Business Context and Reporting Period
Company: Coeur d'Alene Mines Corporation (Coeur Mining, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2007
Business Overview: Coeur is a precious metals mining company operating silver and gold mines in the United States (Rochester, Nevada), Chile (Cerro Bayo), Argentina (Martha), and Australia (Endeavor and Broken Hill). The company is also developing major projects in Bolivia (San Bartolome) and Alaska (Kensington).
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2007 |
Nine Months Ended Sep 30, 2007 |
Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Revenues (Sales of Metal) | $52,863 | $155,388 | $149,501 |
| Net Income | $3,635 | $29,571 | $65,336 |
| Diluted EPS | $0.01 | $0.10 | $0.23 |
| Cash Flow from Operations | ($5,549) | $28,661 | $70,005 |
| Cash and Cash Equivalents | $170,490 | $170,490 | $325,056 |
| Working Capital | $257,414 | $257,414 | $383,082 |
| Long-Term Debt | $180,000 | $180,000 | $180,000 |
Note: Working Capital calculated as Current Assets ($321,366) minus Current Liabilities ($63,952). Prior year working capital calculated as Current Assets ($441,597) minus Current Liabilities ($58,515).
Material Changes vs. Prior Period
- Revenue: Nine-month revenue increased 3.9% to $155.4 million, driven by higher realized silver ($13.34/oz vs $11.73/oz) and gold ($669/oz vs $625/oz) prices, partially offset by a decrease in ounces sold.
- Net Income: Net income for the nine months ended September 30, 2007, decreased significantly to $29.6 million from $65.3 million in the prior year. This decline is largely due to the absence of an $11.1 million gain on the sale of discontinued operations (Coeur Silver Valley) recorded in 2006.
- Production Costs: Production costs applicable to sales increased 35.2% to $86.0 million for the nine-month period. This was primarily due to higher costs per ounce of heap leach inventory at the Rochester mine and increased operating costs (labor, fuel, power) across other properties.
- Cash Flow: Operating cash flow decreased $41.3 million to $28.7 million, attributed to lower net income and changes in working capital (specifically a $14.8 million increase in receivables). Investing cash outflows increased due to capital expenditures at the Kensington and San Bartolome projects.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
- Production Trends: Silver production decreased in the nine-month period due to lower ore grades at Cerro Bayo and Martha, and the cessation of mining/crushing at Rochester. Management expects ore grades to improve at Cerro Bayo in the fourth quarter.
- Capital Expenditures: The company estimates spending approximately $86.6 million in the remainder of 2007 on capital expenditures. San Bartolome is expected to begin initial production in February 2008.
- Merger Activity: Coeur entered into definitive agreements to merge with Bolnisi Gold NL and Palmarejo Silver and Gold Corporation. The transaction is expected to close in the fourth quarter of 2007, subject to shareholder and regulatory approvals.
Risks and Contingencies
- Kensington Project Litigation: The Ninth Circuit Court of Appeals vacated the Section 404 permit for the Kensington mine's tailings facility in May 2007 and denied petitions for rehearing in October 2007. The company is considering an appeal to the U.S. Supreme Court. Failure to obtain a reversal could render the project uneconomic, potentially requiring an asset impairment. The carrying value of Kensington long-lived assets is $284.3 million.
- Commodity Price Sensitivity: Results are highly dependent on silver and gold prices. An impairment writedown at Kensington could be necessary if long-term gold prices fall below approximately $548 per ounce.
- Reclamation Liabilities: Total reclamation and mine closure liabilities were $32.0 million as of September 30, 2007.
Investor Verification Checklist
- Kensington Permit Status: Verify the outcome of the potential U.S. Supreme Court appeal regarding the Kensington tailings permit, as this poses a significant risk to the $284.3 million asset value.
- Merger Completion: Confirm the approval and closing of the Bolnisi and Palmarejo mergers, which involve the issuance of approximately 261 million new shares.
- Rochester Mine Economics: Monitor the cost per ounce of heap leach inventory at the Rochester mine, as mining/crushing has ceased and costs are being recognized from historic ore production.
- San Bartolome Timeline: Track the progress of the San Bartolome project in Bolivia to ensure the February 2008 production start date is met and capital costs remain within the estimated $174 million direct cost budget.
- Commodity Hedging: Note that the company has no outstanding forward sales contracts for gold or silver as of September 30, 2007, leaving it fully exposed to spot price fluctuations.