Coeur Mining, Inc. — Q1 2019 Form 10-Q
Business context and reporting period. Coeur is a gold and silver producer with five operating mines in the United States, Canada and Mexico. This unaudited report covers the three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. Results may not indicate full-year performance.
Key financial and operating metrics
- Revenue: $154.9 million, down 5% from $163.3 million. Gold sales were $106.8 million; silver, $40.1 million; zinc, $5.6 million; and lead, $2.4 million.
- Profit: Continuing-operations net loss was $24.9 million, or $0.12 per diluted share, versus income of $0.7 million. Including a $5.7 million gain from discontinued operations, net loss was $19.2 million, or $0.09 per share. Adjusted net loss, a non-GAAP measure, was $23.0 million.
- Costs and margins: Costs applicable to sales (CAS, excluding amortization) were $131.7 million, up from $99.3 million; CAS equaled approximately 85% of revenue versus 61% in Q1 2018. Amortization was $41.9 million, compared with $30.8 million. Silvertip’s $15.4 million inventory write-down was a significant cost item.
- Cash flow: Continuing-operations operating cash flow was negative $11.8 million, compared with positive $15.5 million. Capital expenditures were $27.4 million, making operating cash flow less capital expenditures approximately negative $39.3 million. Cash, cash equivalents and restricted cash fell $46.0 million during the quarter to $72.0 million; balance-sheet cash and equivalents were $69.0 million.
- Debt and liquidity: Debt reported on the balance sheet totaled $456.8 million, including $381.0 million of senior notes and revolving-credit borrowings and $75.7 million of finance lease obligations. The Company had $115.0 million available under its revolving credit facility, with $135.0 million drawn. Current assets were $251.4 million and current liabilities $185.0 million.
- Production and prices: Gold produced was 78,336 ounces and silver 2.49 million ounces, down from 85,383 ounces and 3.18 million ounces, respectively. Realized prices averaged $1,251 per gold ounce and $15.22 per silver ounce, versus $1,268 and $16.70.
Material changes versus the prior comparable period
- Revenue decreased $8.4 million, reflecting lower gold and silver sales volumes and realized prices; Silvertip’s zinc and lead sales partly offset the decline.
- Costs applicable to sales increased $32.3 million, driven by Silvertip’s inclusion, its inventory write-down and higher per-unit costs across operating sites. Adjusted EBITDA fell to $26.1 million from $49.2 million; EBITDA fell to $14.8 million from $49.4 million. Both are non-GAAP measures.
- Production was pressured at Palmarejo by lower grades and mine sequencing, and at Rochester by adverse weather and crusher decommissioning for the high-pressure grinding roll project. Kensington production rose 15%, aided by Jualin.
- Silvertip began commercial production in September 2018 and contributed silver, zinc and lead sales in Q1 2019. Lower-than-expected production, grades, recoveries and plant availability led to the inventory write-down.
- Cash flow from continuing operations shifted from positive to negative, while capital spending decreased to $27.4 million from $42.3 million, largely reflecting lower Silvertip pre-production spending.
Outlook, commentary, risks and unusual items
- Management said 2019 production and CAS guidance remained unchanged from the 2018 Form 10-K; specific guidance ranges are not provided in the filing text supplied here. Management expected CAS to remain within those ranges.
- Management reported Rochester’s HPGR project was on budget and schedule, with commissioning underway; recovery benefits were expected from mid-year and full ramp-up in Q3. Palmarejo’s La Nacion deposit was expected to start production in H2 2019. Jualin was expected to provide approximately 20% of Kensington’s 2019 production.
- Silvertip operating priorities include improving mill availability and recoveries, accelerating underground development and strengthening workforce training and retention. Management cautioned that further inventory write-downs may be required.
- On April 30, 2019, after quarter-end, Coeur amended its revolving-credit agreement: it provided temporary net-leverage covenant flexibility through the September 30, 2019 test, added a senior secured leverage covenant, and increased borrowing costs by 0.75% during periods of elevated consolidated net leverage.
- Effective January 1, 2019, lease-accounting adoption added approximately $65.0 million of operating lease right-of-use assets and liabilities, with no material income-statement or cash-flow impact reported.
- Silvertip acquisition consideration includes two contingent payments of up to $25.0 million each; the Company considered both milestones probable at quarter-end. Their combined recorded fair value was approximately $49.5 million.
- Risks include metal-price volatility, variable grades and recoveries, production and permitting uncertainty, environmental and mine-operating hazards, foreign-country exposure, and the ability to maintain liquidity or obtain financing. The Company also continued to pursue recovery of $27.2 million of Mexican VAT receivables, including through litigation, and disclosed exposure to a precious-metals refiner’s bankruptcy.
Most important facts for investors to verify
- Whether Silvertip improves production, grades, recoveries and plant availability, and whether additional inventory write-downs occur.
- Actual progress and timing for Rochester’s HPGR commissioning, Palmarejo’s La Nacion start-up and Jualin’s planned contribution.
- Compliance with amended credit-facility covenants, borrowing costs, revolver availability and cash needs relative to capital spending and operating cash flow.
- Whether 2019 production and CAS remain within the guidance ranges referenced in the 2018 Form 10-K.
- Recovery and timing of the Mexican VAT receivable, and the outcome of Silvertip contingent-payment milestones.