Coeur Mining, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited results; amounts below are in U.S. dollars unless stated otherwise. Coeur operated five mines in the U.S., Canada and Mexico, producing gold, silver, zinc and lead.
Financial and operating performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $162.1 million | $170.0 million | $317.0 million | $333.3 million |
| Costs applicable to sales | $131.9 million | $108.2 million | $263.6 million | $207.6 million |
| Net income (loss) | $(36.8) million | $2.9 million | $(56.0) million | $4.2 million |
| Diluted earnings (loss) per share | $(0.18) | $0.02 | $(0.27) | $0.02 |
| Adjusted EBITDA (non-GAAP) | $30.6 million | $48.4 million | $51.2 million | $97.2 million |
| Operating cash flow | $26.4 million | $(1.3) million | $10.6 million | $14.2 million |
| Capital expenditures | $20.7 million | $41.2 million | $48.2 million | $83.5 million |
The filing does not present a single consolidated operating-margin measure. Costs applicable to sales exclude amortization; total costs and expenses were $193.0 million in Q2 and $384.1 million in the first half.
- Cash and liquidity: Cash and cash equivalents were $37.9 million at June 30, down from $115.1 million at year-end 2018. Cash, cash equivalents and restricted cash totaled $39.3 million. The company reported $197.0 million available under its $250.0 million revolving credit facility.
- Debt: Balance-sheet debt was $370.0 million, including $246.2 million of 2024 Senior Notes, $53.0 million drawn on the revolver and $70.7 million of finance lease liabilities. Operating lease liabilities were separately reported at $59.0 million.
- Production and prices: Q2 production was 86,584 gold ounces and 3.06 million silver ounces, plus 5.32 million pounds of zinc and 4.98 million pounds of lead. Average realized prices were $1,277 per gold ounce and $14.75 per silver ounce.
Changes versus the prior comparable period
- Q2 revenue declined 5%, mainly due to fewer gold and silver ounces sold and a 10% lower realized silver price. First-half revenue also fell 5%; gold and silver sales volumes and realized prices were lower overall.
- Q2 shifted from net income to a loss, primarily reflecting higher costs and a $11.9 million Silvertip metal-inventory write-down. The first-half loss included a $27.3 million write-down at Silvertip. Adjusted net loss was $23.0 million in Q2 and $45.9 million for the first half.
- Q2 gold and silver production was lower year over year. Kensington improved, with gold production up 33% on higher-grade Jualin ore; Palmarejo, Rochester and Wharf production declined. Silvertip, which began commercial production in September 2018, contributed zinc and lead sales.
- First-half operating cash flow declined to $10.6 million from $14.2 million. Capital spending fell to $48.2 million from $83.5 million, largely because Silvertip pre-production spending had been higher in 2018.
Outlook, commentary and risks
- Management maintained 2019 production and costs-applicable-to-sales guidance at the levels disclosed in the 2018 Form 10-K. It said full-year unit costs were expected to remain within the previously disclosed guidance ranges.
- Management expected production improvements from Palmarejo’s La Nación ramp-up and new thickener, Rochester’s commissioned crusher/HPGR circuit, higher-grade Jualin ore at Kensington, and additional crushing and higher-grade ore at Wharf. It maintained mine-level guidance for these operations.
- Silvertip production improved sequentially, but lower-than-expected output, grades, recoveries and plant availability prompted the inventory write-down; management warned that further write-downs could be required while operations are optimized. Its permit amendment was expected in Q3, later than originally anticipated, without a stated impact on planned operations.
- Coeur raised $48.9 million net through an at-the-market stock offering and received a $25.0 million Kensington concentrate prepayment. Together with cash, these transactions supported repayment of $82.0 million on the revolver during Q2. The offering issued 16.6 million shares at an average $3.00 per share.
- The April credit amendment relaxed a net-leverage covenant temporarily, added a senior-secured-leverage covenant, and provided for a 0.75% rate increase during elevated leverage. An August 6, 2019 amendment, after quarter-end, provided additional interest-coverage covenant flexibility at the June 30 test date; the original ratio was to return for the September 30 test.
- Other notable exposures include $49.6 million of Silvertip contingent consideration, a $25.0 million Kensington prepayment recognized as deferred revenue, ongoing pursuit of a Mexican VAT receivable, and provisional metal sales exposed to price changes. A 10% change in realized gold, silver, zinc and lead prices was estimated to change revenue by $4.6 million.
- The filing highlights risks from commodity prices, mine grades and recovery, operating and weather conditions, permitting and regulation, environmental obligations, foreign operations, smelter access and the ability to obtain financing. The effective tax rate can fluctuate materially, and realization of deferred tax assets is uncertain.
Important facts for investors to verify
- Whether operating improvements at Silvertip, Rochester, Palmarejo and Wharf materialize, and whether Silvertip requires further inventory write-downs.
- Updated cash generation, liquidity and covenant compliance, including the effect of the August 2019 revolver amendment and remaining revolver capacity.
- Progress against unchanged 2019 production and unit-cost guidance, particularly given lower first-half output at several mines.
- Collection prospects for the Mexican VAT receivable and resolution of the related ongoing litigation.
- Potential dilution from equity issuance and the timing and terms of Silvertip contingent payments.