Coeur Mining, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Coeur is a silver and gold producer operating mines in the United States, Mexico, and Bolivia, with development projects and streaming and royalty interests. Financial statements are unaudited.
Financial performance
| Metric | Q2 2014 | Q2 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Revenue | $164.6 million | $204.5 million | $324.2 million | $376.3 million |
| Net loss | $43.1 million | $35.0 million | $80.3 million | $22.8 million |
| Net loss per diluted share | $0.42 | $0.35 | $0.78 | $0.24 |
| Cash provided by operating activities | $30.5 million | $63.3 million | $20.9 million | $76.3 million |
| Capital expenditures | $15.4 million | $27.2 million | $27.3 million | $40.0 million |
- Q2 metal sales were $163.7 million; royalty revenue was $0.9 million. Q2 production was 4.5 million silver ounces and 61,025 gold ounces.
- Q2 realized prices were $19.60 per silver ounce and $1,277 per gold ounce, down from $22.73 and $1,356, respectively. Q2 sales volumes also declined.
- Q2 costs applicable to sales were $14.31 per silver-equivalent ounce, versus $14.88; all-in sustaining costs were $19.89 per silver-equivalent ounce, versus $21.22. For the first half, those measures were $13.80 versus $14.57 and $19.58 versus $20.80, respectively. These are non-GAAP measures.
- Gross margin is not separately reported in the filing. Q2 costs applicable to sales were $118.7 million and amortization was $41.4 million.
- Other expense included $8.3 million of net fair-value losses in Q2, compared with $66.8 million of gains in Q2 2013. First-half fair-value adjustments were a $19.7 million loss versus an $84.6 million gain. These non-cash swings substantially affected reported earnings.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $269.1 million and short-term investments were $47.6 million. Current assets were $626.7 million and current liabilities were $155.5 million.
- Total debt and capital lease obligations were approximately $480.1 million, including $452.9 million carrying value of 7.875% senior notes due 2021 and $5.3 million of convertible notes classified as current. The senior notes have $450 million aggregate principal outstanding.
- In March, Coeur issued an additional $150 million of 7.875% senior notes. It terminated its unused revolving credit facility effective March 25, 2014 and wrote off $3.0 million of related costs.
- Cash increased $62.4 million in the first half, primarily reflecting the notes issuance; operating cash flow was sharply lower year over year. The company paid $27.0 million in Palmarejo gold royalty payments in the first half.
Changes, outlook and material items
- Q2 revenue fell 20.0% year over year, primarily from lower realized metal prices and lower silver and gold sales. First-half revenue declined 13.9%, as lower prices more than offset higher ounces sold.
- Q2 net loss widened, while first-half net loss increased substantially. Management cited lower realized prices and unfavorable fair-value changes; lower unit costs provided a partial offset. Q2 2013 also included a $32.0 million Rochester claims settlement charge, absent in 2014.
- Management reported La Preciosa’s feasibility study with a 10% internal rate of return and initial proven and probable reserves of 126 million silver ounces and 209,000 gold ounces. Development was deferred to retain exposure to potentially higher metal prices; limited drilling and metallurgical work is planned to seek improved returns.
- Coeur signed letters of intent to terminate the existing Palmarejo gold royalty stream after the minimum-ounce obligation is satisfied and enter a new gold stream for 50% of remaining Palmarejo gold production. Definitive agreements were expected in Q3 2014; completion was not assured.
- No specific production, earnings, or cash-flow guidance is provided in the filing. Management said it may defer capital investments or seek financing if needed; availability and terms of additional financing are uncertain.
Risks and contingencies
- Metal-price exposure remains significant. A 10% gold-price change was estimated to move the Palmarejo royalty embedded derivative’s net fair value by about $13.3 million. The company also had silver and gold put spreads expiring through Q1 2015.
- Bolivia enacted a new mining law in May 2014; effects depend on implementing regulations and possible contract renegotiation. A restriction on mining above 4,400 meters at Cerro Rico remains in place and may constrain San Bartolomé production; duration is uncertain.
- Coeur disclosed a Bolivian government reversion decision affecting nine subsidiary mining rights in areas not actively mined; it said San Bartolomé was not targeted. The company did not renew political-risk insurance for the operation.
- La Preciosa faces development, permitting, cost, recovery, reserve-estimation, and metal-price risks. Royalty and streaming income also depends on third-party operators’ performance and ability to meet contractual obligations.
- Environmental and legal matters include legacy Callahan sites and a stayed Washington contribution lawsuit. The IBLA affirmed the Rochester operating-plan amendment on June 30, 2014. Management noted possible future challenges and potential permitting delays.
- Approximately 10% of the worldwide workforce was covered by collective bargaining agreements; labor disruptions and renewal terms are uncertain. Reclamation obligations were $59.8 million at quarter-end.
Important facts for investors to verify
- Whether the Palmarejo royalty termination and replacement gold-stream agreements were finalized, and their ultimate payment and production terms.
- Production trends, realized silver and gold prices, and unit costs at Palmarejo and San Bartolomé, alongside Rochester’s higher tons placed and production.
- Cash generation and liquidity after the decline in first-half operating cash flow, including the effect of royalty payments, capital spending, and the terminated credit facility.
- Implementation of Bolivia’s mining law and the status of Cerro Rico access restrictions and the nine affected mining rights.
- La Preciosa’s economics and the assumptions behind its feasibility-study return, reserves, and deferred development plan; also distinguish reported GAAP results from non-GAAP cost and adjusted-loss measures.