Coeur Mining, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The interim financial statements are unaudited. Coeur is a gold and silver producer operating mines in the U.S. and Mexico, with the Silvertip exploration project in Canada.
Financial and operating results
- Revenue: $187.3 million, down 0.6% from $188.4 million in Q1 2022. Gold sales were $127.1 million and silver sales $60.2 million. Average realized prices were $1,794 per gold ounce and $23.25 per silver ounce.
- Production and sales: Produced 69,039 ounces of gold and 2.53 million ounces of silver. Gold production was down 8% year over year; silver production was up 2%. Gold ounces sold fell 6%, while silver ounces sold rose 6%.
- Profitability: GAAP net loss was $24.6 million, or $0.08 per diluted share, versus net income of $7.7 million, or $0.03 per diluted share, in Q1 2022. Adjusted net loss, a non-GAAP measure, was $33.1 million, or $0.11 per diluted share. Adjusted EBITDA was $25.1 million versus $41.5 million.
- Costs and margins: Costs applicable to sales (CAS) increased 15% to $153.1 million, largely due to higher operating costs and Rochester inventory write-downs. Amortization was $22.7 million; total costs and expenses of $203.4 million exceeded revenue. Rochester recorded $14.3 million of non-cash inventory write-downs across CAS and amortization.
- Cash flow: Operating cash flow was negative $35.0 million, versus negative $6.4 million in Q1 2022. Capital expenditures were $74.0 million, resulting in negative free cash flow of $109.1 million (non-GAAP). Working-capital outflows, including accounts payable/accruals and inventory/leach-pad investment, weighed on operating cash flow.
- Liquidity and debt: Cash and cash equivalents were $67.0 million; cash, cash equivalents and restricted cash totaled $68.7 million. Coeur reported approximately $382 million of total liquidity, including $300.5 million available on its $390 million revolving credit facility and $14.9 million of equity securities. Total debt, including finance leases, was $494.1 million. The facility had $60.0 million drawn and $29.5 million in letters of credit outstanding.
- Equity and balance sheet: Coeur raised $98.4 million net through an at-the-market stock offering, issuing 32.9 million shares at an average $3.04 per share. Outstanding shares rose to 331.0 million at quarter-end from 295.7 million at year-end 2022. Total assets were $1.89 billion and stockholders’ equity was $946.5 million.
Material changes versus comparable periods
- Compared with Q1 2022, revenue was nearly flat, but net income swung to a loss. The filing cites lower gold ounces sold, higher operating costs and Rochester write-downs, higher interest expense, and higher income and mining tax expense. Fair-value gains on equity investments partly offset these factors.
- Interest expense, net of capitalized interest, rose to $7.4 million from $4.6 million, primarily reflecting higher average revolving-credit-facility debt and lower capitalized interest.
- Compared with Q4 2022, revenue declined 11%, mainly as gold ounces sold fell 20%. Net income moved from $49.1 million to a $24.6 million loss; Q4 included a $62.2 million gain on the Sterling/Crown property sale.
- Mining and income tax expense was $10.7 million despite a pre-tax loss, producing a reported effective tax rate of negative 77.2%. Management says rates vary significantly with geography, mining taxes, non-recognition of tax assets and other factors.
Outlook, management commentary and key risks
- Rochester expansion: The project was 82% complete at March 31, with approximately $560 million incurred and $634 million committed. Estimated total cost is expected near the high end of the $650–$670 million range, partly due to severe winter weather. Mechanical completion remained targeted for mid-2023, with ramp-up and commissioning expected in the second half. Coeur forecast $197–$207 million of Rochester expansion capital spending in 2023, roughly 70% in the first half.
- Management said Q1 production was stronger than expected and within 2023 guidance; it expected production to increase in the second half, reflecting mine sequencing and Rochester ramp-up. The supplied filing text does not state full-year production or unit-cost guidance figures.
- Coeur said it believed funding was sufficient for business needs over the next 12 months and longer term, relying on operating cash flow, hedges, non-core asset sales and possible revolver borrowings. It cautioned that additional financing may be needed if liquidity is insufficient and may not be available on acceptable terms.
- At March 31, gold forward contracts covered 157,998 ounces at an average fixed price of $1,968 per ounce; silver contracts covered 2.4 million ounces at $24.64. Additional silver hedges were added in April and May, bringing the stated silver hedge price to $25.04 for 3.7 million ounces. Management targeted hedging up to 70% of expected gold production and 50% of expected silver production in 2023. Hedges reduce downside exposure but limit benefit if market prices exceed contracted prices.
- Operational risks: Kensington faced lower throughput and grades due to mine sequencing and stope-extraction challenges; Rochester’s transition to its new Stage VI leach pad affected recoveries and costs. Inflation in fuel, consumables and other inputs remained a cost pressure.
- Contingencies: Coeur reported $29.1 million of principal due from the Mexican government for disputed VAT refunds. The receivable was written down in 2021; the company continues recovery efforts, including NAFTA arbitration, whose outcome and collection timing are uncertain. Separate water-rights litigation in Mexico could affect Palmarejo’s water supply if unsuccessful.
- Other notable exposures include $319.1 million of reclamation surety bonds and foreign-government, regulatory, commodity-price, reserve-estimation, weather and financing risks. Silvertip remains a long-term exploration project; management described a slower advancement timeline and ongoing evaluation of its resource potential.
Most important facts for investors to verify
- Whether Rochester reaches mechanical completion and begins second-half commissioning on schedule, and whether total cost remains within or near the stated range.
- Whether production improves in the second half, particularly at Rochester and Kensington, and how unit costs and further inventory adjustments develop.
- Whether operating cash flow can support ongoing capital spending without additional borrowing or equity issuance; track liquidity, revolver availability and debt costs.
- The size, accounting treatment and recoverability of the Mexican VAT claim, and any developments in water-rights proceedings.
- The effects of hedges on realized metal prices and cash flow, alongside gold and silver price movements and the cost of inflation-sensitive inputs.
- The degree of dilution from equity issuance and any further debt-for-equity exchanges; also distinguish GAAP results from management’s non-GAAP adjusted measures.