Coeur d’Alene Mines Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. The company operated silver and gold mines in the United States, Mexico, Bolivia, Argentina and Australia. Financial statements are unaudited.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Metal sales | $171.8 million | $204.6 million |
| Gross profit (margin) | $32.6 million (19.0%) | $59.4 million (29.0%) |
| Operating income (margin) | $10.9 million (6.3%) | $44.2 million (21.6%) |
| Net income; diluted EPS | $12.3 million; $0.14 | $4.0 million; $0.04 |
| Cash provided by operating activities | $12.9 million | $17.0 million |
| Capital expenditures | $12.8 million | $31.6 million |
| Cash and cash equivalents | $331.3 million | $125.4 million at Dec. 31, 2012 |
| Working capital; current ratio | $482.0 million; 4.10 to 1 | $167.9 million; 1.70 to 1 at Dec. 31, 2012 |
| Debt and capital leases, current and long-term | $313.9 million | $59.4 million at Dec. 31, 2012 |
The company reported $58.7 million of operating cash flow excluding changes in operating assets and liabilities, a non-GAAP measure, versus $93.8 million in Q1 2012. The filing attributes the difference from reported operating cash flow primarily to working-capital movements. Cash provided by investing activities was negative $23.3 million; financing activities provided $216.2 million, largely reflecting the new notes offering.
Material changes and operating performance
- Sales fell 16.0%, reflecting lower silver and gold prices and fewer silver ounces sold. Realized prices were $30.30 per silver ounce and $1,630 per gold ounce, down 7.1% and 4.2%, respectively. Silver ounces sold declined to 3.1 million from 4.3 million; gold ounces sold rose to 51,926 from 38,884.
- Silver production declined 21.5% to 3.8 million ounces, mainly because of lower grades at Palmarejo and San Bartolomé. Gold production rose 29.6% to 56,913 ounces, primarily due to Kensington’s production recovery.
- Profit increased despite weaker operating results, substantially because net fair-value adjustments shifted to a $17.8 million gain from a $23.1 million loss. These non-cash adjustments were driven mainly by changes in the estimated Palmarejo royalty liability as forward gold prices changed.
- Administrative and general expense increased 34.6% to $10.2 million, primarily from legal, finance, consulting, recruiting and relocation costs. Interest expense rose to $9.7 million from $6.7 million, mainly due to the new senior notes.
- Mine results varied: Palmarejo silver output fell 33.7% and gold output fell 26.1%; San Bartolomé silver output declined 12.6%; Kensington gold production increased to 25,206 ounces from 7,444; and Rochester silver and gold output increased. Martha had ceased active mining in September 2012.
Debt, liquidity and capital actions
- Coeur issued $300 million of 7.875% Senior Notes due 2021 in January. It repurchased $43.3 million principal amount of its 3.25% Convertible Notes, leaving $5.3 million outstanding at quarter-end, and paid down debt and royalty obligations. No borrowings were outstanding on its $100 million revolving credit facility at March 31.
- The liquidity improvement was substantially funded by the notes issuance; it should not be viewed as solely generated by operations. The notes and credit facility include covenants and restrictions, and the revolving facility has financial covenant requirements.
- The company repurchased 655,500 common shares during the quarter for approximately $12.6 million. Shares outstanding were 89.7 million at March 31; after the subsequent Orko transaction, 101.5 million were issued and outstanding as of May 8.
Outlook, risks and unusual items
- The filing provides operational plans and forward-looking statements but no clear consolidated production or earnings guidance target in the supplied text. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Metal prices are a major earnings and cash-flow exposure. The company also disclosed gold options, foreign-exchange contracts and provisional-price derivatives; fair-value movements can materially affect reported income. The Palmarejo gold royalty embedded derivative was a $121.6 million liability at March 31.
- At San Bartolomé, Bolivian restrictions on mining above 4,400 meters remain partly in force. Further restrictions or an objection to mining at certain deposits could reduce output and potentially require an asset write-down.
- Rochester faces a dispute over mining claims and an administrative appeal of its operating-plan approval. Operations continued, but adverse outcomes could constrain operations, expansion or exploration. The company also disclosed an environmental contribution lawsuit involving a former Callahan site; trial was scheduled for April 2014.
- Orko Silver acquisition: completed April 16, after quarter-end, for CAD $100 million cash plus 11.6 million Coeur shares and 1.6 million warrants. Coeur had advanced $11.6 million to Orko before closing. La Preciosa is a development-stage project with permitting, engineering, cost, reserve and mineability risks; its preliminary economic assessment is not a feasibility study.
- A proposed sale of the Endeavor silver stream and Cerro Bayo royalty for up to $67 million was not completed: the company announced on May 9 that the letter of intent had been terminated, while discussions might continue.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the reported net income came from non-cash fair-value adjustments, and how would results look without them?
- Whether lower silver production and realized prices persist, and the effect of ore grades and mine costs on margins.
- Cash generation after working-capital changes, ongoing capital needs, and the company’s ability to service the 7.875% notes and meet credit-facility covenants.
- Developments in Bolivia and the Rochester claims and permitting matters, including any effect on production, mine plans or asset values.
- The final funding, development plan, permitting status and economics of La Preciosa following the Orko acquisition, and whether any revised asset-sale agreement is reached.