Coeur d’Alene Mines Corporation — Q2 2011 Form 10-Q
Business context and period. Unaudited results for the quarter and six months ended June 30, 2011, compared with the same 2010 periods. Coeur is a silver and gold producer operating mines in the United States, Mexico, Bolivia, Argentina and Australia. Amounts below are in U.S. dollars.
Financial and operating performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Metal sales | $231.1 million | $101.0 million | $430.7 million | $189.3 million |
| Gross profit | $96.3 million | $12.4 million | $153.5 million | $21.2 million |
| Operating income | $79.3 million | $1.9 million | $117.9 million | $1.0 million |
| Net income (loss) | $38.6 million | ($50.7 million) | $51.1 million | ($63.6 million) |
| Diluted earnings (loss) per share | $0.43 | ($0.57) | $0.57 | ($0.75) |
| Cash provided by operating activities | $111.1 million | $32.5 million | $146.9 million | $23.2 million |
- Q2 gross, operating and net margins were approximately 41.7%, 34.3% and 16.7%, respectively; H1 margins were approximately 35.6%, 27.4% and 11.9%.
- Q2 production was 4.76 million ounces of silver and 60,656 ounces of gold, up 14.6% and 162.3%, respectively. H1 output was 8.86 million ounces of silver and 113,786 ounces of gold.
- Q2 realized prices were $39.11 per silver ounce and $1,504 per gold ounce. H1 realized prices were $35.42 and $1,430, respectively.
- At June 30, cash and equivalents were $106.8 million; short-term investments were $0.5 million. Working capital was $118.6 million and the current ratio was 1.50, versus a $4.5 million working-capital deficit and 0.98 ratio at year-end 2010.
- H1 capital expenditures were $41.7 million, down from $92.7 million. Investing activities used $51.2 million; financing activities used $55.0 million. Cash increased $40.7 million from year-end to $106.8 million.
- Balance-sheet debt and capital leases totaled approximately $191.2 million, comprising $55.8 million current and $135.3 million non-current. The separate royalty obligation totaled approximately $241.4 million current and non-current. Total liabilities were $1.09 billion.
Material changes versus prior period
- Sales rose sharply as silver and gold prices increased and production expanded, including a full quarter of Kensington output. In Q2, production costs applicable to sales rose 31.6%, substantially less than sales; depreciation, depletion and amortization increased with Kensington entering production in July 2010.
- Coeur moved from losses to profits in both comparative periods. Non-cash fair-value losses narrowed to $12.4 million in Q2 and $17.7 million in H1, from $42.5 million and $46.8 million, respectively, in 2010.
- Interest expense increased to $9.3 million in Q2 and $18.6 million in H1, principally because less interest was capitalized after Kensington began production and because of Kensington facility borrowings. The 2011 periods also had tax provisions of $21.4 million and $34.3 million, compared with tax benefits in 2010.
- H1 debt repayments included retirement of the remaining 1.25% convertible notes. Capital spending declined as Kensington construction spending subsided.
Outlook, management commentary and risks
- The filing provides no consolidated full-year production or earnings guidance. Management reported Kensington was operating at full capacity in Q2. Rochester’s amended mine plan had BLM approval, with new production ounces expected to begin recovery in Q4 2011; the company also described resumption of active Rochester mining in 2011 as expected.
- Mine trends varied: Palmarejo production rose substantially; San Bartolomé Q2 silver output declined 6.5% amid maintenance-related lower milling; Martha output fell sharply as ore grades weakened; Rochester output declined during leach-down; and Endeavor cash costs rose under a silver-price participation agreement.
- Non-cash fair-value adjustments are sensitive to commodity prices and include the Palmarejo Franco-Nevada royalty derivative. Kensington’s gold collars covered 220,000 ounces at June 30, with weighted-average put and call prices of $943.09 and $1,858.41 per ounce.
- Mining and market risks include precious-metal price volatility, foreign exchange, permitting and regulation, reserve and recovery estimates, operating hazards, labor and community actions, foreign-country risks, financing needs and reliance on third-party smelters. San Bartolomé mining above 4,400 meters remains restricted except for the Huacajchi area; continued restrictions could reduce output and may require an asset write-down.
- Subsequent events: CEO and Chairman Dennis Wheeler resigned effective July 2011; disclosed consulting and separation payments include $1.0 million and $2.8 million lump sums, plus other benefits. The Bolivian subsidiary amended 2008–2009 tax returns, paid $3.3 million tax and $0.4 million interest, and anticipated penalties of at least 20% of tax payable; the penalty had not yet been assessed. Coeur also disclosed post-quarter investments of $2.0 million in Huldra Silver and $4.5 million in Soltoro.
- The company identified an immaterial prior-period income-tax error and said it intended to correct it in subsequent filings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts investors should verify
- Whether metal prices, production and realized prices support sustained cash generation, and how cash costs evolve at each mine.
- The amount and timing of any Bolivian tax penalties, alongside collection of refundable VAT receivables.
- San Bartolomé restrictions and their effect on production; Rochester’s expected Q4 2011 recovery and ramp-up.
- Cash requirements for debt and royalty obligations, and the economic effects of the Franco-Nevada royalty and Kensington gold collars.
- The CEO transition costs and any updates to the disclosed litigation, reclamation or other contingencies.