Coeur Mining, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. Coeur is a silver and gold producer with operating mines in the U.S., Mexico and Bolivia, plus development projects and streaming and royalty interests.
Financial and operating performance
| Metric | 2013 | 2012 |
|---|---|---|
| Metal sales | $746.0 million | $895.5 million |
| Gross profit | $49.5 million; approximately 6.6% of sales | $222.1 million |
| Operating income (loss) | $(845.2) million | $155.7 million |
| Net income (loss) | $(650.6) million; $(6.65) per diluted share | $48.7 million; $0.54 per diluted share |
| Adjusted net income (loss), non-GAAP | $(76.2) million; $(0.78) per share | $122.1 million; $1.37 per share |
| Cash provided by operating activities | $113.5 million | $271.6 million |
| Capital expenditures | $100.8 million | $115.6 million |
| Cash and working capital at year-end | $206.7 million; $386.7 million | $125.4 million; $167.9 million |
Silver production was 17.0 million ounces, down from 18.0 million; gold production reached a record 262,217 ounces, up from 226,486. Cash operating costs were $9.84 per silver ounce and $950 per gold ounce, versus $7.57 and $1,358, respectively. All-in sustaining costs were $18.94 per silver-equivalent ounce, compared with $19.48. These cost measures are non-GAAP.
Revenue declined 16.7%, reflecting lower realized prices and fewer silver ounces sold, partly offset by higher gold sales. Average realized prices fell to $23.14 per silver ounce from $30.92 and to $1,387 per gold ounce from $1,665. Gold represented 47% of 2013 metal sales, versus 39% in 2012.
Fourth-quarter 2013 sales were $168.8 million and net loss was $581.5 million, or $5.77 per share. The quarter included the substantial annual asset impairment charge.
Liquidity, debt and material changes
Operating cash flow fell by $158.2 million year over year. Cash flow less capital expenditures was approximately $12.7 million in 2013, before acquisitions, financing and other investing items. Investing activities used $186.5 million, including acquisitions; financing activities provided $154.3 million.
Coeur issued $300 million of 7.875% senior notes due 2021 and repaid $43.3 million of its 3.25% convertible notes, leaving $5.3 million outstanding. The company reported approximately $382.5 million of indebtedness, including $73.9 million for estimated future Palmarejo royalty payments. It had no borrowings under its $100 million revolving credit facility at year-end and was in compliance with its covenants. The facility requires a minimum $50 million cash balance. Year-end current assets exceeded current liabilities by $386.7 million.
Coeur recorded $773.0 million in non-cash write-downs, principally impairments of Palmarejo ($642.1 million) and Kensington ($130.7 million), following lower long-term metal price assumptions. Other significant items included a $32.0 million Rochester claims settlement charge and a $158.1 million income tax benefit, which included an $81 million benefit related to the company’s assertion that certain Mexican earnings would be permanently reinvested.
The company acquired Orko Silver in April 2013, adding the La Preciosa project in Mexico, and Global Royalty Corporation in December, adding royalties on El Gallo in Mexico and Zaruma in Ecuador. It settled a Rochester mining-claims dispute for $10 million cash and a 3.4% royalty on up to 39.4 million silver-equivalent ounces, effective January 1, 2014. The Martha mine had ceased active mining in September 2012.
Outlook, risks and contingencies
Management’s 2014 expectations were silver production of 17.0–18.2 million ounces and gold production of 220,000–238,000 ounces; production costs applicable to sales of $500–$530 million; capital expenditures of $65–$80 million, about 80% sustaining; exploration expense of $13–$18 million; general and administrative expense of $43–$48 million; and amortization of approximately $150 million. A La Preciosa feasibility study was expected in mid-2014. Management also forecast $13–$18 million of total exploration spending for 2014. These are forward-looking estimates, not assurances.
Key risks include volatile silver and gold prices, production and cost variability, reserve-estimation uncertainty, permitting and environmental obligations, foreign political and currency exposure, and access to financing. In Bolivia, mining above 4,400 meters remained restricted in some areas and proposed mining-law changes could affect operations. An administrative appeal challenges the Rochester mine plan approval; operations were proceeding while the appeal remained unresolved. The filing also describes environmental matters involving former Callahan sites, including a contribution lawsuit with a trial scheduled for September 2014. Reclamation and mine-closure liabilities were $57.5 million for operating properties, plus $1.0 million accrued for former mining activities; contractual-obligation estimates include larger undiscounted future closure cash flows.
Further risks include the Palmarejo royalty’s minimum payment obligation, reliance on third-party operators for streaming and royalty assets, and exposure to smelter availability. The company reported a $40.3 million fair-value liability for the Palmarejo royalty embedded derivative at year-end; its value is sensitive to gold prices. The filing cautions that La Preciosa’s preliminary economic assessment is not a feasibility study and does not establish proven and probable reserves.
Important facts for investors to verify
- Review the assumptions and mine-level cash-flow estimates underlying the $773.0 million impairment, particularly metal prices, production plans and operating costs.
- Assess whether 2014 production, cost, capital-spending and La Preciosa feasibility expectations were subsequently achieved.
- Check liquidity and covenant headroom against the $50 million minimum cash requirement, debt service and the company’s dependence on metal prices.
- Track the Rochester appeal, the new 3.4% royalty, Bolivian mining restrictions and changes to mining laws or permits.
- Evaluate the timing and recoverability of tax and VAT receivables, deferred tax assets, and the benefit from the Mexican permanent-reinvestment assertion.
- Distinguish GAAP results from management’s non-GAAP adjusted earnings, cash-cost and all-in sustaining cost measures.