Coeur Mining, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports unaudited fourth-quarter results. Amounts are U.S. dollars unless noted. San Bartolomé is presented as a discontinued operation following its February 2018 sale.
Business context and financial performance
Coeur is a North American-focused gold and silver producer, with zinc and lead production beginning at Silvertip. Its five operating mines were Palmarejo, Rochester, Kensington, Wharf and Silvertip.
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $625.9 million | $709.6 million |
| Continuing-operations net income (loss) | $(49.0) million | $10.9 million |
| Net income (loss), including discontinued operations | $(48.4) million | $(1.3) million |
| Diluted continuing-operations EPS | $(0.26) | $0.06 |
| Adjusted EBITDA, non-GAAP | $157.3 million | $203.3 million |
| Cash from continuing operating activities | $20.1 million | $197.2 million |
| Capital expenditures | $140.8 million | $136.7 million |
| Costs applicable to sales | $441.0 million | $440.3 million |
Revenue less costs applicable to sales and amortization was $56.5 million, approximately 9.0% of revenue. This is a simple calculation, not a company-reported GAAP margin. FY production was 359,520 ounces of gold and 12.8 million ounces of silver, plus 4.2 million pounds of zinc and 2.1 million pounds of lead. Gold production fell 6% year over year; silver production rose 5%. Average realized prices were $1,218 per ounce for gold and $15.65 for silver.
At year-end, cash and cash equivalents were $115.1 million ($118.1 million including restricted cash); current assets were $297.6 million and current liabilities $161.3 million. Balance-sheet debt, including current amounts, was $458.8 million, versus $411.3 million a year earlier. Stockholders’ equity was $852.5 million. The company reported $115.0 million of undrawn revolver capacity. Reclamation liabilities were $135.5 million on the balance sheet; estimated undiscounted contractual reclamation and closure obligations were $334.7 million.
Fourth-quarter results and changes versus prior periods
Fourth-quarter 2018 revenue was $143.9 million, down from $214.6 million in Q4 2017. The quarter recorded a gross loss of $9.7 million after costs applicable to sales and amortization, but continuing-operations income was $0.5 million. Operating cash flow was $0.1 million and capital expenditures were $17.8 million. These quarterly figures are unaudited.
- Full-year revenue declined $83.7 million, primarily from fewer gold and silver ounces sold and lower realized silver prices.
- Operating cash flow fell substantially, from $197.2 million to $20.1 million, reflecting lower sales and operating margin, Silvertip ramp-up costs and inventory effects, and Palmarejo tax payments.
- Gold-equivalent unit costs increased at Kensington and Wharf; Silvertip’s initial costs were especially high. Consolidated costs applicable to sales per silver-equivalent ounce rose to $11.46 from $10.70; AISC rose to $18.59 from $15.95. These are non-GAAP measures.
- Continuing-operations loss included significant unusual charges: a $26.7 million Silvertip inventory write-down, an $18.6 million write-down of Manquiri sale consideration, a $6.5 million RMC receivable write-down and a $3.4 million Rochester crusher-related write-down.
Outlook, management commentary and key risks
Management’s 2019 guidance forecasts 334,000–372,000 ounces of gold and 12.2–14.7 million ounces of silver, plus 25–40 million pounds of zinc and 20–35 million pounds of lead. Guidance includes $70–80 million of sustaining capital, $30–40 million of development capital, $18–22 million of expensed exploration, $8–12 million of capitalized exploration and $32–36 million of G&A. Assumptions include gold at $1,275/oz, silver at $15.50/oz, zinc at $1.15/lb and lead at $0.95/lb. The company plans to stop reporting silver-equivalent and AISC metrics beginning with Q1 2019 results.
- Management said Silvertip’s lower-than-expected grades, recoveries and plant availability hurt results; recovery improved in Q4, with operational work focused on plant availability, maintenance, procurement and training.
- Rochester’s crushing-system upgrades were expected to be completed in Q2 2019, with improved recoveries anticipated in the second half. La Nación at Palmarejo and the Jualin mine at Kensington were also expected to support 2019 production.
- Coeur acquired the Sterling project for approximately $73.6 million in stock and Lincoln Hill and related Nevada assets for approximately $19.0 million in stock, increasing share count and adding development opportunities.
- Key exposures include volatile metal and input prices, mine execution and recovery risks, permitting and environmental obligations, foreign-country and community risks, water availability, reserve-estimation uncertainty, and debt service and covenant restrictions.
- RMC filed for Chapter 11 in November 2018; approximately 0.4 million ounces of silver and 6,500 ounces of gold were affected, and recovery of the receivable was uncertain. The Manquiri sale terms were amended, including delayed royalty payments and relinquished VAT-refund rights.
Important facts for investors to verify
- Whether Silvertip achieves the targeted throughput, recovery rates and cost performance, and whether further inventory write-downs are needed.
- Actual 2019 production, costs and capital spending versus guidance and its specified metal-price and currency assumptions.
- Recoverability and timing of the RMC receivable and remaining Manquiri notes, VAT and royalty consideration.
- Debt balances, revolver availability, covenant headroom and the effect of capital leases and reclamation obligations on liquidity.
- Whether Rochester upgrades and planned mine development deliver forecast production, and whether reserve estimates remain supportable at prevailing metal prices.
Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting.