Coeur Mining, Inc. — Q3 2013 Form 10-Q
Business context and reporting period. Coeur Mining is a silver and gold producer with operating mines in the U.S., Mexico and Bolivia, plus interests in Argentina and Australia. This unaudited report covers the three and nine months ended September 30, 2013; comparisons are with the corresponding 2012 periods.
Financial and operating results
- Revenue: Q3 metal sales were $200.8 million, down 12.9%; nine-month sales were $577.1 million, down 16.3%. Lower realized metal prices were the main factor. Q3 realized prices were $21.06 per silver ounce and $1,329 per gold ounce, versus $30.09 and $1,654, respectively, in Q3 2012.
- Profit and margins: Q3 gross profit fell to $8.2 million from $52.8 million; gross margin was approximately 4.1%, versus 22.9%. Operating loss was $15.3 million, compared with operating income of $34.0 million. Net loss was $46.3 million, or $0.46 per share, versus a $15.8 million loss, or $0.18 per share. For nine months, net loss was $69.0 million versus net income of $11.1 million.
- Cash flow: Operating cash flow was $26.8 million in Q3, down from $79.7 million; nine-month operating cash flow was $103.1 million versus $209.9 million. Nine-month capital expenditures were $72.8 million. Investing cash outflow was $186.5 million, including $113.2 million paid for the Orko acquisition.
- Liquidity: Cash and cash equivalents were $211.4 million at September 30, versus $125.4 million at year-end 2012. Working capital was $322.2 million and the current ratio was 3.03, compared with 1.70 at year-end.
- Debt: The company issued $300 million of 7.875% senior notes due 2021 and repurchased $43.3 million of its 3.25% convertible notes, leaving $5.3 million outstanding. It had no borrowings under its $100 million revolving credit facility. Balance-sheet debt and capital leases totaled $310.2 million, including $3.9 million current.
- Production: Q3 silver production declined 4.7% to 4.2 million ounces; gold production rose 8.5% to 63,766 ounces. Consolidated silver cash operating cost was $11.38 per ounce, up from $9.05; Kensington gold cash operating cost fell to $988 per ounce from $1,298.
Material changes versus the prior comparable period
- Lower silver and gold prices reduced revenue and operating cash generation despite higher Q3 ounces sold. Q3 silver and gold ounces sold rose to 4.9 million and 76,466, respectively, from 4.5 million and 59,156.
- Rochester’s leach-pad expansion and placement of ore ahead of leaching reduced production and sharply raised reported cash cost per silver ounce. Kensington’s higher throughput and recovery supported improved gold output and lower unit costs.
- Q3 production costs applicable to sales increased 5.4% to $131.7 million; depreciation, depletion and amortization rose 15.2% to $60.9 million. General and administrative expense increased to $16.2 million, including about $3.7 million of one-time office-relocation costs.
- Year-to-date results included a $32.0 million charge from the Rochester claims settlement and an $18.1 million impairment of marketable securities. The $300 million note issuance increased interest expense.
- Coeur completed its acquisition of Orko Silver in April, adding the development-stage La Preciosa project. Consideration included approximately $99.1 million cash, 11.6 million Coeur shares and warrants; the project was recorded at $408.4 million in mineral interests.
Outlook, commentary and risks
- Management narrowed 2013 production guidance within its prior range to 18.0–19.1 million ounces of silver and 250,000–258,000 ounces of gold. It forecast 2014 production of 18.6–19.3 million silver ounces and 256,000–262,000 gold ounces. Longer-range mine-by-mine estimates were also provided through 2016.
- Management said it expected to generate net free cash flow in Q4 2013 at then-current metal prices and was pursuing operating-cost and capital-expenditure reductions. These are forward-looking expectations, not guarantees.
- La Preciosa’s feasibility study was expected to be completed in mid-2014. Coeur had not designated reserves there; its preliminary economic assessment was not a feasibility study and included speculative mineralized material.
- Key risks include volatile precious-metal prices, operating costs and recovery variability, permitting and development uncertainty, foreign-country regulatory and political exposure, and the possibility of asset impairments. San Bartolomé mining above 4,400 meters remained partly restricted in Bolivia, with duration and potential effects uncertain.
- Other matters include the Rochester appeal challenging the approved mine-plan amendment; a Mexican import-tax dispute for which Coeur accrued $1.8 million; environmental claims relating to former Callahan sites, including an Asarco contribution suit scheduled for trial in 2014; and the Rochester settlement’s 3.4% net-smelter-return royalty on qualifying production beginning January 2014.
- Reclamation obligations increased by $19.5 million in Q3, including $16.8 million at Rochester and $2.7 million at Kensington. The filing also describes metal-price, foreign-exchange and royalty-related derivative exposures that can create earnings volatility.
Important facts for investors to verify
- Whether subsequent production, realized metal prices and operating costs support management’s 2013 guidance and Q4 free-cash-flow expectation.
- Rochester leach-pad performance, updated reserve estimates, royalty effects and the outcome of the plan-of-operations appeal.
- Progress, feasibility-study results, permitting status and capital requirements for La Preciosa; no reserves were designated at the reporting date.
- Resolution and potential final cost of the Mexican import-tax matter, and developments in the Bolivian mining restriction and legacy environmental proceedings.
- Debt-service capacity and covenant compliance under the 7.875% notes and revolving facility, particularly if metal prices remain weak.