Business context and reporting period
Coeur d’Alene Mines Corporation’s Form 10-K covers the fiscal year ended December 31, 2012; quarterly data below includes the fourth quarter. The company was a U.S.-based silver and gold producer operating Palmarejo (Mexico), San Bartolomé (Bolivia), Kensington (Alaska), Rochester (Nevada), Martha (Argentina; active mining ceased in September), and a silver-production interest in the third-party-operated Endeavor mine (Australia). It acquired the remaining interest in Argentina’s Joaquin development project in December, taking ownership to 100%. Dollar amounts are U.S. dollars.
Financial and operating performance
| Metric | 2012 | 2011 |
|---|---|---|
| Metal sales | $895.5 million | $1,021.2 million |
| Gross profit | $219.9 million | $376.7 million |
| Operating income | $153.5 million | $306.8 million |
| Net income | $48.7 million | $93.5 million |
| Diluted earnings per share | $0.54 | $1.04 |
| Cash provided by operating activities | $271.6 million | $416.2 million |
| Capital expenditures | $115.6 million | $120.0 million |
| Silver produced / sold | 18.0 million / 18.0 million ounces | 19.1 million / 19.1 million ounces |
| Gold produced / sold | 226,486 / 213,185 ounces | 220,382 / 238,551 ounces |
| Realized silver / gold price | $30.92 / $1,665 per ounce | $35.15 / $1,558 per ounce |
| Cash operating cost per silver ounce | $7.57 | $6.31 |
Metal sales fell 12.3%, operating income fell about 50%, net income fell about 48%, and operating cash flow fell about 35% year over year. Lower silver prices and reduced silver and gold ounces sold weighed on revenue; higher production costs also reduced margins. Gross margin was about 24.6% in 2012 versus 36.9% in 2011, calculated from reported sales and gross profit. The filing presents cash-cost measures as non-GAAP metrics.
At December 31, working capital was $167.9 million (down from $212.9 million), and the current ratio was 1.70. Cash and cash equivalents were $125.4 million and short-term investments $1.0 million. Total assets were $3.22 billion and shareholders’ equity $2.20 billion. The filing cites approximately $121.4 million of outstanding indebtedness, including the Palmarejo royalty obligation, convertible notes and capital leases. It also reports a $100 million secured revolving facility, with no borrowings outstanding at year-end.
Fourth-quarter 2012 metal sales were $205.9 million and net income was $37.6 million, compared with sales of $246.9 million and net income of $11.4 million in fourth-quarter 2011. Fourth-quarter operating cash flow was $61.7 million and capital expenditures were $21.8 million.
Material changes and unusual items
- Silver output declined 5.5%; gold output increased 2.8%. Production declines at Palmarejo and San Bartolomé were partly offset by higher Rochester output. Rochester silver production rose to 2.8 million ounces from 1.4 million as the new leach pad contributed.
- San Bartolomé production fell to 5.9 million silver ounces from 7.5 million, while total cash cost rose to $12.95 per ounce from $10.64. Palmarejo silver and gold production also declined. Kensington gold production decreased to 82,125 ounces from 88,420 and cash cost increased to $1,358 per ounce from $1,088.
- Martha ceased active mining in September; the company recorded a $5.8 million impairment. Its 2012 production costs exceeded metal sales.
- Reported fair-value adjustments were a net loss of $23.5 million, principally affected by the Palmarejo gold royalty. The income tax provision was $68.6 million, including charges related to uncertain Bolivian tax positions.
- The company paid $171.9 million to settle debt and royalty obligations, including repayment of the Kensington term facility and Palmarejo royalty payments. It repurchased 417,200 shares in the fourth quarter for approximately $10.0 million; the company had authorized repurchases of up to $100 million.
- The Joaquin acquisition involved approximately $30 million cash and $30 million of Coeur shares, plus assumed liabilities and transaction costs. The company reported no dividends since 1996.
Outlook, management commentary and risks
Management emphasized maximizing cash flow from existing mines, continued exploration, and controlling costs and capital spending. The filing does not provide a clear consolidated 2013 production or earnings forecast. It budgets approximately $40.1 million for 2013 exploration, $32.5 million of Rochester capital expenditures, and $5.9 million for environmental compliance and permit-related work. Palmarejo silver recovery was expected to average 84% in 2013, compared with 83% in 2012.
Subsequent financing and transactions are material: in January 2013 the company issued $300 million of 7.875% senior notes due 2021. In February it offered to repurchase its $48.7 million of 3.25% convertible notes, which holders could put to the company on March 15, 2013. Also in February, Coeur agreed to acquire Orko Silver; the transaction terms included cash, Coeur shares and warrants and remained subject to completion.
Key risks include volatile precious-metal and input prices; foreign political, tax, currency and operating risks; environmental permitting, reclamation and mine-safety obligations; reserve and leach-recovery estimation uncertainty; and reliance on third-party smelters and Endeavor’s operator. At San Bartolomé, mining remains restricted in some areas above 4,400 meters, and proposed Bolivian mining-law changes could affect operations. At Rochester, competing claims litigation and an administrative appeal of the BLM operating-plan amendment were pending; operations continued under existing approvals. The filing also describes a labor access blockade at Palmarejo in May 2012 that was resolved after about five days.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective disclosure controls and internal controls as of year-end.
Important facts for investors to verify
- Whether the February 2013 convertible-note repurchase offer was completed, its cash cost, and the resulting liquidity and debt profile after the $300 million senior-note issuance.
- Status and final terms of the proposed Orko Silver acquisition, including financing, share dilution and closing conditions.
- Developments in the Rochester claims dispute and IBLA appeal, and any effect on current operations, reserves or expansion plans.
- Bolivian restrictions and mining-law developments, including their effect on San Bartolomé production and tax exposure.
- Actual 2013 production, cost, capital expenditure and exploration outcomes, particularly at Palmarejo, Kensington and Rochester; compare reported non-GAAP cash costs with GAAP production costs.
- Realization of refundable foreign value-added taxes, environmental and reclamation obligations, and the assumptions underlying reserves and Rochester leach-pad recovery.