Coeur Mining, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Coeur operates gold and silver mines in the United States, Mexico, and Bolivia. Financial statements are unaudited.
Financial and operating performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $173.4 million | $182.0 million | $379.5 million | $330.4 million |
| Net income (loss) | $(11.0) million | $14.5 million | $7.7 million | $(5.9) million |
| Diluted EPS | $(0.06) | $0.09 | $0.04 | $(0.04) |
| Operating cash flow | $29.3 million | $45.9 million | $84.6 million | $52.6 million |
| Capital expenditures | $37.5 million | $23.3 million | $61.5 million | $45.5 million |
| Silver-equivalent ounces produced | 8.94 million | 9.59 million | 18.17 million | 17.65 million |
| Silver-equivalent ounces sold | 9.26 million | 9.29 million | 20.38 million | 17.56 million |
- Q2 costs applicable to sales (CAS) were $13.15 per silver-equivalent ounce, versus $10.82 a year earlier; all-in sustaining costs (AISC) were $17.83 per ounce, versus $14.92. For the first half, CAS was $12.18 and AISC $16.29 per ounce.
- Q2 average realized prices were $16.98 per silver ounce and $1,206 per gold ounce, compared with $17.38 and $1,255, respectively, a year earlier. Q2 gold production declined 11%; first-half silver production increased 7%.
- Cash and cash equivalents were $250.0 million at June 30, up from $162.2 million at year-end 2016. Current assets were $481.9 million and current liabilities $116.7 million.
- Debt totaled approximately $284.8 million, including $13.0 million current and $271.8 million long-term debt. A $12.0 million San Bartolomé credit line was undrawn. Stockholders’ equity was $777.5 million.
Material changes versus comparable periods
- Q2 revenue declined 5% year over year, reflecting lower realized metal prices and lower gold production. The quarter’s net loss included a $9.3 million loss on extinguishment of the 2021 notes; lower interest expense and a $2.3 million gain from repurchasing the Rochester royalty partly offset the loss.
- First-half revenue rose 15% and net income improved from a loss, but the $7.7 million profit included a $21.1 million pre-tax gain on the February sale of the Joaquin project. First-half operating cash flow increased by $32.0 million.
- In May, Coeur issued $250 million of 5.875% senior notes due 2024 for approximately $245 million net proceeds and repurchased or redeemed all $178 million principal of its 7.875% notes due 2021. The refinancing generated the $9.3 million extinguishment loss and reduced interest expense.
- Exploration expense increased to $7.8 million in Q2 and $13.1 million for the half, as drilling expanded at Palmarejo, Kensington, and Rochester. First-half capital spending increased to $61.5 million, primarily for mine development and Rochester’s Stage IV leach pad expansion.
Outlook, risks, and unusual items
- Management revised 2017 production guidance for higher expected Wharf gold output, lower San Bartolomé silver output due to persistent drought, and the pending Endeavor stream sale. Revised guidance: 15.8–17.2 million ounces of silver, 367,000–392,000 ounces of gold, and 37.8–40.7 million silver-equivalent ounces.
- 2017 guidance includes AISC of $15.75–$16.25 per silver-equivalent ounce, capital expenditures of $109–$129 million, and exploration expense of $29–$31 million. San Bartolomé CAS guidance increased to $15.75–$16.25 per silver ounce; Wharf CAS guidance decreased to $700–$750 per gold-equivalent ounce.
- The planned sale of the Endeavor silver stream and remaining royalty portfolio for $13.0 million was expected to close in Q3 2017, subject to customary conditions. Production and associated sales under the stream accrued to the buyer beginning June 1.
- Management said liquidity and capital resources from U.S. operations were adequate for U.S. operations and corporate activities. However, the filing warns that volatile gold and silver prices, operating costs, production variability, foreign exchange and tax effects, drought and political uncertainty in Bolivia, labor disruption, permitting and environmental requirements, and debt-service needs could affect results and liquidity. Debt covenants restrict certain financing, dividends, and asset transactions.
- Other notable items: Mexican peso movements increased income and mining tax expense by $3.0 million in Q2 and $8.6 million in the first half; the company reported $17.4 million of gross unrecognized tax benefits. Reclamation obligations were $103.1 million, including operating-site asset retirement obligations of $101.1 million. The 2024 notes carry restrictive covenants. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether the Endeavor sale closed as expected and how the transfer of production and revenue affects subsequent results.
- Progress against revised mine-level production and cost guidance, especially drought-constrained San Bartolomé and higher-cost operations.
- Whether operating cash flow can sustain increased capital spending while meeting approximately $284.8 million of debt and other obligations.
- How much of first-half earnings reflects recurring operations versus the Joaquin sale gain, debt-extinguishment loss, royalty repurchase gain, and foreign-exchange and tax effects. Non-GAAP adjusted results and AISC are company-defined measures and are not substitutes for GAAP results.
- Developments in Bolivian operating and political conditions, labor relations, tax matters, and the estimates underlying reclamation liabilities and mine plans.