Coeur Mining, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. Coeur is a gold and silver producer operating mines in the United States, Mexico and Canada.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Revenue | $154.2m | $162.1m | $327.4m | $317.0m |
| GAAP net loss from continuing operations | $(1.2)m | $(36.8)m | $(13.1)m | $(61.7)m |
| Diluted loss per share | $(0.01) | $(0.18) | $(0.05) | $(0.30) |
| Operating cash flow | $9.9m | $26.4m | $2.0m | $10.6m |
| Capital expenditures | $16.7m | $20.7m | $38.9m | $48.2m |
| Adjusted EBITDA (non-GAAP) | $42.2m | $30.6m | $88.6m | $51.2m |
Q2 costs applicable to sales were $90.0m, excluding amortization; amortization was $27.9m. Reported revenue fell 5% year over year in Q2 but rose 3% for H1. Higher realized gold and silver prices supported results: Q2 average realized prices were $1,641/oz gold and $16.25/oz silver, up 29% and 10%, respectively. Non-GAAP free cash flow was negative $6.7m for Q2 and negative $36.9m for H1, using the company’s definition of operating cash flow less capital expenditures.
At June 30, cash and cash equivalents were $70.9m; cash, cash equivalents and restricted cash totaled $72.3m. Total debt, including finance leases, was $348.6m, versus $295.5m at December 31, 2019; the company reported $60m drawn on its revolving credit facility (RCF), with $169.5m available after letters of credit. The $250m facility’s stated interest rate was 2.7%. The filing reports $227.2m carrying value for the 2024 Senior Notes. Total assets were $1.36bn and stockholders’ equity $653.9m.
Material changes and operating developments
- Q2 revenue declined mainly because fewer gold and silver ounces were sold amid the Palmarejo COVID-related suspension, Silvertip’s earlier suspension and Rochester recovery delays. Higher metal prices and stronger Wharf gold sales partly offset lower volumes.
- Palmarejo was suspended for about 45 days under a government decree and began ramping up in June. Staffing was limited to about 85%; management expected similar levels for the rest of 2020.
- Silvertip suspended mining and processing in February for reasons unrelated to COVID-19. H1 included $12.5m of Silvertip inventory write-downs, plus carrying and one-time suspension costs.
- Wharf production improved substantially: Q2 gold production increased 58% year over year. Kensington delivered strong production and cash generation. Rochester production was affected by leach-pad dilution and lower recoveries.
- Exploration expense increased 107% in Q2 to $11.9m and 93% in H1 to $18.2m. Q2 pre-development, reclamation and other expense rose to $18.7m, including $6.1m of COVID-19 costs and Silvertip costs.
- Q2 included a $10.1m net fair-value gain, primarily related to equity investments; H1 net fair-value gain was $1.2m. Q2 income and mining tax expense was $2.8m despite pretax income of $1.6m, reflecting a reported effective rate of 173.9% and jurisdictional/tax-asset factors.
Guidance, outlook and risks
The filing presents 2020 guidance of 327,000–363,000 gold ounces and 9.5–11.5 million silver ounces. Cost-applicable-to-sales guidance ranges include $785–$885/oz gold and $9.50–$10.50/oz silver at Palmarejo; $1,250–$1,400/oz gold and $12.75–$14.00/oz silver at Rochester; $900–$1,000/oz gold at Kensington; and $950–$1,000/oz gold at Wharf. Guidance also includes $70–$85m sustaining and $40–$45m development capital, $37–$43m expensed exploration, $7–$11m capitalized exploration and $32–$36m G&A. Assumptions include $1,650/oz gold, $16.50/oz silver, CAD 1.36 and MXN 21.00. Management expected to begin Rochester expansion construction in early August 2020 and intended to repay the remaining RCF balance by year-end from internally generated cash flow. The filing does not identify a revised guidance range.
Coeur drew $100m on its RCF in April as a precaution and repaid $90m during Q2 as perceived COVID disruption risk eased. It established a $100m at-the-market equity program but had issued no shares under it by the filing date. Management said cash was expected to build for the Rochester expansion. COVID-19, commodity-price and foreign-exchange volatility, mine performance, permitting, supply/refining disruptions and financing needs remain material risks.
- Hedging: 307,800 oz of gold collars were outstanding at June 30, targeting about 50% of expected production through 2021–22. The collar liability was $14.5m; management disclosed that rising gold prices can limit realized prices and may trigger collateral requirements. The company posted some cash collateral after quarter-end and expected to restructure the related hedges.
- Contingencies: $23.0m of Mexican VAT receivables remained subject to ongoing litigation and appeal; recovery is uncertain. Surety bonds for reclamation and closure totaled $212.1m. Reclamation liabilities were $140.8m current and non-current combined.
- Other unusual items: The company received a $15m Kensington concentrate prepayment in June, recorded as deferred revenue and expected to be recognized as deliveries occur. It sold Metalla shares for $20.7m gross proceeds and recorded gains from the sale and a related royalty repurchase. It also paid the remaining $25m Silvertip contingent consideration in Q1.
Investor verification priorities
- Confirm Palmarejo’s production recovery, COVID-related workforce constraints and any effect on full-year guidance.
- Track Rochester leach-pad recovery performance, POA 11 construction spending and expansion funding needs.
- Assess liquidity and debt reduction against operating cash flow, negative H1 free cash flow and planned capital investment.
- Review gold collar terms, potential upside caps, collateral calls and the company’s stated hedge restructuring plans.
- Monitor Silvertip suspension costs and inventory valuation, and the legal and recovery status of the Mexican VAT receivable.
- Evaluate the sensitivity of earnings and cash flow to metal prices, foreign exchange, tax-asset recognition and COVID-related operating disruptions.