Coeur Mining, Inc. — Q3 2020 Form 10-Q
Business context and period: Coeur is a gold and silver producer with mines in the United States, Mexico and Canada. This unaudited report covers the quarter and nine months ended September 30, 2020; amounts below are U.S. dollars unless noted. Results may not indicate full-year performance.
Financial and operating performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $229.7 million | $199.5 million | $557.1 million | $516.5 million |
| Net income (loss) from continuing operations | $26.9 million | $(14.3) million | $13.7 million | $(75.9) million |
| Diluted earnings (loss) per share from continuing operations | $0.11 | $(0.06) | $0.06 | $(0.36) |
| Operating cash flow | $79.5 million | $42.0 million | $81.4 million | $52.6 million |
| Free cash flow, non-GAAP | $56.5 million | $11.3 million | $19.5 million | $(26.3) million |
| Adjusted EBITDA, non-GAAP | $90.8 million | $61.0 million | $179.4 million | $114.9 million |
Revenue rose 15% in Q3 and 8% year to date. Higher realized metal prices were a key driver: Q3 gold averaged $1,754/oz, up 24%, and silver $24.15/oz, up 41%, year over year. Q3 gold production was 95,995 oz and silver production 2.6 million oz; nine-month production was 259,301 oz of gold and 6.9 million oz of silver. Q3 adjusted EBITDA margin was approximately 39.5%, versus 30.6% a year earlier; nine-month margin was approximately 32.2%, versus 22.3%. These margins are calculated from the company’s non-GAAP adjusted EBITDA and revenue.
Cash and cash equivalents were $77.1 million at September 30, compared with $55.6 million at December 31, 2019; cash, cash equivalents and restricted cash totaled $78.5 million. Total debt, including finance leases, was $301.1 million. The $250 million revolving credit facility had $20.0 million drawn and $209.5 million available, with $20.5 million of letters of credit outstanding. Current assets were $239.2 million and current liabilities $205.8 million. Capital expenditures were $23.0 million in Q3 and $61.9 million year to date.
Changes and operating developments
- Q3 GAAP results turned profitable from a year-earlier loss, supported by higher gold and silver prices, strong Wharf results, and lower costs at Rochester and Silvertip. Nine-month continuing-operations income also improved from a substantial prior-year loss.
- Higher prices and Wharf’s stronger production offset lower sales volumes at several mines. Nine-month gold and silver ounces sold declined 5% and 20%, respectively, year over year.
- Wharf reported record quarterly results since Coeur acquired the mine: 33,440 oz of gold produced and $39.1 million of operating cash flow. Palmarejo restarted after an approximately 45-day COVID-related suspension in Q2 and generated strong Q3 results.
- Rochester production remained affected by leach-pad dilution and process-plant turbidity. Construction on the Rochester POA 11 expansion began in August.
- Silvertip suspended mining and processing in February, unrelated to COVID-19. The company recorded Silvertip inventory write-downs and continued to incur carrying and suspension costs.
- Exploration expense increased to $12.8 million in Q3 and $31.1 million year to date, reflecting expanded activity, including at Sterling/Crown. Approximately 20 drill rigs were operating across the company.
Outlook, risks and unusual items
Updated 2020 guidance: The company raised total gold production guidance to 334,500–368,000 oz and lowered silver guidance to 9.1–10.7 million oz. Updated mine-level production ranges include Palmarejo gold of 100,000–110,000 oz, Rochester gold of 27,000–33,000 oz, Kensington gold of 122,500–130,000 oz, and Wharf gold of 85,000–95,000 oz. Silvertip is excluded from production guidance.
Updated costs applicable to sales guidance: Palmarejo $650–$750/oz gold and $9.50–$10.50/oz silver; Rochester $1,150–$1,300/oz gold and $13.50–$14.75/oz silver; Kensington $900–$1,000/oz gold; and Wharf $875–$925/oz gold. Sustaining capital guidance was reduced to $55–$60 million, while development capital guidance rose to $45–$55 million. Expensed exploration guidance increased to $43–$49 million; capitalized exploration remained $7–$11 million. G&A guidance remained $32–$36 million. The filing provides no clear 2021 guidance.
- COVID-19: The pandemic remains a material, unquantifiable operating risk. Palmarejo’s temporary suspension affected Q2 activity; reported cases at Kensington caused a minor short-term production impact in Q3. Quarantine, testing and other protocols add costs and may affect staffing, production, suppliers and sales.
- Hedges: Gold collars covered 340,200 oz through December 2022, with average put and call strikes of $1,589 and $1,924/oz. Their fair value was a $33.9 million liability. Management targets hedging approximately 50% of expected 2021–2022 gold production. The filing estimates that a 10% gold-price increase at quarter-end would result in a $53.2 million loss on the collars.
- Unusual items: Q3 included a $3.8 million fee to novate gold collar contracts. Year-to-date pre-development expenses included a $4.1 million gain from a lease modification. Non-GAAP adjusted earnings exclude several items, including COVID-19 costs, Silvertip suspension costs and write-downs, and hedge novation expense.
- Contingencies: $23.5 million of Mexican VAT receivables remains under dispute and recovery is uncertain; the company warns that some or all may not be recovered. Reclamation surety bonds totaled $212.8 million. Income and mining taxes were $13.1 million in Q3, with a 32.8% effective tax rate; management notes that the rate can fluctuate significantly.
- Management said liquidity was adequate for U.S. operations and corporate activities and established a $100 million at-the-market equity program for flexibility; no shares had been sold under it as of the filing. Management also cautioned that COVID-19 effects and interim results are uncertain.
Important facts for investors to verify
- Whether updated 2020 production, cost and capital guidance remains achievable, particularly given Rochester recovery issues and Kensington staffing protocols.
- How much of Coeur’s earnings and cash generation depends on elevated realized gold and silver prices, and the potential effect of hedge collars.
- Whether the $23.5 million Mexican VAT receivable is recoverable, and the timing and outcome of ongoing litigation and appeals.
- The duration and financial impact of Silvertip’s suspension, carrying costs and inventory write-downs.
- Progress, capital requirements and expected economics for the Rochester POA 11 expansion; the filing said an updated technical report was planned for December.
- How the company’s debt, revolver availability, finance leases and any potential ATM issuance affect liquidity and shareholder dilution.