Business context and reporting period
Coeur Mining, Inc. is a gold and silver producer operating mines in the United States, Mexico and Bolivia, with an additional silver-stream interest in Australia and exploration projects. This Form 10-K covers the fiscal year ended December 31, 2016; comparisons are primarily with FY2015. The filing is an annual report, not a standalone fourth-quarter filing.
Financial and operating performance
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | $665.8 million | $646.1 million |
| Metal sales | $662.5 million | $639.2 million |
| Net income (loss) | $55.4 million; diluted EPS $0.34 | $(367.2) million; diluted EPS $(2.83) |
| Operating cash flow | $125.8 million | $113.5 million |
| Capital expenditures | $101.0 million | $95.2 million |
| Cash and cash equivalents at year-end | $162.2 million | $200.7 million |
| Total debt, including current portion | $210.9 million | $490.4 million |
| Total assets / stockholders’ equity | $1,318.9 million / $768.5 million | $1,332.5 million / $421.5 million |
Production was 14.8 million silver ounces and 358,170 gold ounces, or 36.3 million silver-equivalent ounces. Average realized prices rose to $17.18 per silver ounce and $1,230 per gold ounce from $15.46 and $1,143, respectively. Costs applicable to sales were $11.87 per silver-equivalent ounce versus $13.23; all-in sustaining costs were $16.08 versus $16.50. The reported operating margin was $7.30 per silver-equivalent ounce sold, up from $4.36.
Liquidity at year-end included $410.8 million of current assets and $116.6 million of current liabilities. The company reported no balance on its $12 million San Bartolomé credit line. Contractual obligations include $37.3 million of capital lease payments and $300.1 million of estimated undiscounted reclamation and mine-closure cash flows; the latter are largely due beyond five years.
Material changes versus the prior comparable period
- Revenue rose about 3%, reflecting higher realized gold and silver prices and higher gold ounces sold, partly offset by lower silver ounces sold. Gold represented 63% of sales, versus 60% in 2015.
- Silver production fell 6.7%, mainly because Palmarejo transitioned to lower-tonnage, higher-grade underground operations, Rochester had leach-recovery timing effects, and Endeavor reduced mining rates. Gold production increased 9.2%, including a full year of Wharf production.
- Net income improved from a substantial loss to profit. The comparison benefited significantly from 2015’s $313.3 million asset write-downs; 2016 write-downs were $4.4 million. Lower interest expense and higher realized prices also helped.
- Operating cash flow increased $12.3 million. Investing cash outflow narrowed to $83.4 million from $211.3 million, while financing cash flow was an $80.2 million outflow, reflecting debt repayments and redemptions.
- Debt declined 57% following repayment of the $99 million Term Loan principal and redemption of $190 million principal of 7.875% Senior Notes. The company also issued 26.9 million shares through at-the-market offerings, generating $269.6 million net proceeds; year-end shares outstanding increased to 180.9 million from 151.3 million.
Outlook, management commentary, risks and unusual items
Management’s 2017 outlook called for a 9% increase in silver-equivalent production, driven by the Palmarejo underground ramp-up. Guidance was 16.4–18.0 million silver ounces and 362,000–387,000 gold ounces, or 38.1–41.2 million silver-equivalent ounces. AISC guidance was $15.75–$16.25 per silver-equivalent ounce; capital expenditures were expected at $115–$135 million, exploration expense at $23–$25 million, and general and administrative expense at $28–$32 million. These are forward-looking estimates, not guarantees.
- Tax and earnings quality: FY2016 included a $54.2 million income and mining tax benefit, including a $40.8 million valuation-allowance release associated with a legal-entity reorganization and a $15.0 million deferred tax benefit on unremitted earnings. Pretax income was only $1.1 million, so the reported effective tax rate is unusually high and not a straightforward indicator of recurring tax burden. Adjusted net income was $47.8 million, versus GAAP net income of $55.4 million.
- Debt and financing items: Debt extinguishment generated a $21.4 million loss, including prepayment premiums and exchange-related losses. Share offerings reduced leverage but materially diluted existing shareholders. Senior Notes had $178.0 million of scheduled principal due in 2021, net of issuance costs and premium, at year-end.
- Mine and project execution: Development spending supports Guadalupe and Independencia at Palmarejo, Jualin at Kensington, and Rochester expansion. Lower Palmarejo throughput is part of the planned transition. Actual ramp-up, grades, recoveries, capital needs and production may differ from guidance.
- Foreign and operational exposure: Bolivia’s 2016 restrictions on cooperative mining rights could require new direct contracts with COMIBOL for affected San Bartolomé areas. An interim permit granted in January 2017 allowed operations to continue pending negotiations. Drought-related water shortages had affected the mine; Bolivia also presents political, contractual and community-relations risks.
- Other material risks: Results and cash flow depend heavily on volatile gold and silver prices and input costs. The filing also highlights permitting and environmental obligations, reclamation estimates, water access, labor disruption, foreign-exchange exposure, reserve-estimation uncertainty, mine hazards, and dependence on smelters and third-party operators. Reclamation liabilities on the balance sheet totaled $99.3 million; $1.9 million was accrued for former mining activities.
- Unusual production/asset items: Endeavor’s operator curtailed production amid low lead and zinc prices, prompting a $2.5 million write-down of the silver-stream interest. Wharf recorded a $3.7 million inventory write-down tied to lower expected leach-pad recoveries. The Palmarejo minimum gold-royalty obligation was satisfied in July 2016; a gold-stream arrangement then took effect, under which the company sells 50% of eligible production for the lesser of $800 or spot price per ounce.
- The company agreed in January 2017 to sell the Joaquin project for $25 million and retain a 2% NSR royalty; closing was expected in Q1 2017, subject to customary conditions. The 2017 outlook also assumed this transaction remained separate from operating production.
Most important facts for investors to verify
- Whether the 2017 Palmarejo ramp-up and consolidated production and AISC guidance were achieved, and how much capital was required.
- Current debt, repayment schedule, covenant headroom, and cash available after capital spending; distinguish cash from restricted collateral and consider lease and reclamation commitments.
- Progress and final contractual terms with COMIBOL and cooperatives in Bolivia, together with San Bartolomé water availability and operating continuity.
- Recurring earnings and cash generation excluding tax valuation-allowance benefits, asset-sale gains, debt-extinguishment costs and other nonrecurring items.
- Effects of metal-price and recovery assumptions on reserves, asset impairment risk and mine plans; FY2016 reserve estimates used $17.50/oz silver and $1,250/oz gold.
- Share-count dilution from the 2016 offerings and any subsequent equity issuance, plus completion and proceeds of the Joaquin sale.