Coeur Mining, Inc. — Q1 2022 Form 10-Q
Business context and period. Coeur Mining is a gold and silver producer operating in the United States, Mexico and Canada. This unaudited report covers the three months ended March 31, 2022; comparisons below are primarily with Q1 2021.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $188.4 million | $202.1 million |
| Net income | $7.7 million; $0.03 diluted EPS | $2.1 million; $0.01 diluted EPS |
| Adjusted net income (loss), non-GAAP | $(13.8) million; $(0.05) per diluted share | $13.9 million; $0.06 per diluted share |
| Adjusted EBITDA, non-GAAP | $41.5 million | $65.9 million |
| Operating cash flow | $(6.4) million | $(4.4) million |
| Capital expenditures | $69.5 million | $59.4 million |
| Free cash flow, non-GAAP | $(75.9) million | $(63.8) million |
| Gold and silver production | 75,409 oz; 2.48 million oz | 85,225 oz; 2.40 million oz |
| Average realized prices | Gold $1,721/oz; silver $24.06/oz | Gold $1,664/oz; silver $26.19/oz |
Costs applicable to sales (CAS), excluding amortization, were $133.3 million, up from $108.1 million. Costs increased with inflationary pressures and included a $7.6 million non-cash Rochester inventory write-down; an additional $1.0 million write-down was recorded in amortization. The filing does not provide a consolidated operating-margin measure.
At March 31, cash and cash equivalents were $73.3 million ($74.7 million including restricted cash). Total debt, including finance leases, was $485.5 million. The company had $55.0 million drawn and $215.0 million available under its $300.0 million revolving credit facility, with $30.0 million of letters of credit outstanding. Total assets were $1.82 billion and stockholders’ equity was $900.0 million.
Material changes and notable items
- Revenue declined 7% year over year, mainly reflecting 10% fewer gold ounces sold and an 8% decrease in the realized silver price. Gold production fell 12%, primarily due to lower grades and reduced throughput at Kensington amid COVID-related workforce constraints. Silver production increased 3%.
- CAS increased 23% year over year, reflecting the Rochester write-down, higher operating costs and inflation. Companywide CAS per ounce increased at each producing mine versus Q1 2021.
- GAAP net income improved, but adjusted net income and adjusted EBITDA weakened. Net income benefited from a $10.6 million net fair-value gain, largely from equity investments, lower exploration expense, and the absence of the prior-year $9.2 million debt-extinguishment loss. These items do not represent underlying operating cash generation.
- Working-capital movements contributed to negative operating cash flow, including a $17.7 million increase in inventory and leach-pad cash use and a $21.1 million reduction in accounts payable and accrued liabilities. Capital spending exceeded operating cash flow.
- The March ATM equity offering raised approximately $98.0 million net through issuance of 22.1 million shares, increasing the share count and providing funds used to repay revolving-credit borrowings. The La Preciosa sale closed for $15.3 million cash plus shares, warrants, a note, deferred and contingent consideration, and royalties; it produced a $1.6 million gain.
Outlook, management commentary and risks
- Management said Q1 production was on plan and in line with 2022 guidance; the supplied filing text does not provide clear numerical full-year production guidance.
- The Rochester POA 11 expansion has a re-baselined estimated cost of $597 million. Coeur had incurred about $283 million and committed about $477 million by quarter-end. Estimated POA 11 spending is $217–$257 million in 2022 and $131–$171 million in 2023; plant completion is targeted for H1 2023 and crusher completion for mid-2023. Inflation, materials availability and construction-market tightness could affect cost and schedule.
- Management stated it expected available funding to meet business requirements for the next 12 months and longer term, using operating cash, revolver borrowings and finance leases. On May 2, 2022, after quarter-end, the RCF maximum was increased by $90 million to $390 million.
- Coeur is targeting hedges for up to 70% of expected 2022 gold production, 50% for H1 2023 and 25% for H2 2023. At quarter-end it had forwards on 232,000 ounces at a weighted average fixed price of $1,956/oz. Hedging provides cash-flow protection but limits upside if spot prices exceed contracted prices; the filing estimates a 10% gold-price increase would result in a $43.4 million net realized loss on hedged production.
- Silvertip remains suspended. Study work on a potential expansion and restart was expected to be available by year-end; 2022 capital expenditures were estimated at $18–$24 million.
- Material risks include the unresolved $26.0 million Mexican VAT dispute and unpredictable recovery process; Mexican water-rights litigation that could affect Palmarejo water supply; permitting and community-access risks; COVID-related workforce disruption; inflation; metal-price volatility; and uncertainty in mine grades, recoveries and project execution. The VAT receivable had been written down in 2021.
Most important facts for investors to verify
- Whether production, grades and costs recover at Kensington and Rochester, and whether inflation continues to raise CAS.
- POA 11 spending against its $597 million estimate, project milestones, and funding needs through 2023.
- Operating cash flow and free cash flow after working-capital movements and capital expenditures.
- Debt, revolver availability and covenant headroom, including the effect of the May 2022 facility amendment.
- The economic impact of gold hedges if market prices rise, and the value and liquidity of equity investments.
- Progress and potential outcomes of the Mexican VAT and water-rights matters, and any changes in permitting, security or supply risks.
- The dilution from the 22.1 million-share ATM offering and the timing and realizability of non-cash La Preciosa consideration.