Business Context and Reporting Period
Company: Coeur d'Alene Mines Corporation (Coeur Mining, Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2010
Business Overview: Coeur is a large primary silver producer with growing gold production. Operations are located in the United States, Mexico, Bolivia, Argentina, Chile, and Australia. Key operating mines include Palmarejo (Mexico), San Bartolomé (Bolivia), Rochester (USA), Martha (Argentina), and Endeavor (Australia). The Kensington gold mine in Alaska is under construction with production expected in July 2010.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Sales of Metal | $87.5 million | $45.1 million |
| Net Income (Loss) | $(8.0) million | $6.1 million |
| Operating Loss | $(3.0) million | $(2.3) million |
| Cash and Cash Equivalents | $56.0 million | $38.1 million |
| Working Capital | $40.2 million | $(2.6) million (Deficit) |
| Total Debt (Current + Long-term) | $241.9 million | $200.8 million |
| Capital Expenditures | $47.2 million | $78.1 million |
Production Statistics (Q1 2010):
- Silver: 3.43 million ounces produced; 3.63 million ounces sold.
- Gold: 25,782 ounces produced; 25,734 ounces sold.
- Realized Prices: Silver $16.84/oz; Gold $1,104/oz.
Material Changes vs. Prior Period
- Revenue Surge: Sales of metal increased 94.1% to $87.5 million, driven primarily by the full-quarter contribution of the Palmarejo mine (which began commercial production in April 2009) and higher realized gold and silver prices.
- Net Loss: The company reported a net loss of $8.0 million compared to a net income of $6.1 million in Q1 2009. This reversal was primarily due to a $7.9 million loss on debt extinguishments and increased interest expenses, offsetting a significant $11.5 million income tax benefit.
- Production Costs: Production costs applicable to sales rose to $51.0 million from $25.9 million, largely due to the inclusion of Palmarejo costs and increased depreciation/depletion ($28.8 million vs. $8.5 million).
- Liquidity Improvement: Working capital improved from a deficit of $2.6 million to a surplus of $40.2 million, fueled by the issuance of $100 million in Senior Term Notes in February 2010.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Kensington Mine: Construction is on schedule and on budget, with production expected to commence in July 2010. Initial production is estimated at 50,000 ounces of gold for the partial year.
- San Bartolomé: Mining activities above the 4,400-meter level in Bolivia remain temporarily suspended due to stability studies of Cerro Rico Mountain, though high-grade material in the Huacajchi deposit is being mined.
- Martha Mine: Operations are expected to cease in late 2010 due to ore reserve depletion unless new mineralization is discovered. The company is pursuing strategic alternatives.
- Capital Plan: The company plans to invest approximately $100 million in capital activities for the remainder of 2010 to complete Kensington and Palmarejo facilities.
Risks and Contingencies:
- Commodity Prices: Results are highly sensitive to fluctuations in silver and gold prices.
- Geopolitical/Operational: High levels of violence in the Chihuahua region of Mexico (Palmarejo mine) pose security risks. Regulatory restrictions in Bolivia impact San Bartolomé production.
- Debt Obligations: Significant debt restructuring occurred in Q1 2010, including the exchange of convertible notes for common stock, resulting in substantial losses on extinguishment.
- Subsequent Events: In May 2010, the company agreed to sell its Cerro Bayo mine (Chile) to Mandalay Resources Corporation for cash, stock, silver, and a royalty, expected to close by the end of May 2010.
Investor Verification Checklist
- Debt Restructuring Impact: Verify the long-term implications of the $7.9 million loss on debt extinguishment and the dilution from issuing ~5.8 million shares to retire convertible notes.
- San Bartolomé Production: Monitor the duration of the mining suspension above 4,400 meters in Bolivia and its effect on silver output and cash costs.
- Kensington Timeline: Confirm the July 2010 start date for the Kensington gold mine, as delays could impact projected cash flows.
- Cerro Bayo Sale: Track the closing of the Cerro Bayo sale to Mandalay Resources and the associated $1.0 million expected loss in Q2 2010.
- Commodity Hedging: Review the exposure from the gold lease facility and the Franco-Nevada royalty obligation, which include embedded derivatives sensitive to gold price volatility.