Coeur Mining, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Unaudited interim results cover Coeur’s silver and gold mines in the United States, Mexico and Bolivia, plus streaming and royalty interests. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $166.3 | $164.6 | $319.2 | $324.2 |
| Net loss | $(16.7) | $(43.1) | $(50.0) | $(80.3) |
| Diluted loss per share | $(0.12) | $(0.42) | $(0.42) | $(0.78) |
| Cash provided by operations | $36.9 | $30.5 | $32.9 | $20.9 |
| Capital expenditures | $23.7 | $15.4 | $41.3 | $27.3 |
- Q2 production was 4.3 million silver ounces and 80,855 gold ounces; six-month production was 8.1 million silver ounces and 150,589 gold ounces.
- Average realized prices fell year over year: Q2 silver was $16.23/oz versus $19.60 and gold was $1,179/oz versus $1,277. For the first half, silver was $16.50 versus $19.91 and gold was $1,191 versus $1,278.
- Management reported Q2 all-in sustaining costs (AISC) of $16.80 per silver-equivalent ounce, down from $19.89; first-half AISC was $17.18 versus $19.58. Consolidated operating margin per silver-equivalent ounce was $5.21 in Q2 versus $5.69, and $4.92 for the first half versus $6.29. These are non-GAAP measures.
- Cash and equivalents were $205.9 at June 30, down from $270.9 at year-end 2014. Total balance-sheet debt was approximately $547.7 ($9.1 current and $538.6 non-current); cash less debt was approximately $(341.8). Current assets were $519.4 and current liabilities $153.1.
Material changes versus the prior comparable periods
- Q2 revenue was nearly flat, while first-half revenue declined 1.5%. Lower realized metal prices and fewer silver ounces sold were partly offset by higher gold sales and royalty revenue.
- Net losses narrowed in both comparisons, aided by more favorable fair-value movements, lower pre-development expense, higher gold sales and lower unit costs at certain operations. The company nevertheless remained loss-making.
- Silver-equivalent production increased in Q2, largely reflecting the addition of Wharf, while silver production declined. First-half silver production fell about 5%, and gold production rose, primarily with Wharf and improved Kensington output.
- The company acquired the Wharf mine for $99.8 cash in February and completed the Paramount Gold and Silver acquisition in April. Paramount added claims adjoining Palmarejo and was accounted for as an asset acquisition. Coeur issued about 32.7 million shares for Paramount; shares outstanding rose from 103.4 million at year-end to 137.1 million at June 30.
- Mining properties increased to $864.9 from $501.2 at year-end, mainly reflecting acquisitions. First-half investing cash use rose to $155.5, principally due to Wharf and higher capital spending.
Debt, outlook, risks and unusual items
- In June, Coeur entered a $100 million secured term loan due 2020, bearing adjusted Eurodollar rate plus 8% (with a 1% floor), and repaid its $50 million short-term loan. The new facility has 1% annual amortization, mandatory-prepayment provisions in specified circumstances, and security over substantially all company and domestic-subsidiary assets. It has no financial maintenance covenants. The 7.875% senior notes due 2021 remain a major debt obligation.
- Management expected Wharf production to improve and unit costs to decline in the second half as the Pad 5 unload neared completion. Palmarejo was transitioning to a lower-tonnage, higher-grade underground operation, with development spending at Guadalupe. No quantitative consolidated full-year guidance is stated in the supplied filing text.
- San Bartolomé temporarily ceased operations July 10, 2015 due to political protests in Potosí, Bolivia, and resumed July 31. Management said the interruption was not expected to materially affect 2015 consolidated production or results.
- Risks highlighted include volatile gold and silver prices, mine-plan and grade variability, permitting and operating hazards, foreign-country political and regulatory conditions, labor disruptions, environmental obligations, and the ability to obtain financing. Bolivia’s continuing restriction on mining above 4,400 meters could constrain production and potentially require an asset write-down.
- Six lawsuits relating to the Paramount transaction remained pending; Coeur said it would defend itself but could not predict the outcome or cost. Callahan-related environmental matters also remained open, including agency discussions concerning the Akron Mine.
- Unusual accounting and financing items include non-cash fair-value changes in royalty obligations and metal options, acquisition and transaction costs, and a $1.5 million first-half impairment of equity securities. The $100 million term loan increased liquidity but carries a high stated interest margin and substantial collateral.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether lower realized metal prices, production mix and operating costs support sustainable cash generation; compare GAAP results with management’s non-GAAP CAS and AISC definitions.
- Wharf’s expected second-half production and cost improvement, and progress and spending at Palmarejo’s Guadalupe underground development.
- Debt service capacity, the effective cost and collateral terms of the 2020 term loan, and available liquidity after acquisition and capital spending.
- Actual operating and financial effects of the San Bartolomé disruption and the continuing Bolivian elevation restriction.
- Outcomes and potential costs of the Paramount litigation and environmental contingencies, as well as realization of the acquired mineral assets and announced reserve increases.