Coeur Mining, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Coeur operates gold, silver, zinc and lead mines in the U.S., Mexico and Canada. Results reflect continuing operations; San Bartolomé was sold in February 2018 and is reported as discontinued operations.
Financial and operating performance
- Q2 revenue: $170.0 million, up 13.7% from $149.5 million a year earlier. First-half revenue was $333.3 million, down slightly from $335.1 million.
- Net income from continuing operations: Q2 profit was $2.9 million, or $0.02 per diluted share, compared with a $10.0 million loss, or $0.06 loss per share, in Q2 2017. First-half continuing profit was $3.6 million versus $8.3 million. First-half total net income was $4.2 million, including $0.6 million from discontinued operations.
- Costs and margins: Q2 costs applicable to sales (CAS) were $108.2 million; amortization was $29.5 million. CAS was $9.47 per silver-equivalent ounce and all-in sustaining costs (AISC) were $17.71 per ounce, versus $12.11 and $17.90, respectively, in Q2 2017. First-half AISC rose to $17.53 per ounce from $16.15.
- Production and prices: Q2 production was 8.85 million silver-equivalent ounces, up from 7.66 million. Average realized silver price was $16.48 per ounce, down from $16.95; gold was $1,241 per ounce, up from $1,206.
- Cash flow: Operating cash flow from continuing operations was negative $1.3 million in Q2 and positive $14.2 million for the first half, versus $24.1 million and $68.0 million in the comparable 2017 periods. Capital expenditures were $41.2 million in Q2 and $83.5 million in the first half.
- Liquidity: June 30 cash and cash equivalents were $123.5 million, down from $192.0 million at year-end; cash, cash equivalents and restricted cash totaled $136.0 million. Current assets were $313.6 million and current liabilities $140.6 million. The $200 million revolving facility had $73 million available, with $115 million drawn and $12 million supporting letters of credit.
- Debt: Reported current and non-current debt totaled $419.7 million, including capital leases, compared with $411.3 million at year-end. This included $245.5 million of 5.875% senior notes due 2024 and $115 million drawn on the revolver.
Changes, outlook and notable items
- Q2 revenue and continuing earnings improved year over year, supported by higher silver and gold production and improved operating margin per silver-equivalent ounce. The prior-year quarter included a $9.3 million debt-extinguishment loss. Higher interest expense and unfavorable equity-security fair-value movements partly offset Q2 improvement.
- First-half continuing earnings declined, with the comparison affected by 2017 gains on the Joaquin project sale ($21.1 million) and Rochester royalty repurchase ($2.3 million), as well as the 2017 debt-extinguishment loss. First-half 2018 income and mining tax expense was $15.7 million, an 81.2% effective rate; management cited jurisdictional income mix, foreign exchange and deferred-tax valuation allowances as factors in rate volatility.
- Management revised 2018 production guidance upward, citing stronger-than-expected first-half grades at Palmarejo. Total silver-equivalent production guidance is 37.33–40.48 million ounces. Revised AISC guidance is $17.25–$17.75 per silver-equivalent ounce. Capital expenditure guidance increased to $130–$150 million and exploration guidance to $25–$30 million; Palmarejo CAS guidance fell to $9.00–$9.50 per silver-equivalent ounce.
- Silvertip began milling in Q1 and was expected to reach commercial production in Q3 2018. Its development contributed to higher capital spending. Up to $50 million of acquisition consideration depends on permitting and resource milestones; management considered both milestones probable at June 30. The permit-expansion application was submitted April 30.
- The San Bartolomé sale generated a $1.5 million gain and consideration that includes a 2% net smelter returns royalty, VAT refunds and promissory notes. The company also recorded about $5.7 million of post-closing covenant, guarantee and indemnification liabilities.
- Key risks identified include metal-price volatility, production and grade uncertainty, permitting or delayed Silvertip commissioning, mining hazards and environmental regulation, foreign-country exposure, smelter access, and the ability to secure financing. The filing also reports a $0.4 million net asset on zinc collars and an interest-rate swap covering $50 million of revolver exposure.
- The CFO notified the company of his intent to retire in early 2019, subject to a successor being identified and prepared.
Important facts for investors to verify
- Whether Silvertip achieved commercial production on the expected schedule and whether contingent milestone payments became payable.
- Actual production, CAS, AISC, capital spending and exploration spending against revised 2018 guidance.
- Cash generation and working-capital movements, particularly tax payments, receivables, VAT collections and inventory investment.
- Debt, revolver availability and liquidity needs as development spending continues.
- Metal prices, foreign-exchange effects and tax-rate volatility, including deferred-tax valuation allowances.
- Collection and realization of the San Bartolomé notes, VAT refunds and royalty, and any changes to related liabilities.