Coeur Mining, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Coeur is a gold and silver producer with operations in the United States, Mexico and Canada.
Financial performance and liquidity
- Q2 revenue: $204.1 million, down 5% from $214.9 million in Q2 2021. Gold sales were $146.6 million and silver sales $57.5 million. Q2 realized prices averaged $1,729 per gold ounce and $22.61 per silver ounce.
- Q2 earnings: GAAP net loss of $77.4 million ($0.28 per diluted share), versus net income of $32.1 million ($0.13 per share) a year earlier. Adjusted net loss was $13.1 million ($0.05 per share); adjusted EBITDA was $43.3 million.
- Six-month results: Revenue of $392.5 million, down 6% year over year; GAAP net loss of $69.8 million ($0.26 per diluted share), versus net income of $34.2 million. Adjusted net loss was $26.9 million and adjusted EBITDA was $77.3 million.
- Costs and cash flow: Q2 costs applicable to sales were $150.7 million, up from $132.6 million in Q2 2021. Operating cash flow was $22.6 million in Q2 and $16.2 million for the first half, compared with $58.1 million and $53.7 million, respectively, in the prior-year periods. First-half capital expenditures were $142.7 million, leaving operating cash flow less capital expenditures of approximately negative $126.4 million.
- Balance sheet at June 30: Cash and cash equivalents were $74.2 million ($75.6 million including restricted cash). Debt was $547.5 million, including finance leases. The amended revolving facility totaled $390 million; $115 million was drawn and $244.5 million was available. Total assets were $1.86 billion.
- Equity and financing: The March ATM offering issued 22.1 million shares for net proceeds of $98.3 million, used to repay the revolving facility. The share count increased to 280.8 million at quarter-end from 256.9 million at year-end 2021.
Material changes and unusual items
- Q2’s $62.8 million net fair-value loss was primarily from declining values of equity investments; the first-half fair-value loss was $52.2 million. These investment valuation changes materially affected reported GAAP earnings.
- Rochester recorded non-cash inventory and leach-pad write-downs of $10.4 million in Q2 and $19.0 million in the first half.
- Year-over-year first-half revenue declined amid 7% fewer gold ounces sold and a 12% lower realized silver price. Costs applicable to sales rose 18%, reflecting inflation in fuel, consumables, labor and maintenance, as well as Rochester inventory adjustments.
- Production improved sequentially at Kensington, Wharf and Rochester, while first-half gold production remained below the prior-year period. The company attributed lower Kensington production partly to COVID-related workforce availability.
- Coeur completed the La Preciosa sale in March, receiving cash, Avino shares and warrants, a note, royalties and contingent consideration. It recognized a $1.5 million gain. A separate sale of 5 million Victoria Gold shares settled July 5 for $40.5 million in net proceeds.
Guidance, outlook and risks
- 2022 production guidance reaffirmed: 315,000–353,000 gold ounces and 9–11 million silver ounces.
- Cost guidance increased at several operations to reflect inflation, including higher gold CAS ranges at Palmarejo, Rochester and Kensington. Updated consolidated guidance included sustaining capital of $110–$135 million, development capital of $220–$260 million, expensed exploration of $25–$30 million, capitalized exploration of $22–$27 million, and G&A of $42–$46 million.
- Rochester POA 11 expansion: Estimated cost remained approximately $600 million; $523 million was committed and $350 million incurred at June 30. Major project completion dates remained the first half of 2023 for the plant and mid-2023 for the crusher. Inflation, construction-market tightness and execution remain relevant risks.
- Management said available funding was sufficient for business requirements over the next 12 months and longer term, while noting that additional debt or equity might be required if resources prove inadequate. The company is targeting gold hedges covering up to 70% of expected 2022 production, 50% in first-half 2023 and 25% in second-half 2023.
- Permitting and legal matters: Delays in Mexican approval for Palmarejo tailings disposal could constrain storage capacity and affect 2023 production and cash flow. Recovery of $26 million in disputed Mexican VAT remains uncertain despite continuing legal efforts; water-rights litigation could also affect Palmarejo’s access to water.
- Other key risks include metal-price and foreign-exchange volatility, higher operating and project costs, mine-grade and recovery variability, permitting, and the ability to finance planned investment. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether production and revised cost guidance remain achievable amid inflation and operational variability.
- Rochester POA 11’s remaining cost, construction progress and mid-2023 completion schedule.
- Liquidity and financing needs relative to negative first-half operating cash flow less capital expenditures, debt and ongoing project commitments.
- Effects of Mexican permitting delays, VAT litigation and water-rights proceedings on Palmarejo.
- How equity-investment valuation swings, gold hedges and further share issuance may affect reported earnings, cash flows and per-share results.