Coeur Mining, Inc. — Q1 2017 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2017, compared with Q1 2016. Coeur produces gold and silver from mines in the United States, Mexico, and Bolivia. The company reorganized segment reporting in Q1 2017, moving Coeur Capital-related activities into “Other”; prior-period segment data was adjusted.
Financial and operating performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $206.1 million | $148.4 million |
| Net income (loss) | $18.7 million; $0.10 diluted EPS | ($20.4 million); ($0.14) diluted EPS |
| Adjusted net income (loss), non-GAAP | $7.0 million; $0.04 diluted EPS | ($10.5 million); ($0.06) diluted EPS |
| Operating cash flow | $55.3 million | $6.6 million |
| Adjusted EBITDA, non-GAAP | $56.6 million | $37.4 million |
| Capital expenditures | $24.0 million | $22.2 million |
- Production was 9.2 million silver-equivalent ounces, up from 8.1 million; sales were 11.1 million ounces, up from 8.3 million. Silver production rose 17% and gold production rose 13%.
- Costs applicable to sales were $11.39 per silver-equivalent ounce, down 8%. All-in sustaining costs (AISC), a non-GAAP measure, were $15.01 per ounce, down 8% from $16.28.
- Cash and cash equivalents were $210.0 million at quarter-end, versus $162.2 million at December 31, 2016. Current assets were $439.9 million and current liabilities $107.4 million. Reported current and non-current debt totaled $219.1 million, including senior notes and capital leases.
- Investing activities used $1.5 million, compared with $18.6 million in Q1 2016; financing activities used $6.5 million, compared with $15.4 million.
Material changes and unusual items
- Net income included a $21.1 million pre-tax gain from selling the Joaquin project for $27.4 million consideration; Coeur retained a 2.0% net smelter returns royalty. Adjusted net income excludes the gain.
- Revenue increased with higher production and sales, a 16% increase in realized silver prices, and lower metal inventory. Average realized gold price declined to $1,149 per ounce from $1,178.
- Interest expense declined to $3.6 million from $11.1 million, principally following debt repayments/redemptions and termination of the Palmarejo gold production royalty in 2016.
- Income and mining tax expense was $11.0 million, with a reported effective rate of 37.2%. Foreign exchange increased tax expense by $5.6 million, primarily due to the stronger Mexican peso; the company cautions that its effective tax rate can fluctuate significantly.
Outlook, commentary, and risks
- Management maintained full-year 2017 production and related cost guidance. It expected exploration spending to rise by $6 million to $29–$31 million to accelerate work at Kensington’s Jualin deposit, offset by a $6 million reduction in Kensington underground capital development. Expected capital expenditures were $109–$129 million.
- Management attributed higher Palmarejo output to throughput, grade, and recovery improvements. Rochester production benefited from recovery timing; San Bartolomé silver output fell 12% amid drought conditions. Kensington gold production fell 18% due to lower grades from mine sequencing, and unit costs increased.
- Under the Palmarejo gold stream, Coeur sells 50% of eligible gold production for the lesser of $800 per ounce or spot price. The filing also identifies exposure to metal-price and foreign-exchange movements, mining and permitting uncertainties, labor disruptions, environmental and regulatory matters, and foreign-country and Bolivian political risks.
- At San Bartolomé, mining above 4,400 meters remains suspended by the company despite expiration of the temporary COMIBOL restriction; a renewed restriction could affect production and asset value. Approximately 10% of the global workforce was covered by the mine’s active labor agreement, which has no fixed term.
Investor verification priorities
- Assess how much reported earnings and cash generation depended on the Joaquin sale and working-capital movements, and compare GAAP results with management’s non-GAAP adjustments.
- Review the assumptions underlying maintained production and cost guidance, the $109–$129 million capital expenditure outlook, and the planned Kensington exploration investment.
- Track recovery of tax and VAT receivables, tax-rate sensitivity to foreign exchange, and the timing and collectability of tax-related balances.
- Monitor debt and capital-lease obligations, the Palmarejo gold-stream economics, and sensitivity to gold and silver prices.
- Evaluate operating risks at San Bartolomé and mine-specific trends, including drought effects, grade variability, and Kensington unit-cost increases.