Coeur Mining, Inc. quarterly report, Q3 FY2015

Coeur Mining, Inc. — Q3 2015 Form 10-Q

Business context and reporting period. Coeur Mining is a silver and gold producer operating mines in the United States, Mexico, and Bolivia, with additional streaming and royalty interests. This unaudited filing covers the three and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods.

Financial and operating performance

Metric	Q3 2015	Q3 2014	Nine months 2015	Nine months 2014
Revenue	$162.6 million	$170.9 million	$481.8 million	$495.1 million
Net income (loss)	$(14.2) million	$3.5 million	$(64.2) million	$(76.8) million
Diluted earnings (loss) per share	$(0.11)	$0.03	$(0.52)	$(0.75)
Cash from operations	$36.2 million	$31.3 million	$69.1 million	$52.4 million
Capital expenditures	$23.9 million	$16.8 million	$65.2 million	$44.1 million

Q3 production was 3.83 million ounces of silver and 85,769 ounces of gold; nine-month production was 11.93 million ounces of silver and 236,358 ounces of gold. Silver-equivalent production was 9.0 million ounces for Q3 and 26.1 million ounces year to date.
Q3 realized prices were $14.66 per silver ounce and $1,116 per gold ounce, versus $19.46 and $1,260, respectively, a year earlier. Nine-month realized prices were $15.89 and $1,162, compared with $19.76 and $1,272.
Costs applicable to sales (CAS) were $12.22 per silver-equivalent ounce in Q3 and $13.11 year to date, down from $14.71 and $14.10. All-in sustaining costs (AISC) were $15.41 per silver-equivalent ounce in Q3 and $16.50 year to date, versus $18.86 and $19.33. CAS and AISC are non-GAAP measures.
Q3 total costs and expenses exceeded revenue by $6.9 million; the corresponding nine-month shortfall was $28.1 million. These figures precede other income and expense.
Cash and cash equivalents were $205.7 million at September 30, down from $270.9 million at year-end 2014. Current assets were $491.7 million and current liabilities $144.6 million. Reported debt was $546.0 million, comprising $11.8 million current and $534.2 million non-current; cash less reported debt was approximately $340.3 million.
Operating cash flow less capital expenditures was approximately $12.4 million for Q3 and $4.0 million for the first nine months. Investing activities used $179.1 million year to date, including acquisitions.

Changes versus prior periods

Q3 revenue fell 4.9% year over year, while net income of $3.5 million turned to a $14.2 million loss. Management attributed the loss mainly to lower silver ounces sold, weaker realized metal prices, and less favorable fair-value adjustments; lower unit costs, higher gold sales, and reduced exploration expense partly offset these factors.
Nine-month revenue declined 2.7%, but the net loss narrowed from $76.8 million to $64.2 million. Management cited higher gold sales, lower unit costs, reduced G&A and pre-development costs, and favorable fair-value movements, offset partly by lower silver sales and prices.
Production mix shifted toward gold: Q3 gold production increased while silver production declined. Nine-month gold production rose to 236,358 ounces from 184,850, while silver production declined to 11.93 million ounces from 12.88 million.
Cash from operations improved year over year for both Q3 and the nine-month period. Capital spending increased, and year-to-date investing outflows also reflected the Wharf acquisition.
Total assets increased to $1.76 billion from $1.45 billion, principally reflecting acquisitions. Paramount was acquired in April for consideration of approximately $201.4 million, largely stock; Wharf was acquired in February for approximately $99.8 million in cash.

Outlook, financing, risks, and unusual items

Updated 2015 guidance: silver-equivalent production of 33.7–36.4 million ounces, including 15.2–16.1 million silver ounces and 309,000–338,000 gold ounces. Coeur raised production expectations and lowered AISC guidance to $16.50–$17.00 per silver-equivalent ounce. Capital spending guidance was $95–$105 million; G&A guidance $33–$35 million; exploration expense guidance $13–$16 million.
In June, Coeur entered a five-year $100 million secured term loan, bearing an adjusted Eurodollar rate plus 8.00%, with 1% annual amortization and mandatory-prepayment provisions subject to stated exceptions. The loan is secured by substantially all assets of the company and domestic subsidiaries; it has no financial maintenance covenants. Senior Notes due 2021 had $432.9 million aggregate principal outstanding at quarter-end.
After quarter-end, on November 2, 2015, Coeur agreed to exchange approximately $54 million principal amount of Senior Notes for up to 14.7 million common shares, subject to lender consent. The consent also permits specified transactions involving up to $100 million of common stock over 12 months for Senior Note redemptions, prepayments, acquisitions, or cancellations.
Q3 included an $8.9 million net loss in “Other, net,” primarily attributed to foreign-exchange movements, and a $5.8 million non-cash fair-value gain. The company reported tax benefits despite pre-tax losses; tax outcomes are affected by jurisdictional mix, foreign exchange, valuation allowances, mining taxes, and uncertain tax positions.
Operational and other risks include lower or volatile precious-metal prices, mine production and grade variability, permitting and environmental matters, foreign exchange, labor disruptions, and access restrictions. San Bartolomé production was affected by a three-week shutdown following political protests in Bolivia. Mining above 4,400 meters at Cerro Rico remains restricted in some areas, with duration and potential asset impairment uncertain.
Contingencies include pending litigation related to the Paramount transaction and environmental inquiries or potential liability at former Callahan sites. The company states it intends to defend the Paramount litigation; outcomes and potential costs are uncertain. Reclamation obligations and estimates may change.
Coeur reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The NYSE initiated delisting proceedings and suspended trading in the company’s warrants after they failed the exchange’s minimum market-value requirement.

Most important facts for investors to verify

Whether updated production and AISC guidance is achieved, particularly given Palmarejo’s transition to underground mining and the Bolivia operating constraints.
Whether lower realized metal prices and weaker silver production continue to pressure revenue, operating margins, and cash generation.
Debt service and refinancing capacity, including the high-cost secured term loan, Senior Notes, required prepayments, and the impact of the planned share-for-debt exchange and dilution.
Whether capital spending and operating cash flow support liquidity after acquisitions; reported cash declined by $65.2 million during the first nine months.
Potential consequences and costs of the Paramount litigation, environmental matters, reclamation estimates, and Bolivian mining restrictions.
The sensitivity of results to fair-value estimates, foreign-exchange changes, tax valuation allowances, and other non-cash or non-GAAP adjustments.