-2025, we expect to have the revolver fully repaid and could likely be in a position to begin a period of building up cash on the balance sheet. Whether it is to reinvest in high-return brownfield exploration, support the future development of Silvertip, repay the $290 million of 5 1/8 notes, or return capital to shareholders in some form, or a combination of all of the above, we will continue to abide by our long-stated capital allocation framework and continue to focus on generating returns greater than our cost of capital.

Returning briefly to the recently announced definitive agreement to acquire Silvercrest, the short-term focus has been on finalizing required regulatory filings. We are actively planning for a smooth integration so we can hit the ground running upon closing, likely in late Q1 2025. I’ll now pass the call back to Mitch.

Mitch Krebs: Thanks, Tom. Before moving to the Q&A, I want to quickly highlight Slide 12, which summarizes our top priorities for the remainder of the year, with the continued optimization of Rochester, pursuing the closing of the Silvercrest acquisition, and planning for the integration of Las Chispas at the top of the list. We look forward to delivering a strong and safe fourth quarter highlighted by even higher production, another quarter of positive free cash flow, and further debt reduction, which should leave us well-positioned for a very strong 2025. With that, let’s go ahead and open it up for questions.

Q&A Session

Operator: Before pressing the keys. If at any time your question has been addressed, the first question comes from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Joseph Reagor: Hey Mitch and team. Thanks for taking the questions.

Mick Routledge: Yeah. Hey, Joe. Good morning.

Joseph Reagor: Morning. I guess first thing on Rochester, and I apologize if you guys touched

Mitch Krebs: on this. I joined a couple of minutes late.

Mick Routledge: Is

Joseph Reagor: is this leach cycle that you guys have modeled internally match what you are seeing as far as production in the third quarter? You know, given that we do not have the exact timing of how the ore was stacked.

Mitch Krebs: Yeah. Thanks for the question. I’ll start, and then, Mick, you can add to it. In short, it is, Joe. You know, as we get that crush size down to the target by the end of the year of five-eighths, you know, obviously, the recoveries will improve as we do that. But in this period of time where we have gone from kind of focusing on stabilizing things out there and running at a bit of a higher size fraction, you know, the recoveries are obviously lower to start, and then they will improve as we get that crush size down. And they have been tracking according to what we would have modeled based on those crush sizes, so things are tracking as we expected. Mick, anything you want to add?

Mick Routledge: Yeah. You know, we had a great period of a couple of years with the ex-pit to really try and model and upgrade recovery curves. And that gave us insight into the larger size fractions all the way down to the fine material. And so far, we are seeing those recoveries are tracking on that recovery curve. As we said earlier in the year, we focused on getting the 22 and hitting the tonnage run rate by the middle of the year. And that was at a larger size fraction. So, you know, we are regularly hitting 100,000 tons per day, which has meant we are really happy, but now we are focused on dialing that in, as Mitch said, to the five-eighths size fraction. And we are not quite there yet, but we are heading in the right direction. We are seeing some really good results there, but we are going to see that those recoveries are going to improve over time, and we will gain some momentum as we come towards the end of the year and through 2025. But overall, as planned.

Joseph Reagor: Okay. Fair. And then on the Silvercrest acquisition, what are the remaining hurdles you guys have as you see it to getting this closed?

Mitch Krebs: Yeah. Really three, I guess, I do not know if they are hurdles, just steps. Both companies will have shareholder votes around year-end. We do have the Copacay approval from Mexico that we expect to get in the first quarter, which should then set us up for that late first quarter close. So those are really the three biggest hoops that we will need to jump through between here and closing.

Joseph Reagor: Okay. And then one final thing on the balance sheet. You guys finished the quarter with about $77 million in cash. Is that a good number for us to assume as we are trying to forecast debt repayment that you guys will keep about that level? Do you want to grow it a little bit back towards more traditional levels around $100 million? You know, how should we think about that?

Mitch Krebs: Well, my thought is, and Tom, you can go after me, but in the first half of next year, at least, as we are prioritizing repayment of that revolver, that cash balance will probably stay in that ZIP code. But then once that revolver is fully repaid, and I think, Tom, you mentioned midyear, by midyear, you know, then we should start to see some cash start to build, which, you know, we are okay with for a little while as we get through the end of next year, you know, have Las Chispas integrated, and then we can kind of go from there. Tom, anything to add? No. Perfect.

Joseph Reagor: Okay. Thanks. I’ll turn it over.

Operator: Okay.

Mitch Krebs: A lot, Joe.

Operator: Please press star then one. At this time, we have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Mitch Krebs for any closing remarks.

Mitch Krebs: Hey, we appreciate everyone’s time today. I know it is a super busy reporting period today. And we look forward to discussing our fourth quarter and full-year 2024 results with you in February. And we will be able to give you a good update on the progress on the Silvercrest transaction at that point as well. So until then, have a happy and safe holiday season.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.