Coeur Mining, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 20, 2015. The filing also reports fourth-quarter results. Coeur operates silver and gold mines in the U.S., Mexico and Bolivia and holds streaming and royalty interests, including the Endeavor silver stream in Australia.
Financial performance and condition
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $635.7 million | $746.0 million |
| Net loss | $1,155.9 million | $650.6 million |
| Adjusted net loss (non-GAAP) | $112.0 million; $1.09 per share | $41.3 million; $0.42 per share |
| Operating cash flow | $52.9 million | $113.5 million |
| Capital expenditures | $64.2 million | $100.8 million |
| Cash and cash equivalents at year-end | $270.9 million | $206.7 million |
| Working capital at year-end | $400.1 million | $386.7 million |
| Outstanding debt, approximately | $478.4 million | — |
- Revenue comprised $632.5 million in metal sales and $3.2 million in royalty revenue. Lower realized metal prices were the main headwind: average realized silver was $18.87/oz versus $23.94, and gold was $1,252/oz versus $1,327.
- Silver production was 17.2 million ounces and gold production 249,384 ounces, compared with 16.9 million and 259,347 ounces, respectively, in 2013. Sales were affected by delayed Kensington gold shipments caused by a West Coast port labor dispute.
- Costs applicable to sales were $14.71 per silver-equivalent ounce and $951 per Kensington gold ounce. All-in sustaining costs were $19.72 per silver-equivalent ounce, versus $19.83 in 2013. Management reported an operating margin of $4.94 per silver-equivalent ounce, down from $8.58.
- Fourth-quarter 2014 metal sales were $140.6 million and net loss was $1,079.0 million; the quarter included substantially all of the year’s impairment charge. Fourth-quarter operating cash flow was $0.8 million.
- Total assets fell to $1.46 billion from $2.89 billion and stockholders’ equity to $585.3 million from $1.73 billion, largely reflecting impairments. The balance sheet included $173.7 million of current liabilities and $696.4 million of long-term liabilities.
Material changes and unusual items
- Coeur recorded $1,472.7 million in non-cash long-lived-asset impairments in 2014, or $1,021.8 million after tax, primarily involving Palmarejo, La Preciosa, San Bartolomé, Kensington and Joaquin. The charge followed lower long-term metal-price assumptions and revised mine plans. The comparable 2013 impairment was $773.0 million.
- Cash from operations declined by $60.5 million year over year, principally due to lower realized silver and gold prices and fewer gold ounces sold. Capital expenditures decreased 36%.
- General and administrative expense declined 26.2% to $40.8 million. Interest expense, net of capitalized interest, rose to $47.5 million from $41.3 million, partly following the 2014 issuance of $150 million of additional 7.875% Senior Notes due 2021.
- Coeur terminated the Palmarejo gold production royalty effective after the minimum delivery requirement is completed, expected in the third quarter of 2016, and entered a replacement stream for 50% of subsequent Palmarejo gold production at the lesser of $800/oz or spot. The new arrangement provides for a $22 million deposit in five quarterly installments beginning in 2015.
- La Preciosa’s feasibility study was completed in 2014, but construction was deferred until expected returns improve. Coeur announced acquisitions of Paramount Gold and Silver and the Wharf mine; both remained subject to closing conditions at the filing date.
Outlook, risks and contingencies
- 2015 outlook: Silver-equivalent production of 31.8–34.8 million ounces, including 14.8–16.0 million ounces of silver and 284,000–313,000 ounces of gold. Guidance assumes the Wharf acquisition closes; Wharf-specific estimates rely on Goldcorp’s published guidance.
- Management forecast capital expenditures of $90–$105 million, G&A of $36–$39 million, and exploration expense at existing assets of $10–$12 million. Mine-level cost guidance is provided for Rochester, San Bartolomé, Palmarejo, Kensington and Wharf.
- Management said available liquidity and expected operating cash flow were sufficient for planned existing-operation capital spending and obligations over the following 12 months. This assessment is sensitive to commodity prices, production and costs. No cash dividend has been paid since 1996.
- Key exposures include volatile silver and gold prices, operating costs, reserve and recovery estimates, mine safety and environmental requirements, permitting, water availability, foreign exchange, political and social conditions, and reliance on third-party smelters and operators of streaming/royalty assets.
- In Bolivia, mining above 4,400 meters at Cerro Rico remained suspended pending stability studies; the duration and production impact were uncertain. The effects of Bolivia’s 2014 mining law also remained unclear pending implementing regulations.
- Rochester’s proposed leach-pad expansion required BLM approval; the company warned existing capacity could be insufficient after 2017 without timely approval. The filing also describes six consolidated lawsuits challenging aspects of the proposed Paramount transaction and environmental matters relating to former mining sites; outcomes and potential costs were not quantified clearly.
- At year-end, contractual obligations totaled $918.2 million, including debt, interest, reclamation, leases and royalty obligations. The $5.3 million convertible notes were classified as current because holders could require repurchase on March 15, 2015. Reclamation and mine-closure liabilities on the balance sheet totaled $70.8 million; an additional $3.6 million was accrued for former mining activities.
Most important facts for investors to verify
- Whether 2015 production, mine-level costs and capital-spending guidance were achieved, particularly given its assumption that Wharf closes.
- Whether the large impairment assumptions—$19/oz silver, $1,275/oz gold and 8.0%–10.75% discount rates—remain appropriate and whether further impairments are possible.
- Cash generation and liquidity under lower metal prices, including debt service, the 2021 Senior Notes, the convertible-note repurchase date and obligations associated with royalties.
- Actual timing, financing and integration outcomes for the Wharf and Paramount acquisitions, including the Paramount litigation and required approvals.
- Progress on the Rochester expansion permit, Bolivia’s mining restrictions and regulatory changes, and environmental or reclamation obligations.
- Reserve changes and operating trends at Palmarejo, Rochester, Kensington and San Bartolomé; the filing’s reserve estimates use assumed prices and are not guarantees of recoverable production.
The consolidated financial statements received an unqualified audit opinion, and KPMG reported effective internal control over financial reporting as of December 31, 2014.