Coeur d’Alene Mines Corporation — Q1 2011 Form 10-Q
Business context and reporting period. The company’s unaudited report covers the three months ended March 31, 2011, with balance-sheet comparisons to December 31, 2010. Coeur produced silver and gold from operations in the U.S., Mexico, Bolivia, Argentina and Australia. The results are not necessarily indicative of full-year performance.
Financial and operating results
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Metal sales | $199.6 million | $88.3 million; up 126.1% |
| Gross profit | $57.1 million; 28.6% margin | $8.8 million; 9.9% margin |
| Operating income (loss) | $38.5 million; 19.3% margin | $(0.9) million |
| Net income (loss) | $12.5 million; $0.14 per diluted share | $(12.9) million; $(0.16) per diluted share |
| Operating cash flow | $35.8 million provided | $9.2 million used |
| Capital expenditures | $15.9 million | $47.2 million |
| Cash and cash equivalents | $64.4 million | $66.1 million at Dec. 31, 2010 |
| Current assets / liabilities | $286.3 million / $215.0 million; working capital $71.4 million; current ratio 1.33 | Working capital deficit $4.5 million; current ratio 0.98 |
| Debt and capital leases | $205.3 million, including current and long-term amounts | Compared with $193.4 million at Dec. 31, 2010 |
Silver production was 4.10 million ounces, up 19.6%; gold production was 53,130 ounces, up 106.1%. Realized prices rose to $31.27 per silver ounce from $16.84 and $1,374 per gold ounce from $1,104. Consolidated silver cash cost was $9.10 per ounce versus $7.83, and total production cost was $19.02 versus $15.84; these per-ounce measures are non-GAAP. Depreciation, depletion and amortization was $50.0 million versus $27.7 million. Interest expense was $9.3 million versus $5.8 million.
Material changes and drivers
- Higher realized metal prices and expanded gold output, particularly from Kensington after commercial production began in July 2010, drove the sales increase and return to profitability. Palmarejo and San Bartolomé also increased silver production.
- Production costs applicable to sales rose 78.5% to $92.5 million, less than the increase in sales; depreciation and depletion increased with Kensington entering production.
- The company recorded a $12.9 million income-tax provision, compared with a $7.0 million benefit a year earlier. The provision reflects jurisdictional tax differences, valuation allowances and other items.
- Administrative and general expense rose to $12.2 million from $6.7 million, including non-cash incentive compensation and corporate costs. Share-based compensation expense rose to $8.2 million from $1.4 million.
- Investing cash outflow fell to $16.6 million from $47.3 million, largely because Kensington capital investment was lower. Financing used $20.9 million, versus $89.7 million provided in Q1 2010, when significant note proceeds were received.
- The company repurchased all remaining 1.25% convertible notes due 2024 during the quarter. The Kensington facility balance was $96.7 million; Senior Term Notes due 2012 were $26.3 million. A 3.25% convertible-note balance of $48.7 million was reported, or $43.8 million net of debt discount.
Outlook, risks and unusual items
- Management said it expected Rochester active mining to resume in 2011, with new production ounces expected to be recovered in Q4 2011 following a positive Bureau of Land Management decision. Timing and performance remain subject to execution and permitting conditions; no consolidated production or earnings guidance is provided in the supplied filing text.
- Mining above 4,400 meters at San Bartolomé remains restricted by a Bolivian suspension, although the Huacajchi deposit was excluded from the restriction. The duration is uncertain; continued restrictions could reduce production and potentially require an asset write-down. The filing also discusses political and nationalization-related uncertainty in Bolivia.
- Other key exposures include volatile silver and gold prices, foreign exchange, ore grades and recoveries, mine-plan assumptions, environmental and regulatory requirements, labor matters, third-party operators and smelters, and access to financing. Six trading counterparties accounted for about 74.5% of metal sales; loss of a smelter could also be material if alternatives were unavailable.
- Gold collars associated with the Kensington facility covered 232,500 ounces, with weighted-average put and call prices of $940.35 and $1,852.62. The Palmarejo royalty embedded derivative had a $160.9 million fair-value liability; related royalty obligations and derivative accounting expose results to metal-price movements.
- Cash from operations was positive, but working-capital movements included substantial cash outflows from accounts payable and accrued liabilities. Receivables included $43.3 million of current refundable VAT and $38.2 million non-current refundable VAT, creating collection and timing exposure.
- The filing reports environmental inquiries concerning former Callahan mine sites; the company states it believes it is not liable and that no cleanup-cost claim had been made against it or Callahan at the time of the report. Reclamation estimates remain subject to uncertainty. A $0.7 million Rochester post-closure trust was established.
- Subsequent events: the company bought a 6.49% Apogee Silver interest for $5.0 million on May 3, 2011, and received $3.6 million of Chilean VAT on May 6. The filing also notes an immaterial income-tax error identified in 2010 that the company intended to correct in later filings.
Important facts for investors to verify
- Whether higher metal prices and Kensington output can be sustained, and whether Rochester resumes mining and delivers expected Q4 2011 production.
- Mine-by-mine production, ore grades, recoveries and cash costs, particularly the deterioration in Rochester, Martha and Endeavor unit costs.
- The collectability and timing of VAT receivables, working-capital movements and the sustainability of operating cash flow.
- Debt-service requirements, refinancing capacity, Kensington gold collars, and the cash and accounting burden of the Palmarejo royalty.
- Developments in Bolivia’s mining restrictions and political environment, along with permitting, reclamation and legacy-site contingencies.
- The effects of provisional metal pricing, derivative fair-value changes and jurisdictional tax provisions on reported earnings.