Coeur Mining, Inc. — FY2017 Form 10-K
Business context and reporting period
Reports the fiscal year ended December 31, 2017. Coeur produces gold and silver, with zinc and lead expected from Silvertip. Continuing operations included Palmarejo, Rochester, Kensington, Wharf and the pre-production Silvertip mine. San Bartolomé is reported as a discontinued operation because Coeur agreed to sell its operator, Manquiri, in December 2017; closing was expected in Q1 2018.
Financial and operating performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue / metal sales | $709.6 million | $571.9 million |
| Income from continuing operations | $10.9 million | $22.4 million |
| Net income (loss), including discontinued operations | $(1.3) million | $55.4 million |
| Operating cash flow, continuing operations | $197.2 million | $96.5 million |
| Capital expenditures | $136.7 million | $94.4 million |
| Cash and cash equivalents at year-end | $192.0 million | $118.3 million |
| Debt, including current portion | $411.3 million | $210.6 million |
- Continuing-operation production was 12.1 million ounces of silver and 383,086 ounces of gold; sales were 12.7 million ounces of silver and 410,604 ounces of gold.
- Costs applicable to sales were $10.70 per silver-equivalent ounce and $822 per gold-equivalent ounce. All-in sustaining costs were $15.95 per silver-equivalent ounce. These are company-defined non-GAAP measures.
- Continuing-operation adjusted EBITDA was $203.3 million, versus $194.9 million in 2016; adjusted net income was $4.2 million, versus $15.6 million.
- At year-end, current assets were $449.6 million and current liabilities were $228.7 million; these totals include San Bartolomé assets and liabilities held for sale. Reclamation and mine-closure liabilities totaled $120.8 million.
- Q4 2017 revenue was $214.6 million, income from continuing operations was $14.3 million, and net income was $7.6 million. Q4 2016 revenue was $139.2 million and net loss was $8.3 million.
Material changes versus the prior comparable period
- Revenue rose about 24% year over year, mainly on greater production and sales volumes; average realized silver and gold prices were lower by 2% and 1%, respectively.
- Silver production increased 30% and gold production increased 7%. Higher grade and throughput at Palmarejo drove much of the improvement.
- Continuing-operations income declined from $22.4 million to $10.9 million. Management cited the absence of a significant 2016 tax benefit and lower realized metal prices, partly offset by a $21.1 million gain on the Joaquin project sale, lower interest expense and stronger production.
- Operating cash flow from continuing operations more than doubled, to $197.2 million, reflecting higher sales volumes and favorable working-capital movements, partly offset by lower realized prices and higher unit costs in some operations.
- Exploration expense increased to $30.3 million from $12.9 million. Capital expenditures rose to $136.7 million, and investing cash outflow increased to $280.2 million, primarily due to the Silvertip acquisition and higher capital spending.
- Debt increased following the Silvertip acquisition and financing transactions. Coeur issued $250 million of 5.875% notes due 2024 and repurchased the remaining 7.875% notes due 2021, extending maturity and lowering the coupon, while drawing $100 million under a new revolving facility.
Outlook, management commentary and key risks
- For 2018, Coeur forecast continuing-operations production of 12.2–13.8 million ounces of silver and 355,000–375,000 ounces of gold, plus 23–28 million pounds each of zinc and lead. Guidance assumes Silvertip starts production and the San Bartolomé sale closes in Q1.
- 2018 guidance included $120–$140 million in capital expenditures, $32–$34 million in general and administrative expense, and $20–$25 million in exploration expense. Forecast all-in sustaining costs were $17.50–$18.00 per silver-equivalent ounce.
- Management’s stated priorities included maximizing net cash flow through revenue enhancement, cost control, capital discipline and working-capital management. Silvertip’s production start and permitting, ramp-up and integration remain execution risks.
- The Manquiri sale consideration includes a 2% net smelter returns royalty, approximately $13 million of future VAT refunds payable to Coeur, and a one-year note of approximately $28 million. Coeur expected to recognize approximately $6 million of post-closing covenant, guarantee and indemnification liabilities.
- Silvertip acquisition terms included up to $50 million in contingent payments tied to permitting and resource milestones. The acquisition accounting and asset valuations were preliminary at year-end.
- Principal risks include volatile silver, gold, zinc and lead prices; mine development, grade and recovery uncertainty; permitting, environmental compliance and reclamation costs; foreign-country political and social risks; water availability; labor and operating disruptions; and debt-service, covenant and refinancing risks. The Kensington gold concentrate business relies primarily on one smelter.
- At year-end, the company had $88 million available under its $200 million secured revolving facility, after $100 million in borrowings and $12 million supporting letters of credit. Its notes and credit facility contain restrictive covenants.
- Coeur had no outstanding gold or silver option contracts or foreign-exchange contracts at December 31, 2017. No cash dividends have been paid since 1996.
Important facts for investors to verify
- Whether the San Bartolomé/Manquiri sale closed on the expected terms and schedule, including the collectability and timing of VAT refunds and the note.
- Whether Silvertip commenced production as planned and met its production, cost, permitting and resource milestones, including any contingent consideration payments.
- Whether 2018 production, capital-spending and cost guidance was achieved, particularly the all-in sustaining cost outlook.
- Debt balances, facility availability, covenant compliance and cash generation after acquisition spending and capital expenditures.
- Exposure to commodity-price changes, reclamation estimates and contingent environmental or legal obligations. The filing accrued $118.8 million for producing-property reclamation and $2.0 million for former-site environmental matters.
- Coeur reported unmodified audit opinions on its financial statements and internal control over financial reporting; management’s control assessment excluded the acquired Silvertip entity.