Coeur Mining, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Coeur is a gold and silver producer operating Palmarejo, Rochester, Kensington and Wharf, with Silvertip as an exploration project. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $177.2 million | $204.1 million | $364.5 million | $392.5 million |
| GAAP net loss | $32.4 million | $77.4 million | $57.0 million | $69.8 million |
| Diluted loss per share | $0.10 | $0.28 | $0.18 | $0.26 |
| Adjusted EBITDA (non-GAAP) | $22.2 million | Not stated in the comparison table | $47.4 million | $77.3 million |
| Operating cash flow | $39.4 million | $22.6 million | $4.4 million | $16.2 million |
| Capital expenditures | $85.6 million | $73.2 million | $159.6 million | $142.7 million |
Q2 revenue declined 13% year over year; first-half revenue fell 7%. Gold and silver sales volumes were lower, partly offset by higher realized prices. Calculated from reported figures, Q2 adjusted EBITDA margin was approximately 12.5%; GAAP net margin was approximately negative 18.3%. First-half adjusted EBITDA margin was approximately 13.0%, compared with 19.7% in first-half 2022.
Q2 production was 68,406 ounces of gold and 2.4 million ounces of silver. First-half output was 137,445 ounces of gold and 4.9 million ounces of silver. Average realized prices in the first half were $1,801 per gold ounce and $23.56 per silver ounce, versus $1,726 and $23.32, respectively, in 2022.
Liquidity, debt and cash flow
- At June 30, cash and cash equivalents were $56.8 million; cash, cash equivalents and restricted cash totaled $58.6 million. Reported liquidity was approximately $346 million, including $280.5 million of available revolving credit and $9.2 million of marketable securities.
- Total debt, including finance leases, was $469.4 million, down from $515.9 million at December 31, 2022. Debt included $321.9 million net carrying value of 2029 Senior Notes, $80 million drawn on the revolving facility, and $67.5 million of finance lease obligations. The revolver rate was 8.7% at quarter-end.
- First-half operating cash flow of $4.4 million was below $16.2 million a year earlier. Capital expenditures exceeded operating cash flow by $155.2 million, producing negative free cash flow on the company’s non-GAAP definition.
- Q2 operating cash flow benefited from a $61.7 million increase in accounts payable and accrued liabilities and $45 million of metal-sale prepayments received during the quarter. These items are important context for assessing underlying cash generation.
Material changes and operating developments
- First-half gold sales volume declined 14% year over year; silver volume declined 1%. Costs applicable to sales rose 3% to $292.7 million, with operating costs affected by inflation in diesel and consumables.
- Kensington experienced water inflows and paste-backfill issues that disrupted mine sequencing and stope extraction. Q2 gold production declined 35% from Q1, and its costs applicable to sales rose to $2,945 per gold ounce.
- Rochester’s expansion was approximately 97% complete at the end of July. The company expects total project cost to be $40–$60 million above the previous high end of $650–$670 million, citing weather delays, skilled-labor shortages, inflation and construction rework. It had incurred approximately $660 million through July.
- Coeur exchanged $48.5 million principal amount of 2029 Senior Notes, plus accrued interest, for 13.9 million shares, recording a $3.0 million extinguishment gain. The March ATM offering raised $98.4 million net through issuance of 32.9 million shares; a flow-through share placement raised $18.2 million net during Q2. The subsequent over-allotment closed July 20 and raised another $10.5 million net.
- The May sale of La Preciosa deferred consideration, royalties and contingent consideration generated $7.0 million cash plus $1.0 million deferred consideration and a $12.3 million loss. Rochester inventory write-downs were $16.4 million for the first half, including a $3.9 million Q2 recovery of prior-quarter losses.
Guidance, outlook and risks
- 2023 guidance was revised to gold production of 304,000–352,500 ounces, down from 320,000–370,000, mainly due to Kensington. Silver guidance was maintained at 10–12 million ounces.
- Kensington 2023 gold production guidance was reduced to 84,000–95,000 ounces from 100,000–112,500; its gold cost guidance increased to $1,650–$1,750 per ounce. Coeur expects Rochester’s second-half costs to be similar to its first-half actual costs while the expansion is completed and ramped up.
- Updated capital guidance: sustaining expenditures of $148–$168 million and development expenditures of $230–$264 million, both higher than previous ranges, reflecting the Rochester estimate. Expensed exploration guidance is $30–$35 million; capitalized exploration is $10–$15 million; G&A is $36–$40 million.
- Management expects Rochester ramp-up through the second half of 2023 and into early 2024, with significant production growth and lower costs anticipated. These expectations depend on project execution and successful ramp-up.
- On August 9, 2023, Coeur amended its revolving credit facility to provide temporary covenant flexibility during Rochester’s final construction stages, permit specified costs to be excluded from covenant EBITDA calculations, increase rates on certain borrowings through June 2024, and restrict certain acquisitions through March 2024.
- Coeur targets hedging up to 70% of expected 2023 gold output and 50% of silver output to protect cash flow during elevated investment. At June 30, forward contracts covered 111,498 gold ounces at an average fixed price of $1,977 and 2.49 million silver ounces at $25.40, settling through December 2023.
- Key risks include metal-price and foreign-exchange volatility, execution and cost overruns at Rochester, operational variability, inflation, access to financing, and regulatory and environmental obligations. Coeur continues to pursue recovery of $30.9 million of Mexican VAT; prior court outcomes have been unfavorable and recovery through arbitration may be lengthy and uncertain. Mexican water-rights litigation could also affect Palmarejo’s water supply.
Important facts for investors to verify
- Rochester’s final expansion cost, completion schedule and ramp-up performance, including whether the stated production and cost benefits materialize.
- Kensington’s recovery from water-flow and backfill disruptions and the achievability of reduced annual production guidance.
- Cash generation excluding working-capital movements and metal-sale prepayments, and funding needs for remaining capital spending.
- Revolver covenant compliance, borrowing costs and available liquidity under the August 2023 amendment.
- Potential further inventory write-downs, commodity-price sensitivity and the effect of hedges on realized prices and cash flows.
- Progress and recoverability of the Mexican VAT claim and the potential operational effect of water-rights litigation.
Adjusted EBITDA, adjusted net income and free cash flow are non-GAAP measures; the filing cautions that they are not substitutes for GAAP results and may not be comparable with similarly titled measures used by other companies.