Coeur Mining, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Amounts are U.S. dollars; financial statement amounts are shown in millions unless otherwise noted. Coeur operates gold, silver, zinc and lead mines in the U.S., Mexico and Canada. San Bartolomé was sold in February 2018 and is presented as discontinued operations.
Financial and operating results
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $148.8m | $159.9m | $482.0m | $495.0m |
| Net loss from continuing operations | $(53.0)m | $(11.7)m | $(49.4)m | $(3.4)m |
| Diluted loss per share from continuing operations | $(0.29) | $(0.07) | $(0.27) | $(0.02) |
| Operating cash flow from continuing operations | $5.8m | $37.3m | $20.0m | $105.3m |
| Capital expenditures | $39.5m | $29.0m | $123.0m | $89.7m |
| Adjusted EBITDA (non-GAAP) | $24.7m | $40.2m | $121.4m | $126.7m |
Q3 costs applicable to sales (CAS) were $10.55 per average-spot silver-equivalent ounce, versus $10.00 a year earlier; all-in sustaining costs (AISC) were $15.33, versus $14.86. For the first nine months, CAS was $9.13 per average-spot silver-equivalent ounce, compared with $10.20, while AISC increased to $14.83 from $14.51. These are non-GAAP measures.
At September 30, cash and cash equivalents were $104.7m; cash, cash equivalents and restricted cash totaled $117.3m. Current assets were $287.5m and current liabilities $147.0m. Debt totaled $429.2m, including $245.7m of 5.875% notes due 2024, $120.0m drawn on the revolving facility and capital leases. The facility had $68.0m available at quarter-end, including capacity reserved for letters of credit.
Material changes and operating developments
- Q3 revenue fell about 7% year over year, principally reflecting lower realized silver and gold prices (down 13% and 7%, respectively). Q3 net loss widened, with management citing lower operating margin, higher interest expense, and write-downs related to the Manquiri sale and Rochester equipment.
- For the first nine months, revenue declined about 3%. Net loss from continuing operations increased versus 2017, which included a $21.1m gain on the Joaquin project sale; 2018 also included Manquiri and Rochester write-downs and higher interest expense.
- Silvertip began commercial production September 1. Its Q3 results included an $8.7m metal-inventory write-down amid lower-than-expected output, grades and recoveries, reduced plant availability and adverse metal-price changes. The company said further inventory write-downs could be required while operations are optimized.
- Production from continuing operations in Q3 was 2.9m ounces of silver, 87,539 ounces of gold, 1.1m pounds of zinc and 0.4m pounds of lead. Silver-equivalent production using average spot prices was approximately 10.1m ounces.
Outlook, commentary and risks
The company’s revised 2018 production outlook was 36.11–39.50m silver-equivalent ounces, including 13.0–14.3m ounces of silver and 363,000–382,000 ounces of gold. Guidance for zinc and lead was 13–23m and 11–18m pounds, respectively. Management said cost guidance remained unchanged from its second-quarter revision; the filing text provided here does not state the cost-guidance ranges. Wharf planned to increase mining and crushing rates in Q4 to address production shortfalls.
Management attributed operating interruptions at Palmarejo to an underground mining accident involving fatalities, a local road blockade that disrupted supplies, and weather-related plant interruption; it said normal operations had resumed. Other disclosed risks include volatile precious- and base-metal prices, foreign-exchange movements, permitting and operating uncertainty, mine safety and environmental obligations, and financing needs. A 10% change in realized metal prices was estimated to change revenue by $2.0m.
Unusual items included an $18.6m write-down of Manquiri sale consideration after the buyer agreement reduced the note principal, suspended royalty payments through October 15, 2019 and eliminated Coeur’s rights to future VAT refunds. A separate $3.4m Rochester in-pit crusher write-down was recorded. Reclamation liabilities were $123.0m. Up to $50.0m of Silvertip acquisition milestone consideration was recorded as probable.
After quarter-end, Coeur completed its Northern Empire acquisition for approximately $63.9m in stock, issuing about 12.1m shares; agreed to acquire nearby Rochester-area assets for $19.0m in stock, subject to closing conditions; and amended its credit facility to increase capacity from $200m to $250m and extend maturity to October 2022. The amendment was signed October 29, 2018.
Key facts for investors to verify
- Whether Silvertip can stabilize production, grades, recoveries and plant availability, and whether additional inventory write-downs are needed.
- Progress against 2018 production and cost guidance, particularly Wharf’s planned Q4 recovery and the specified cost ranges in the company’s full guidance disclosure.
- Cash conversion and liquidity: operating cash flow fell materially year over year, capital spending rose, and cash declined by $87.3m in the first nine months.
- The collectability and revised terms of Manquiri consideration, including the remaining note receivable and suspended royalty payments.
- Debt, contingent obligations and dilution following the Northern Empire acquisition, Rochester-area asset agreement, and expanded revolving facility.
- Exposure to metal prices, foreign exchange, tax estimates and reclamation costs; the company reported substantial jurisdictional variation in its effective tax rate and valuation allowances on certain deferred tax assets.