Coeur Mining, Inc. — Q3 2019 Form 10-Q
Business context and period: Coeur is a gold and silver producer with five operating mines in the United States, Canada and Mexico; Silvertip also produces zinc and lead. This filing covers the quarter and nine months ended September 30, 2019. Financial amounts below are in U.S. dollars unless noted.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $199.5 million | $148.8 million | $516.5 million | $482.0 million |
| Net income (loss) from continuing operations | $(14.3) million | $(53.0) million | $(75.9) million | $(49.4) million |
| Net income (loss) per diluted share | $(0.06) | $(0.29) | $(0.36) | $(0.27) |
| Operating cash flow from continuing operations | $42.0 million | $5.8 million | $52.6 million | $20.0 million |
| Capital expenditures | $30.7 million | $39.5 million | $78.9 million | $123.0 million |
| Free cash flow (non-GAAP) | $11.3 million | $(33.7) million | $(26.3) million | $(102.9) million |
| Adjusted EBITDA (non-GAAP) | $61.0 million | $24.7 million | $114.9 million | $121.4 million |
Q3 revenue rose 34% year over year, supported by higher gold and silver prices and sales volumes, as well as Silvertip sales. Average realized gold and silver prices were $1,413 per ounce and $17.17 per ounce, respectively. Gold represented 71% of Q3 sales. Q3 gold production increased 14% year over year to 99,782 ounces; silver production increased to 3.02 million ounces from 2.89 million.
Costs applicable to sales were $141.0 million in Q3 and $404.6 million for the nine months; amortization was $45.7 million and $130.8 million, respectively. The filing does not provide a single consolidated operating-margin measure. Q3 adjusted net loss was $5.3 million, or $0.02 per share; nine-month adjusted net loss was $51.3 million, or $0.24 per share. These are non-GAAP measures.
At September 30, cash and cash equivalents were $65.3 million and cash, cash equivalents and restricted cash totaled $67.7 million. The $250 million revolving credit facility was undrawn and fully available. Total debt, including finance leases, was $298.7 million, down from $429.2 million at September 30, 2018; Coeur reported reducing debt by about $160 million since the start of 2019. Total assets were $1.69 billion and stockholders’ equity was $930.8 million.
Material changes versus comparable periods
- Q3 continuing-operations net loss narrowed from $53.0 million to $14.3 million, reflecting higher sales and the absence of significant prior-year items, including the $18.6 million Manquiri consideration write-down and $3.4 million Rochester asset write-down. The 2019 quarter included a $14.0 million Silvertip inventory write-down.
- For the first nine months, continuing-operations net loss widened to $75.9 million from $49.4 million. Higher operating costs included a $41.3 million Silvertip inventory write-down; the company also recorded a $14.0 million income and mining tax benefit. Total net loss was $70.2 million, including a $5.7 million discontinued-operations gain.
- Q3 operating cash flow improved year over year, and the company reported its second consecutive quarter of positive free cash flow. Nine-month free cash flow nevertheless remained negative.
- Coeur raised $122.7 million net through at-the-market stock offerings in the first nine months, issuing about 30.9 million shares. In Q3 it also exchanged $20 million principal amount of senior notes for approximately 4.5 million shares, recording a $1.3 million loss on extinguishment.
- Silvertip began commercial production in September 2018, contributing additional sales in 2019 but also materially affecting costs and inventory valuation.
Outlook, risks and unusual items
- Management said 2019 production and costs-applicable-to-sales guidance remained unchanged from the 2018 Form 10-K. It expected Rochester’s fourth-quarter results to benefit from a full quarter using its newly commissioned crushing circuit, including the high-pressure grinding roll.
- Management said full-year 2019 unit costs were expected to remain within the previously disclosed guidance ranges. The filing does not restate numerical guidance ranges.
- Silvertip’s write-downs reflected lower-than-expected production, grades and recoveries, and reduced plant availability. Coeur said further write-downs could be required while it works to optimize operations.
- Up to $50 million of Silvertip contingent consideration was considered probable and recorded; $49.8 million was included in accrued liabilities at quarter-end. Payments depend on permitting and resource milestones.
- Coeur continues to pursue recovery of $26.9 million of Mexican VAT receivables, including through litigation. It also disclosed a remaining claim related to Republic Metals Corp.’s bankruptcy after receiving a partial settlement and recording a $1.0 million charge.
- The company identified exposure to changes in precious- and base-metal prices, foreign exchange, interest rates, operating performance, weather, permitting, regulation, environmental matters, and access to third-party smelters. Gold collars covered 159,000 ounces through August 2020; the company stated it does not use derivatives for trading or speculation.
- Coeur amended its revolving-credit covenants in 2019 to provide greater flexibility. Management stated U.S. liquidity and capital resources were adequate for U.S. operations and corporate activities. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Silvertip can improve production, grades, recoveries and plant availability, and whether additional inventory write-downs or contingent payments arise.
- Whether Rochester’s new crushing circuit delivers the expected production and cost improvements and whether full-year guidance is achieved.
- Cash generation after capital expenditures, working-capital movements and mine-level operating costs; nine-month free cash flow was negative despite positive Q3 free cash flow.
- Debt reduction, revolving-credit availability and covenant compliance, alongside the effect of equity issuance and share dilution.
- Timing and recoverability of the Mexican VAT receivable and remaining claims associated with the refiner bankruptcy.
- Metal-price sensitivity, hedging outcomes and the assumptions underlying non-GAAP adjusted earnings, EBITDA and free cash flow.