Coeur Mining, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Coeur operates silver and gold mines in the United States, Mexico, and Bolivia and holds streaming and royalty interests. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
- Q3 revenue: $170.9 million, including $170.4 million of metal sales and $0.6 million of royalty revenue. Net income was $3.5 million, or $0.03 per diluted share, versus a $46.3 million net loss, or $0.46 loss per share, in Q3 2013. Adjusted net loss, a non-GAAP measure, was $23.5 million, or $0.23 per share.
- Nine-month results: Revenue was $495.1 million; net loss was $76.8 million, or $0.75 per share, compared with a $69.0 million loss, or $0.71 per share, in 2013. Adjusted net loss was $74.5 million, or $0.73 per share.
- Costs and operating measures: Q3 costs applicable to sales (CAS) were $125.9 million; CAS per silver-equivalent ounce was $14.71, versus $13.82 a year earlier. Q3 all-in sustaining costs (AISC) were $18.86 per silver-equivalent ounce, down from $19.83. Nine-month AISC was $19.33 per ounce, versus $20.16. CAS and AISC are non-GAAP measures.
- Production and prices: Q3 production was 4.3 million silver ounces and 64,989 gold ounces, up from 4.2 million and 63,040, respectively. Average realized prices fell to $19.46 per silver ounce and $1,260 per gold ounce, from $21.11 and $1,300. Nine-month production increased for both metals, while realized prices declined to $19.76 silver and $1,272 gold.
- Cash flow: Operating cash flow was $31.3 million in Q3 and $52.4 million for nine months, compared with $26.8 million and $103.1 million in the prior-year periods. Nine-month capital expenditures were $44.1 million, versus $72.8 million.
- Liquidity: September 30 cash was $245.9 million and short-term investments were $49.5 million, or $295.4 million combined. Current assets were $596.4 million and current liabilities $146.8 million. Nine-month operating cash flow less capital expenditures was approximately $8.4 million, before other investing and financing uses.
- Debt: Total carrying value of debt and capital leases was $469.5 million, versus $308.6 million at year-end 2013. The increase chiefly reflects a $150 million issuance of 7.875% senior notes in March. The company repurchased $12.6 million principal amount of those notes in Q3. The $5.3 million convertible notes were classified as current, with holders able to require repurchase on March 15, 2015.
Changes and drivers versus prior periods
- Q3 revenue declined 14.9%, primarily because fewer ounces were sold and realized silver and gold prices were lower. Nine-month revenue fell 14.2% for similar reasons.
- Q3 returned to GAAP profitability, aided by $16.1 million of net fair-value gains and a $16.6 million income and mining tax benefit. Management cited fair-value movements, foreign-currency revaluation of deferred taxes, lower amortization, and reduced general and administrative expense as key factors. The quarter’s adjusted result remained a loss.
- Nine-month net loss widened despite lower operating costs, reflecting unfavorable fair-value movements and lower metal prices; the 2013 comparison included a $32.0 million Rochester litigation-settlement charge.
- Rochester production rose substantially as tons placed and recoveries increased. Palmarejo production declined with lower mill throughput, while Kensington gold production improved. Lower Q3 sales volumes and inventory valuation adjustments contributed to higher CAS per silver-equivalent ounce.
- Cash from operations fell for the nine-month period, mainly due to lower realized prices and sales volumes and increased ore on leach pads. Capital spending was lower year over year.
Outlook, commentary, risks, and unusual items
- The filing provides no specific production, earnings, or cost guidance for the remainder of 2014. Management describes its priorities as maximizing net cash flow through cost control, revenue opportunities, capital discipline, and working-capital management. It may defer capital investment or seek additional financing; availability and terms are not assured.
- On October 2, 2014, Coeur agreed to terminate the Palmarejo gold production royalty after satisfying its minimum-ounce delivery requirement, with a $2.0 million termination payment. A new agreement provides for sale of 50% of Palmarejo gold production for the lesser of $800 or spot price per ounce, and a $22.0 million advance deposit in five quarterly installments beginning in Q1 2015.
- Commodity prices are a major exposure. The company reported gold and silver put spreads covering 49,000 gold ounces and 2.5 million silver ounces, generally expiring through Q1 2015. Derivative fair-value movements, including royalty obligations, materially affected reported earnings.
- Mining and operational risks include grade and recovery variability, permitting and regulation, environmental and safety hazards, labor disruptions, and reliance on third-party mine operators and smelters. The filing also notes risks from foreign operations and the ability to obtain financing.
- Mining above 4,400 meters at San Bartolomé in Bolivia remained suspended under a temporary restriction; duration is uncertain and a permanent restriction could require an asset write-down. Environmental matters include agency inquiries and potential liability relating to legacy Callahan sites; the company disputes liability in identified matters. The filing does not provide a clear quantified estimate of potential exposure.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Palmarejo royalty minimum delivery requirement was completed and the new gold-stream deposit and pricing terms are realized as described.
- How sustainable Rochester’s production and the lower reported AISC are, particularly given Q3 CAS increases per silver-equivalent ounce.
- The cash-generation outlook under lower metal prices, including the impact of the scheduled convertible-note repurchase option and ongoing capital needs.
- The status and potential operating or asset-value effect of Bolivia’s mining restriction, and developments in the legacy-site environmental matters.
- The extent to which Q3 GAAP income depended on non-cash fair-value gains and tax revaluation; adjusted net loss provides a materially different view of the quarter.