Coeur Mining, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; the filing also reports fourth-quarter results. Coeur is a North American gold, silver, zinc and lead producer, with five operating mines in the United States, Mexico and Canada. San Bartolomé was divested in February 2018 and is reported as a discontinued operation.
Financial and operating results
- Revenue: $711.5 million, up 14% from $625.9 million in 2018. Gold sales rose 16% to $493.3 million; silver sales were $191.5 million, down 1%. Zinc and lead sales increased with Silvertip production.
- Profit: GAAP net loss was $341.2 million ($1.56 per diluted share), including a $250.8 million Silvertip impairment and material inventory write-downs. Continuing-operations loss was $346.9 million ($1.59 per share). Adjusted net loss, a non-GAAP measure, was $54.6 million ($0.25 per share), versus $2.2 million in 2018.
- Cash flow: Operating cash flow from continuing operations was $91.9 million, versus $20.1 million in 2018. Annual free cash flow, defined by the company as operating cash flow less capital expenditures, was negative $7.9 million, compared with negative $120.7 million. In Q4, operating cash flow was $39.3 million and free cash flow was $18.4 million.
- Costs and production: Costs applicable to sales were $551.2 million, up from $441.0 million; amortization was $178.9 million. Gold production was essentially flat at 359,418 ounces; silver production fell to 11.7 million ounces from 12.8 million. Silvertip produced 17.1 million pounds of zinc and 16.6 million pounds of lead.
- Debt and liquidity: Total debt, including finance leases, was $295.5 million at year-end, down from $458.8 million. Cash and cash equivalents were $55.6 million ($57.0 million including restricted cash); the $250 million revolving facility was undrawn and available. Stockholders’ equity was $667.0 million.
- Other balance-sheet items: Reclamation and mine-closure liabilities were $136.5 million; surety bonds supporting closure obligations totaled $215.6 million. The company reported $28.0 million of non-current Mexican VAT receivables subject to ongoing recovery efforts and litigation.
Material changes versus 2018
- Higher gold ounces sold and a 10% increase in average realized gold prices helped lift revenue; the average realized gold price was $1,342 per ounce versus $1,218. Average realized silver price was $16.07 per ounce versus $15.65.
- Results were sharply affected by Silvertip: the company recorded a $250.8 million impairment and a $64.6 million inventory write-down, citing weaker zinc and lead markets, lower-than-expected production and processing-plant challenges.
- Rochester gold and silver production fell 35% and 25%, respectively, amid lower placement rates during commissioning of a new crushing circuit, downtime and lower grades. Kensington gold production rose 21%, supported by higher-grade Jualin ore; Wharf gold production rose 10%.
- Capital expenditures declined to $99.8 million from $140.8 million. Debt fell by more than $160 million, supported by repayments, a $123.1 million net equity offering and other deleveraging actions; the offerings increased shares outstanding.
Guidance, outlook and risks
- 2020 guidance: Gold production of 317,000–363,000 ounces and silver production of 10.3–13.3 million ounces. Guidance excludes Silvertip following the post-year-end suspension. Planned sustaining capital was $65–80 million; development capital, $30–35 million; expensed exploration, $38–44 million; and G&A, $32–36 million. Assumptions include gold at $1,520/oz, silver at $17.25/oz, zinc at $1.00/lb and lead at $0.86/lb.
- Silvertip subsequent event: On February 19, 2020, Coeur announced a temporary suspension of mining and processing due to further deterioration in zinc and lead markets and processing-facility challenges. It estimated up to $10 million of one-time severance and other costs, plus about $6 million in quarterly care-and-maintenance costs. It planned increased exploration and a mill expansion, but timing, funding and outcomes remain uncertain.
- Management cited strong Q4 performance at Palmarejo, Kensington and Wharf and three consecutive quarters of increasing positive free cash flow. Rochester’s HPGR recovery results were described as encouraging; permitting and planning for its POA 11 expansion were progressing.
- Key risks include volatile metal prices and treatment charges, mine and processing performance, reserve-estimation uncertainty, permitting and environmental obligations, water availability, foreign-country and community risks, smelter access, and the ability to service debt and fund capital plans. The company also disclosed potential uncertainty in LIBOR transition, derivative opportunity costs, and risks to deferred tax asset realization.
- Auditors issued unqualified opinions on the financial statements and internal controls. Critical audit matters included Rochester leach-pad inventory, reclamation liabilities and the Silvertip impairment valuation.
Most important facts for investors to verify
- Silvertip suspension costs, care-and-maintenance expense, impairment assumptions and the economics, capital needs and timing of any mill expansion.
- Whether 2020 production, cost and capital guidance is achievable, particularly at Rochester after crusher commissioning and planned expansion work.
- Cash conversion and liquidity: annual free cash flow remained negative despite improved operating cash flow; assess capital spending, working-capital needs and debt service.
- Recoverability and timing of the $28.0 million Mexican VAT receivable, and any additional impact from the RMC bankruptcy receivable.
- Effects of 2019 equity issuance and contingent-share payments on dilution, and the company’s metal-price hedges and exposure to treatment charges.