Business Context and Reporting Period
Coeur Mining, Inc. (formerly Coeur d'Alene Mines Corporation) filed its Form 10-Q for the quarterly period ended September 30, 2009. The Company is a large primary silver producer with significant gold assets located in North America, South America, and Australia. Key operational developments during the period included the commencement of commercial production at the Palmarejo mine in Mexico (April 2009) and the full operation of the San Bartolomé mine in Bolivia. The Company also completed the sale of its interest in the Broken Hill mine in Australia in July 2009.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|---|
| Revenue (Sales of Metal) | $89.8 million | $202.4 million | $36.5 million | $131.1 million |
| Net Income (Loss) | $(17.3) million | $0.4 million | $(4.0) million | $(4.7) million |
| Operating Loss | $(7.2) million | $(21.3) million | $(10.8) million | $(15.9) million |
| Cash Flow from Operations | $23.0 million | $41.7 million | $1.2 million | $(9.0) million |
| Cash and Cash Equivalents (End of Period) | $45.6 million | $45.6 million | $55.7 million | $55.7 million |
| Total Debt (Long-term + Current Portion) | ~$225 million | ~$225 million | ~$382 million | ~$382 million |
Note: Total Debt includes Convertible Senior Notes and capital lease obligations. The Senior Secured Floating Rate Convertible Notes were fully converted to equity by September 30, 2009.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 146% in the quarter and 54% year-to-date compared to 2008. This was driven by increased silver production from the San Bartolomé and Palmarejo mines, offsetting lower production at Rochester and the suspension of Cerro Bayo.
- Derivative Losses: The Company recorded a significant loss on derivatives of $35.7 million for the quarter and $49.6 million for the nine months. This was primarily due to mark-to-market adjustments on the Palmarejo gold royalty obligation, the Franco-Nevada warrant, and the gold lease facility.
- Discontinued Operations: The sale of the Broken Hill mine interest resulted in a net gain of $22.4 million in the third quarter, which significantly improved the net income position for the nine-month period.
- Debt Reduction: The Company repurchased significant portions of its 3 1/4% and 1 1/4% Convertible Senior Notes in exchange for common stock, reducing the principal amount outstanding. The Senior Secured Floating Rate Convertible Notes were fully converted.
- Production Costs: Production costs applicable to sales increased due to the ramp-up of new mines (Palmarejo and San Bartolomé), though cash costs per ounce decreased at San Bartolomé and Martha due to higher production volumes.
Guidance, Outlook, and Risks
- Outlook: Management expects the Palmarejo mine to reach full capacity in the fourth quarter of 2009. The Kensington Gold Mine in Alaska is expected to begin production in the second half of 2010 following the re-activation of its tailings facility permit.
- Subsequent Events:
- Bolivia Suspension: On October 14, 2009, COMIBOL temporarily suspended mining activities above 4,400 meters in Bolivia. Coeur expects this may reduce fourth-quarter production by up to 500,000 ounces of silver.
- Kensington Financing: On October 27, 2009, the Company secured a $45 million term facility from Credit Suisse to fund Kensington construction, subject to a gold hedging program.
- Reserve Increase: On November 4, 2009, the Company announced a 40% increase in reserves at the Palmarejo mine due to drilling at the nearby Guadalupe deposit.
- Risks:
- Commodity Prices: Results are highly sensitive to silver and gold prices.
- Political Risk: Operations in Bolivia face risks related to state control and recent constitutional changes.
- Liquidity: Significant capital expenditures are required for Kensington and other development projects.
- Derivatives: Volatility in derivative valuations continues to impact reported earnings significantly.
Investor Verification Checklist
- Derivative Impact: Verify the extent to which reported net income is obscured by non-cash mark-to-market losses on the Palmarejo royalty and gold lease facility.
- Bolivia Production: Monitor the duration of the COMIBOL suspension above 4,400 meters and its actual impact on Q4 2009 silver production.
- Kensington Timeline: Confirm the drawdown of the new $45 million Credit Suisse facility and the adherence to the 2010 production start date.
- Debt Structure: Review the remaining principal and conversion terms of the 3 1/4% and 1 1/4% Convertible Senior Notes.
- Cash Flow Sustainability: Assess whether operating cash flows ($41.7M YTD) are sufficient to cover the $175.5M in capital expenditures incurred YTD without further dilution or debt issuance.