Coeur Mining, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Coeur is a gold and silver producer operating mines in the United States, Mexico, and Canada, with additional zinc and lead production at Silvertip.
Financial and operating performance
- Revenue: $173.2 million, up 12% from $154.9 million in Q1 2019. Gold sales rose 20% to $127.6 million and silver sales rose 12% to $44.9 million. Higher realized prices were the primary drivers; gold accounted for 74% of sales.
- Profit and margins: GAAP loss from continuing operations was $11.9 million, or $0.05 per diluted share, compared with a $24.9 million loss, or $0.12 per share. Costs applicable to sales were $118.9 million, excluding $36.2 million of amortization. The filing does not state a consolidated operating margin. Adjusted net loss, a non-GAAP measure, was $0.8 million; adjusted EBITDA was $46.6 million, versus $23.0 million and $26.1 million, respectively, in Q1 2019.
- Cash flow: Operating cash use improved to $8.0 million from $15.8 million. Capital expenditures were $22.2 million, down from $27.4 million; company-defined free cash flow was negative $30.2 million versus negative $43.3 million.
- Cash and liquidity: Cash and cash equivalents were $52.9 million at quarter-end; cash, cash equivalents, and restricted cash totaled $54.1 million. Current assets were $221.7 million and current liabilities $138.1 million.
- Debt: Total debt, including finance leases, was $343.1 million, compared with $456.8 million a year earlier. At March 31, $50 million was drawn on the $250 million revolving credit facility, leaving $200 million available. After quarter-end, Coeur drew another $100 million; approximately $150 million was drawn as of April 22.
- Balance sheet: Total assets were $1.35 billion and stockholders’ equity was $660.6 million at March 31, down from $1.38 billion and $667.0 million at year-end 2019.
Material changes versus Q1 2019
- Gold production increased 9% to 85,077 ounces; silver production increased 7% to 2.68 million ounces. Realized gold and silver prices rose 19% and 9%, respectively.
- Silvertip suspended mining and processing in February, unrelated to COVID-19. Lower zinc and lead sales and a $10.4 million inventory write-down reflected weak production, grades, recoveries, and plant availability.
- Loss from continuing operations narrowed, helped by stronger Palmarejo and Kensington results, lower costs at Silvertip, and higher precious-metal prices. The comparison also reflects a $9.1 million fair-value gain in Q1 2019 versus an $8.8 million loss in Q1 2020, primarily related to equity investments.
- Exploration expense rose to $6.4 million from $3.7 million as Coeur expanded drilling. Capital expenditures declined, while cash used for working capital remained significant, particularly from inventory and ore on leach pads.
Outlook, commentary, and risks
- COVID-19: In early April, a Mexican government decree led Coeur to begin steps to temporarily suspend Palmarejo mining and processing. Rochester, Kensington, and Wharf were operating; Silvertip was already suspended. Management said it was planning for safe restarts and potential further disruptions. The company had not experienced material supply-chain disruptions at the time of filing.
- Guidance: Coeur withdrew full-year 2020 guidance because of the Palmarejo suspension and uncertainty around COVID-19, with plans to reassess guidance as the year progressed.
- Liquidity actions: The post-quarter $100 million revolver draw was precautionary. Coeur also said it intended to re-establish an at-the-market equity facility to preserve financial flexibility.
- Operations and projects: Rochester processed 37,677 tons per day through its upgraded crusher, exceeding its target by 11%; the company received a Bureau of Land Management Record of Decision for its Plan of Operations Amendment 11 expansion. Work on a Silvertip mill-expansion pre-feasibility study was advancing.
- Hedging: Gold zero-cost collars covered 165,000 ounces at March 31, with average put and call prices of $1,459 and $1,824 per ounce. Foreign-exchange hedges were also added. These arrangements limit downside exposure but can constrain gains if prices exceed the collar ceilings.
- Contingencies and unusual items: Coeur paid the remaining $25 million Silvertip acquisition milestone during Q1, comprising $18.8 million cash and shares. The company carried a $22.4 million Mexican VAT receivable subject to ongoing litigation and uncertain recovery. Reclamation surety bonds totaled $215.6 million. A lease modification generated a $4.1 million gain.
- Key risks: COVID-19-related suspensions, workforce and supply-chain constraints, metal-price volatility, mine performance and permitting, access to financing, and potential additional collateral requirements under surety bonds.
Important facts for investors to verify
- Whether and when Palmarejo resumed operations, and the resulting production, cash-flow, and guidance effects.
- Revolver availability, borrowing costs, and covenant headroom after the post-quarter draw; whether the planned ATM facility was established or used.
- Silvertip’s suspension costs, inventory valuation, restart plans, and economics of the contemplated mill expansion.
- Rochester Amendment 11 permitting, construction spending, and expected funding requirements.
- Progress and potential recoverability of the Mexican VAT receivable, and any changes to reclamation or surety-bond collateral obligations.
- Non-GAAP reconciliations and assumptions, including adjusted EBITDA and free cash flow; these measures are not substitutes for GAAP results or operating cash flow.