Coeur Mining, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Coeur Mining operates silver and gold mines in the United States, Mexico, and Bolivia, and also holds streaming and royalty interests. Results are unaudited.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparator |
|---|---|---|
| Revenue | $159.6 million | $171.8 million |
| Net income (loss) | $(37.2) million; $(0.36) per share | $12.3 million; $0.14 per share |
| Operating cash flow | $(9.6) million | $12.9 million provided |
| Capital expenditures | $11.9 million | $12.8 million |
| Cash and cash equivalents | $272.9 million | $206.7 million at December 31, 2013 |
| Short-term investments | $45.6 million | None reported at December 31, 2013 |
| Total debt | Approximately $464.2 million | Debt issuance included $150 million of additional senior notes |
- Metal sales were $158.6 million and royalty revenue was $1.0 million. Silver and gold each represented 50% of metal sales.
- Production was 4.1 million payable silver ounces and 58,836 payable gold ounces. Silver-equivalent production was 7.6 million ounces, using a 60:1 silver-to-gold ratio.
- Average realized prices fell to $20.29 per silver ounce from $30.30, and to $1,298 per gold ounce from $1,630.
- Costs applicable to sales were $13.25 per silver-equivalent ounce, versus $14.07, and $1,005 per gold ounce at Kensington, versus $890. All-in sustaining costs were $19.12 per silver-equivalent ounce, versus $19.85.
- Current assets were $653.7 million and current liabilities $140.8 million at March 31, 2014. Stockholders’ equity was $1.70 billion.
Changes versus prior year
- Revenue declined 7.1%, chiefly reflecting lower realized metal prices, partly offset by higher silver and gold sales volumes.
- The company swung from net income to a net loss. Management attributed the deterioration principally to unfavorable fair-value adjustments and lower metal prices; 2014 also included a $2.6 million impairment of marketable securities.
- Costs applicable to sales rose 21.4% to $106.9 million, mainly from higher ounces sold and higher mining and milling costs at Kensington. Unit costs nevertheless improved for silver-equivalent production.
- Operating cash flow fell from $12.9 million provided to $9.6 million used. The filing cites lower realized prices and working-capital movements, including increases in inventory and ore on leach pads.
- Amortization declined 18.6%, primarily following 2013 impairment charges that reduced amortizable asset values. No write-downs were recorded in Q1 2014; 2013 included a small write-down in the quarter.
Financing, outlook, and risks
- Coeur issued $150 million of additional 7.875% senior notes due 2021 in March, bringing the series’ principal amount to $450 million. The proceeds helped raise cash and short-term investments to $318.6 million.
- The company terminated its $100 million revolving credit facility effective March 25 with no balance outstanding, recording a $3.0 million write-off of related costs. The remaining $5.3 million of 3.25% convertible notes due 2028 is classified as current because holders may require repurchase in March 2015.
- Management said it may defer capital investment or seek additional financing if needed; availability and terms of future financing are not assured. The filing does not provide a clear numerical full-year production, earnings, or cost guidance.
- La Preciosa’s feasibility study was scheduled for completion in mid-2014. Development, permitting, reserve, cost, and financing outcomes remain uncertain.
- Material risks include volatile silver and gold prices, foreign-exchange and operating-cost exposure, mining and reserve uncertainty, and possible further asset impairments. The company reported approximately $773 million of long-lived-asset write-downs in 2013.
- Bolivia risks include a proposed mining law that could affect contract terms and a restriction on some mining above 4,400 meters. In April 2014, a government reversion decision affected nine subsidiary mining rights outside active operations; Coeur challenged the decision.
- An administrative appeal challenges the Rochester mine plan amendment, although operations are proceeding under the approved plan. The filing also describes environmental-site matters, including an Asarco contribution lawsuit with a September 2014 trial date.
- Fair-value movements were significant: net fair-value adjustments were a loss of $11.4 million, principally involving royalty obligations and commodity derivatives. A 10% gold-price change was estimated to change the Palmarejo net derivative liability’s fair value by about $14.4 million.
Key facts for investors to verify
- Whether realized silver and gold prices and sales volumes support a recovery in revenue and operating cash flow.
- Whether production, recovery rates, and unit costs at Kensington, Rochester, and the other mines track management’s operating expectations.
- Cash needs, debt service, the March 2015 convertible-note repurchase option, and the economics of the 7.875% senior notes.
- Progress and results of the La Preciosa feasibility study, including permitting, capital requirements, and any decision to proceed.
- Developments in Bolivia’s mining law, the mining-rights appeal, and restrictions affecting San Bartolomé.
- Outcomes of the Rochester appeal and environmental matters, along with potential future impairment and reclamation obligations.