Coeur Mining, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Coeur operates silver and gold mines in the U.S., Mexico, and Bolivia, and holds streaming and royalty interests. Financial statements are unaudited.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $153.0 million | $159.6 million |
| Costs applicable to sales | $115.1 million | $106.9 million |
| Net loss | $33.3 million; $0.32 per share | $37.2 million; $0.36 per share |
| Adjusted net loss (non-GAAP) | $24.4 million; $0.24 per share | $18.8 million; $0.18 per share |
| Cash used in operating activities | $4.0 million | $9.6 million |
| Cash and cash equivalents, period end | $179.6 million | $272.9 million |
Metal sales were $151.0 million and royalty revenue was $2.0 million. Average realized prices fell to $16.77 per silver ounce from $20.29 and $1,204 per gold ounce from $1,279. Silver-equivalent production rose to 8.0 million ounces from 7.6 million; silver production declined while gold production increased. Costs applicable to sales were $14.32 per silver-equivalent ounce versus $13.22; all-in sustaining costs were $18.11 versus $19.09. Operating margin per silver-equivalent ounce decreased to $3.96 from $6.78.
Cash used in investing activities was $121.4 million, including $17.6 million of capital expenditures and the Wharf acquisition. Financing provided $34.1 million. Current assets were $505.9 million and current liabilities $208.1 million at quarter-end. Debt carrying value totaled approximately $513.5 million, including $65.7 million current debt.
Material changes and transactions
- Revenue declined 4.2% year over year, mainly because lower realized metal prices more than offset higher ounces sold. GAAP net loss narrowed, but adjusted net loss increased.
- General and administrative expense fell 36% to $8.8 million; amortization fell 18% to $33.1 million, partly reflecting prior-year asset write-downs. Costs applicable to sales increased 7.6% to $115.1 million.
- Coeur acquired the Wharf gold mine on February 20 for $103.0 million cash, or $102.0 million net of acquired cash. Its purchase-price allocation remained preliminary. Wharf contributed 6,609 gold ounces after acquisition.
- After quarter-end, Coeur completed its Paramount Gold and Silver acquisition on April 17, issuing approximately 32.7 million Coeur shares. Paramount shareholders also received a spin-off of Paramount Gold Nevada Corp.
Liquidity, outlook, and risks
- On March 31, Coeur drew a one-year, $50 million credit agreement bearing interest at adjusted Eurocurrency rate plus 2.50%, with the margin scheduled to rise quarterly to a maximum of 4.50%. It is secured by Wharf assets and stock. Covenants require net debt to adjusted EBITDA no greater than 3.50:1 and minimum cash of $100 million; Coeur reported compliance at quarter-end.
- Management said it may defer capital investment or seek additional financing. Sustained lower metal prices could pressure earnings, liquidity, and covenant compliance; additional financing may not be available on acceptable terms.
- Wharf’s 2015 mine-level outlook was 74,000–78,000 gold ounces at costs applicable to sales of $750–$825 per gold-equivalent ounce. The filing provides no consolidated company production or earnings guidance.
- Operational risks include Palmarejo’s transition to lower-tonnage underground mining, higher unit costs at Palmarejo and San Bartolomé, and a Bolivian suspension of mining above 4,400 meters that could constrain production or potentially lead to an asset write-down.
- Other notable exposures include reclamation obligations, labor and foreign-country risks, environmental matters involving former Callahan sites, and consolidated litigation related to the Paramount transaction. The filing states that outcomes and potential costs of the litigation cannot be predicted.
- Q1 included $6.4 million of non-cash fair-value adjustments and equity-security impairment losses, and a $18.3 million increase in reclamation obligations primarily associated with Wharf. The credit facility’s cash and leverage covenants are important given cash fell from $270.9 million at year-end.
Investor verification priorities
- Confirm the cash, debt, and covenant position after the Paramount share issuance and subsequent operating cash flows.
- Track whether realized silver and gold prices, production, and unit costs support improved operating margins.
- Assess Wharf’s production and cost performance against its stated 2015 mine-level outlook and the acquisition’s preliminary accounting.
- Review the effects of the Bolivian mining restriction, reclamation estimates, and Paramount litigation as new information becomes available.