Coeur Mining, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Coeur produces gold, silver, zinc and lead in the U.S., Mexico and Canada. Results are primarily from continuing operations; San Bartolomé is reported as discontinued following its February 2018 sale.
Financial and operating results
Dollar figures below are in millions unless stated otherwise.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $163.3 | $185.6 |
| Income from continuing operations | $0.7 | $18.3 |
| Net income, including discontinued operations | $1.2 | $18.7 |
| Diluted earnings per share | $0.01 | $0.10 |
| Operating cash flow from continuing operations | $15.5 | $43.9 |
| Capital expenditures | $42.3 | $23.6 |
| Adjusted EBITDA from continuing operations (non-GAAP) | $49.5 | $54.5 |
- Continuing-operations production was 8.3 million silver-equivalent ounces; sales were 8.4 million ounces. Silver production rose 17% year over year, while gold production fell 3%.
- Average realized prices were $16.70 per silver ounce and $1,268 per gold ounce. Costs applicable to sales were $9.77 per silver-equivalent ounce; all-in sustaining costs (AISC) were $17.33 per ounce, up 17% year over year.
- At March 31, cash and cash equivalents were $159.6; cash, cash equivalents and restricted cash totaled $172.1. Total debt was approximately $414.0, including $17.0 current and $397.0 non-current debt. The $200 million revolving facility had $73 million available, with $115 million drawn and $12 million supporting letters of credit.
- Total assets were $1,661.9 and stockholders’ equity was $814.3. The filing does not provide a consolidated gross-margin figure.
Material changes versus the prior comparable period
- Revenue declined $22.3 million, primarily reflecting fewer ounces sold and a 5% decrease in realized silver prices; realized gold prices rose 10%. Sales included fewer gold ounces than in Q1 2017.
- Continuing-operations income fell to $0.7 million from $18.3 million. The prior-year quarter included a $21.1 million gain on sale of the Joaquin project. Higher interest expense and lower sales also weighed on results; a $5.0 million net fair-value gain partly offset these factors.
- Operating cash flow from continuing operations decreased $28.4 million. Management cited lower sales, higher unit costs and unfavorable working-capital movements, including increased inventory and prepaid assets and collection timing for receivables and VAT refunds.
- Capital expenditures increased to $42.3 million, chiefly for Silvertip pre-production work and underground development at Silvertip, Palmarejo and Kensington.
- Production and costs are not fully comparable: Silvertip was acquired in late 2017 and was in pre-production, while San Bartolomé was sold and classified as discontinued operations. San Bartolomé generated $0.6 million of discontinued-operations income in Q1 2018, including a $1.5 million disposal gain.
Outlook, risks and unusual items
- Management maintained full-year 2018 production and related-cost guidance; numerical guidance targets are not stated in the provided filing text.
- Silvertip began milling in Q1 and was expected to enter commercial production in Q2 2018. The filing identifies potential ramp-up delays and permitting as risks. Silvertip acquisition consideration includes contingent payments of up to $50 million tied to permitting and a resource milestone; the company considered both milestones probable at quarter-end.
- Coeur sold Manquiri, operator of San Bartolomé, for consideration valued at $46.7 million: a 2.0% net smelter returns royalty valued at $7.1 million, VAT refunds valued at $12.7 million payable when collected, and promissory notes valued at $26.9 million, with repayment beginning in October 2018. The sale also carries post-closing covenant, guaranty and indemnification obligations.
- The effective income and mining tax rate was 94.5%, reflecting jurisdictional income mix, Mexican taxes, foreign-exchange effects on deferred tax balances and valuation allowances. Management reported $3.9 million of gross unrecognized tax benefits and said $1.5–$2.5 million could decrease over the next 12 months.
- Market risks include metal-price and foreign-exchange volatility. At quarter-end, zinc collars covered 300 metric tons per month from April through December 2018, with $3,000-per-ton put and $4,050-per-ton call strikes. A 10% gold-price change was estimated to affect revenue by $5.9 million; a comparable silver-price change would have a de minimis effect.
- Other risks include mining hazards, production and grade variability, regulatory and environmental requirements, labor disruptions, water availability (particularly in Mexico), and access to financing and third-party smelters. The filing reports disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Obtain the company’s full-year production and cost guidance, and track Silvertip’s commercial-production ramp-up, permitting and contingent-payment milestones.
- Monitor cash conversion, inventory and prepaid balances, VAT and Manquiri note collections, and the pace of capital spending.
- Assess whether unit-cost pressures at Kensington and Wharf, and higher AISC, persist; consider that non-GAAP measures are not standardized.
- Review debt, revolver availability, interest costs and the company’s ability to fund development while maintaining liquidity.
- Evaluate exposure to metal prices, Mexican peso movements, tax uncertainty, water access and other operating and regulatory risks.