Coeur Mining, Inc. (CDE) on Q2 2021 Results - Earnings Call Transcript

Operator: Good morning. And welcome to the Coeur Mining Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Paul DePartout, Director, Investor Relations. Please go ahead. Paul DePartout: Mitch Krebs: Thanks, Paul, and good morning, everyone. I’ll start off on slide three of today’s presentation with some highlights from the quarter. Improved topline performance was driven by an increase in gold and silver ounces sold and an uptick in our average realized silver price. These factors, along with some positive changes in working capital lead to significantly higher operating cash flow both quarter-over-quarter and year-over-year. This revenue and cash flow growth was largely a result of a 27% quarter-over-quarter increase in gold production at Wharf and a 15% quarter-over-quarter increase in silver production at Rochester. Kensington’s gold production was down slightly due to timing and Palmarejo production was essentially flat due to slightly lower grades offset by higher throughput. Looking ahead to the back half of the year, we are reiterating our production guidance and expect a strong second half at each of our operating locations for reasons that Mick will touch on. Overall, operating costs increased during the period, reflecting higher throughput and underground development rates, additional maintenance expense, general inflationary pressures and a non-cash charge at Rochester. Mick will also provide a bit more color on these items in a few minutes. We continue to advance our largest exploration campaign in company history and established a new record for meters drilled in a single quarter of nearly 100 kilometers with 27 drill rigs currently turning. We highlighted some of our progress in a press release we issued back in mid-June, which showcased a new high-grade mineralized zone at our Silvertip mine in Northern British Columbia and more excellent results from our Crown exploration property in Southern Nevada. Turning to slide eight, you can see we have upped our exploration guidance for the year to keep building on the successes we’re having. We now plan to invest approximately $75 million in exploration in 2021, which is nearly 50% higher than last year’s record and 2.5 times more than our investment in 2019. We continue to view our investment in exploration, which is one of the largest programs in our sector as a very attractive allocation of capital and an important differentiator. Mick Routledge: Thanks, Mitch. Before going through the operational results, I want to point out a set of slides that highlight our steadfast commitment to protecting our people and upholding our top health and safety initiatives, starting on slide 20. In order to continuously enhance our safety culture and achieve great performance, we must work free of any uncontrolled exposures. We truly believe that health and safety do not improve unless the exposure is contained, reduced or eliminated. As such, I’m proud to report that we recently completed our recertification for the National Mining Association’s CORESafety program, and year-to-date, we’re running towards the lowest lost-time injury rate in our company history. And as I mentioned on my first call a year ago, when companies get health and safety rate, strong operational performance follows. Now turning to slide six and beginning with Palmarejo. Higher mill throughput and better metallurgical recoveries helped to offset lower grades as we continue to encounter some geotechnical challenges. This led us to accelerate the rehabilitation of historical ground controls and re-sequence the mine plant. This is expected to result in more ounces coming from the area covered by the gold stream, which results in a higher proportion of costs allocated to silver on a Coeur product basis. We are confident in our ability to achieve production targets for the year and expect these impacts to be limited to 2021. And with annual EBITDA tax behind us, Palmarejo was able to generate roughly $24 million of free cash flow, almost 7 times higher than the prior period. This was a great example of how the team can routinely balance multiple priorities and still produce solid results for the business. Moving to Rochester. With a laser focus on short interval controls, we are beginning to see better results from material placed on inter-lift liners, which drove a 15% increase in silver production during the quarter. Gold production was also higher supported by an aggressive run-of-mine campaign. It’s also worth noting that these production levels represents significant improvements from where we were 12 months ago. Additionally, we commissioned a new secondary crusher over an 18 day period, which allowed us to begin placing over-liner on the new Stage VI leach pad approximately six weeks ahead of schedule. Importantly, initial results from the new crusher have been quite positive. We’ve been able to operate at higher throughput rates produce a more consistent crush product and improve leachability HPGR crushed ore relative to what we saw over the last few quarters. Tom Whelan: Thanks, Mick. I’ll quickly run through our consolidated financial results that are highlighted on slide five. 6% increase in quarterly revenue coupled with favorable changes in working capital helped us to generate $58 million of operating cash flow during the quarter. LTM EBITDA approached $300 million, despite the non-cash inventory charged at Rochester this quarter, a 41% increase year-over-year and once again demonstrating the power of our portfolio, especially at these gold and silver prices. With production guidance reaffirmed, we expect to see increased cash flow generation during the second half of the year to help fund our key internal growth priorities. Mitch Krebs: Thanks, Tom. Before moving to the Q&A, I want to quickly highlight slide 16 that summarizes our top priorities for the second half of the year. By accomplishing this set of priorities we expect to enter 2022 with a clear and compelling path to delivering industry leading organic growth from our balanced portfolio of North American precious metals assets. With that, let’s go ahead and open it up for questions. Operator: Our first question comes from Mark Reichman with Noble Capital Markets. Please go ahead. Mark Reichman: Good morning. So my first question relates to Rochester. So the technical report had forecast pre-production expenditures of about $397 million. So when you look at your release and you’ve committed $334 million of capital, plus that additional $20 million, bringing the total the $354 million. So what are your expectations now with respect to pre-production expenditures for the Rochester expansion? Mitch Krebs: Yeah. Hi, Mark. It’s Mitch. We’re still anticipating kind of that even split between 2021 and 2022, roughly around that $200 million level in each of those two years. So maybe a little bit more now in 2022, with that additional $20 million that we referenced in the release that you mentioned, but otherwise, still that kind of even split between this year and next. Mark Reichman: Yeah. What’s now -- just -- you don’t really break out the development sustaining capital by mine. And I know that like Rochester development capital has been higher kind of like than the average for the entire budget for development. And so what would you say your development capital would be in 2021 and 2022? Mitch Krebs: Developments, we break that out in the release, in each -- in my mind sections, there’s a CapEx has sustaining versus development. I don’t know, Tom, do you happen to have that in front of you? I don’t have that in front of me. I think the Rochester sustaining this year is only, yeah, $10 million to $15 million and then the rest is all developments related to POA 11. Mark Reichman: Okay. So $10 million to $15 million in each year, so to speak, and then the remaining, so if you kind of keep it at $200 million a year and then the $15 million would be sustaining and the remainder would be. So do you think you’ll get pretty close to that $397 million or do you think you’ll run under or do you think with inflation? I guess I’m just trying to gauge kind of whether that’s still a pretty good number? Mitch Krebs: Yeah. Great question. It’s a dynamic -- fluid dynamic time, like we mentioned in this release and in our comments. We’re lucky or fortunate to have the vast majority of the capital already committed. We have -- we just had over $60 million uncommitted still. So that’s where we’ll have some -- we’ll receive some bids here in the next few months. We’ll pick those apart. But those have a lot of steel, piping, cement and contract labor rates in there. And so we’re -- our eyes are wide open on those remaining elements and that’s where some of this escalation pressure is starting to be seen a little bit. So we’ll have more to say at the end of the third quarter, once we get all that in and sort through it and see where we are. But at least at Rochester, the -- that’s only on a pretty small -- relatively speaking, small piece of that remaining uncommitted capital. Mark Reichman: Okay. And just to clarify one thing on our discussion on the development capital. So if you’re saying $200 million, it sounds to me, like, you kind of expect to be at the upper end of the range for Rochester in terms of where the guidance is? Mitch Krebs: Yeah. That’s -- I think that’s probably fair… Tom Whelan: Yeah. Mitch Krebs: …a fair assumption for now until we would come back and give you more clarity later this year. Mark Reichman: Okay. No. That’s really helpful. I really appreciate it. Thanks very much. Mitch Krebs: Yeah. Sure, Mark. Thanks. Operator: The next question is from Joseph Reagor with ROTH Capital Partners. Please go ahead. Joseph Reagor: Good morning, guys, and congrats on a solid quarter. Mitch Krebs: Hey, Joe. Thanks. Joseph Reagor: So, a little bit more on Rochester. So, in the release, you mentioned that $20 million, the previous caller mentioned as well. Can you give us a little bit more color on where that’s going and how accretive you think that extra investment is? Mitch Krebs: Yeah. Sure. Good question. It’s a lot of little things. But, Terry Smith, is sitting here and fill. Terry, can you cover that quickly? Terry Smith: Yeah. Sure. Good question, Joe. The funding is really underpins that we want to build Rochester for long-term success. And there’s a lot of incremental pieces to this, but it really comes down to improving the safety, availability and operability of the infrastructure that we’re putting in place. And just to give you some color on that, we upgraded the geotechnical design in the crusher pocket, making that a safer excavation for long-term. We put some redundant pumps into the Merrill-Crowe plant that’ll increase availability of that plant in the long-term. We put a more sophisticated control system in the leach pad and the Merrill-Crowe plant, which will make that a more efficient set of leach operations going forward. So, overall, we’re pretty happy with all of these little upgrades. Unfortunately, cost money, but we feel these are good returns for the long-term. Mitch Krebs: Does that help, Joe? Joseph Reagor: Yeah. Yeah. That’s helpful. Mitch Krebs: Okay. Joseph Reagor: And then, on the inflation that you guys mentioned, can you give us kind of a order of magnitude on that? Are we talking a couple percent? Are we talking 10 to 15? Are we talking to some larger magnitude level of pressure? Mitch Krebs: On the OpEx side Joe? Joseph Reagor: No, sir. Specifically with the contracts at Rochester? Mitch Krebs: Yeah. I would say that, it’s the labor rates that are the biggest component of the pressure being seen. And then probably followed by the, I’m just thinking about the dollars associated with each cement, steel, a lot of copper conduit goes into the Merrill-Crowe into the crusher corridor. Those are four of the main drivers. Tom, Terry, am I leaving any, Mick, am I leaving any big ones out? Terry Smith: No. Mitch Krebs: No. Terry Smith: And… Joseph Reagor: Okay. Terry Smith: …Joe, just add a little color, right? I mean, those two SMPI contracts are in the budget, we’re roughly about $60 million, just to give you a sense of what that order of magnitude is. So again, as Mitch said earlier, we’re obviously pretty happy that we’ve committed a lot of the capital earlier and so we’re evaluating -- we’ll be evaluating those bids here over the third quarter. We’ll be back to everyone during the next call with where those ultimately landed. Joseph Reagor: Okay. Fair enough. And then one final thing. There’s been a number of companies that are traditionally Mexican focused silver miners or just miners in general, who tend to be diversifying out of Mexico. They’ve made some let’s call it unfavorable tax decisions in recent years. What do you guys think about long-term with Palmarejo? Do you see there something where when it’s mined out, you’re done in Mexico or do you see other opportunities there, maybe just big picture five-year plan there? Mitch Krebs: Yeah. Great question. Mexico has become a more challenging jurisdiction relative to our other jurisdictions here in the U.S. and up north in Canada. From a growth standpoint, you can see the majority of our growth really organic growth is coming over the next few years from the U.S. and Canada. That all said, though, you look at, you reference to a five-year window, what we can do at Palmarejo over the next five years, operationally what we’re seeing with our exploration, especially at these elevated levels and there’s a whole new world off to the east there at Palmarejo that sits outside of the gold stream AOI that we are very focused on sort of extending our exploration reach east of Palmarejo. There’s a lot of targets, a lot of potential, a lot of historic resources that we inherited when we bought Paramount, you recall -- you’ll recall from several years ago. So there’s a lot more to do there, especially with a higher exploration budget. For the last four years or five years, frankly, we’ve been pretty focused on that corridor, right, between and including Independencia and Guadalupe, and sort of extending those both to the northwest into the southeast and then drilling in between them. But we’re starting to now develop enough of a runway down there that we’re able to kind of pick our heads up a little bit and look around in a more expansive way and there’s still a lot to do down there. So totally committed on Palmarejo and excited about the prospects there for what should be hopefully a long time still. Joseph Reagor: Okay. Thanks for the color. R Yeah. Sure. Mitch Krebs: Thanks, Joe. Operator: The next question is from Brian MacArthur with Raymond James. Please go ahead. Brian MacArthur: Hi. Good morning and thanks for taking my question. Mitch Krebs: Hey. Hi, Brian. Brian MacArthur: My questions relate to Silvertip. So, a couple of things. You talk about making a bigger mill. There are some pictures in there showing you’re cleaning up the site, but we’re spending $50 million to $65 million now. I’m just trying to think through the timing of this and I realize you may not be able to give us everything until the study comes out already next year. But you talk about starting in 2023 and winter up there is not the easiest time. If you go forward with this, it’s the concept, you get to study early next year, you’d be able to order what you need for the bigger mill and then you get it up and running sort of late 2023. Is that kind of the way we’re tentatively thinking about it? I’m just trying to get a little bit more color on the spending and you’re obviously trying to get ahead a little bit with that capital? But any more color and how that actually could unfold would be helpful? Mitch Krebs: Yeah. Sure. Fair question. And I think you have it about right. If all sort of signs point to yes later this year, that sort of early 2023 commissioning, ramping up throughout the middle of the year, and hopefully, hitting a commercial production level later in 2023 would be the way we’d envision it playing out. And in you’re dead on in terms of Northern BC taking advantage of this season now, the way we are with some of this early works capital that we’re investing helps kind of derisk that that potential timetable. I guess, just -- the other piece I’d throw out there is, when you think about capital, which schedule and capital are the two things we’re working very hard to pin down here in the second half of the year. But we anticipate that the majority of capital that would be invested in Silvertip would be funded from an off take financing. So hopefully that helps you think through, to the extent you’re thinking about balance sheet or any liquidity questions, that’s sort of going to be a large part of the solution there. Brian MacArthur: No. That’s very helpful as well. But are you asking not to put a new mill in there? I’m just trying to think of when you’d be shifting that in with the weather and all that up there or is that being envisioned or that’s the other part I just trying to figure out timing wise to get that in, I guess, next summer would be the goal is kind of what you’re looking for, I guess, is that -- I’m not thinking about that right? Mitch Krebs: You’re thinking about it right. Bigger mill building. There’s some pieces of infrastructure that will be carryover or remaining. But that’s one of the big elements of this early works going on right now is decommissioning and cutting out a lot of that legacy infrastructure. So it’s going to be a little bit of a mix, but that would all hit the site next construction season would be the plan under that 2023 scenario. Brian MacArthur: Great. Thanks very much for that color, Mitch. That’s very helpful. Mitch Krebs: Yeah. Sure. Thanks, Brian. Take care. Operator: The next question is from Karl Blunden with Goldman Sachs. Please go ahead. Karl Blunden: Hi. Good morning. Thanks so much for the time. Mitch Krebs: Hi, Karl. Karl Blunden: Maybe just a follow up on Silvertip. You anticipated a question I had there around funding of it, right, because you’re obviously funding Rochester right now as well. And good to hear that you’ve got other ways to finance it relative to the balance sheet. When you think about that project, is it fair to say, at this point, that you’re committed to it? Are there some risk factors you’re still exploring before you go ahead or have you learned enough at this point in time? Mitch Krebs: Still, there’s always an off-ramp. We don’t want to do anything there that’s not. We need to get that right, expanding and restarting that, we’re not going to get a second, another chance at that. And this approval or this kind of inflection point late this year, let the drills, keep turning, get all this technical work done, get the mine plant updated with all the drilling. There will be very much of an off-ramp available to us later this year. I’d like to think that that off-ramp is more around the question of timing and not a question of if. Regarding Silvertip restart, more of a win not any if. But let’s get the answers and then we can lead allow and see how it looks. Karl Blunden: Okay. And then is the kind of decisions around what an off-take agreement might look like. Is that something that is a later 2021 event or is the timing of that decision also subject to some kind of wider timeframes? Mitch Krebs: Yeah. Tom, why don’t want to just give a little bit of color on at off-take? Tom Whelan: Yeah. Yeah. Thanks, Mitch. So, obviously, we had preliminary conversations with potential partners. And I think it’s fair to say, the market has turned around a lot faster and is a much better than we anticipated and we’re looking forward to sharing some of the network that we’ve been busy executing here over the last 12 months and marrying that up with the schedule and mine plan that those conversations will accelerate here in the second half of the year. So that any restart would be tied to an off-take agreement, and again, just reiterating Mitch’s point that the majority of the funding of any additional capital would be supported from this off-take financing. Mitch Krebs: Karl, it’s hard to imagine a better environment for Tom to have this objective in 2021. It’s a great time to be -- to have a good high quality concentrate product to… Karl Blunden: Yeah. Mitch Krebs: … be looking for, as you Tom, say, Happy Home. Tom Whelan: Yeah. And again, I think, during that, while we were operating Silvertip, one of the things that we always worked well was the logistics., so the trucking, the shipping, that piece of it was always great. And I think it’s fair to say, if people are looking for high quality counterparties like Coeur New York Stock Exchange listed top ESG and we will be in a --this will be an attractive concentrate and we look forward to advancing those conversations. Karl Blunden: Great. That’s fantastic. I could just squeeze in one more. So you have these different growth options, you also then would look to potentially extend mine life. I guess some questions about Kensington, for example. Is that something that you could look to extend and would there be significant capital investment required as you look over the next two years or three years? Mitch Krebs: Yeah. You point out, that’s our shortest mine life there at Kensington and we have accelerated our level of exploration investment there last year in particular. Now this year, I think, it’s our third biggest allocation this year at about almost $40 million. That’s one of the reasons we bumped up our full year exploration investment guidance ranges is because of the elevated levels of investment there at Kensington. All of which should help move that needle in terms of overall mine life. It’s not quick. It’s not the easiest place to drill and expand and extend, just given the nature of the deposit and the infrastructure and where it is. But we’re optimistic there that will have some success come year end. You may recall a lot of the conversion drilling, the infill drilling last year didn’t take place till late in the year and so it didn’t make its way into the year-end reserve. So we’ve got a lot of that from last year carrying over into 2021, plus an elevated level of investment there this year. They’re having some really good results, and so we’re encouraged. I know Mick and Hans are excited. They are heading up there next week to get a deeper dive into the exploration program there or so. Hopefully, that gives you some additional color, Karl. Karl Blunden: Yeah. Yeah. That’s really helpful. Thanks, Mitch. Thanks, Tom. Appreciate it. Tom Whelan: Yeah. Mitch Krebs: Okay. Operator: The next question is from Michael Dudas with Vertical Research. Please go ahead. Michael Dudas: Hi. Good morning, gentlemen. Mitch Krebs: Hi, Mike. Michael Dudas: First question, Mitch. Maybe update us on, I know you’ve been great protocols relative to COVID, but like at your operations, U.S., Canada, Mexico, like percentage of employees vaccinated, has there any issues or any incoming concerns or recent evidence with the variance starting to show up a little more aggressively especially in the South? Mitch Krebs: Yeah. Great question. After the last whatever been 15 months or so. One of the biggest risks is just people put -- letting their guard down. I think there are lot of controls have been serving us well. At this point, we feel good with where we are in terms of vaccination rates. Interestingly at our underground mines, so Kensington and Palmarejo, Silvertip vaccination rates hover right around 80% level. And I think a lot of that has to do with vaccinated -- if you get vaccinated then you’re going to have less of a quarantine requirement or logistical issues going to and from site. And so that’s been a big incentive and I think that’s driven vaccination rates up like that. Out west here in the U.S., vaccination rates are a little bit more typical of what you’ve seen kind of on a national basis, little shy of half of our folks vaccinated. But that doesn’t mean that we’re not still doing testing, distancing masking for unvaccinated. The technology that we implemented has continue to really help in terms of distancing and contact tracing, those things that for all the new buzzwords a year ago. We’re still doing them and I’m really proud of what we put in place, how we’ve stuck to it and how it’s allowed us to continue to largely except for the hiccup in Mexico, the government suspension temporarily in Q2 last year down there, otherwise we’ve been continuing to operate, which has been great. Mick, did I miss anything? Mick Routledge: No. It’s really good robust controls at all of the sites and we continue to apply them and not on the quarantine front, because we have really good vaccination rates and continue with those of our controls, but overall high level of confidence that we have control of that issue. Mitch Krebs: Does that help, Mike? Michael Dudas: Absolutely. No. Very good. That’s very helpful. And my second question is… Mitch Krebs: Okay. Michael Dudas: … maybe Mitch can share some observations on some of the corporate activity going on in Southern Nevada and how that… Mitch Krebs: Yeah. Michael Dudas: … highlights your block down there? And just kind of long-term prospects of how things could work out from a value-creating standpoint from all the parties been there? Mitch Krebs: Yeah. Yeah. Exactly. That’s well asked, Mike. It is an exciting... Michael Dudas: Yeah. Thank you. Mitch Krebs: Lots of activity obviously going on. We really like the kind of the strategic land position that we have there in Southern Nevada, even though some activities going on with our neighbors, it doesn’t really change what we need to do, which is continue to drill, hopefully continue to have success expanding the resource there at Crown in those four deposits Daisy, SNA, Secret Pass, and Seahorse. We’re continuing to focus on pulling the drilling together there into assessment or technical report middle part of next year. So we can take a look at that as a future potential operation in Southern Nevada to go along with everything we have up in Northern Nevada. And as far as the activity, look, we’re always open to talking to our neighbors and evaluating opportunities or ideas for how we could rationalize capital, share risk, expand this collective pie, right? And so we got good relationships I think in the neighborhood down there and hope to continue to build on them as we keep the drills turning. I think we’re spending a $14 million in drilling there at Crown, a little bit of that is also at Sterling just to the south. But that’s a reflection of how enthusiastic we are about it and how quickly you can grow a resource and oxide near surface gold resource and Southern Nevada keep the drills turning and we’re seeing some good results. So hopefully that gives you a little bit flavor for how we’re thinking about things. Michael Dudas: No. I appreciate that. And just qualified sounds as if there will be different this time as opposed to historical alliances and situation it appears that there is too much to be had especially in the world of ESG, carbon and kind of capital discipline? Thanks. Mitch Krebs: It’s -- yes. And it’s great to, I certainly hope so. I guess I can’t speak for everybody that up… Michael Dudas: No. Mitch Krebs: … down there. But to have a blank slate essentially new large, it’s a great place to operate down there and we can hopefully approach it with that sort of mentality, Mike, of how do we do this in a way that works best for everybody, works best for the environment, for the community, for all the stakeholders. It’s a -- it’s, probably the most exciting thing going on in Nevada right now in terms of gold and new discoveries and exploration. So it’s a lot of buzz. Beatty’s hopping, Beatty, Nevada in Nye County is place to be. Michael Dudas: Absolutely. Good luck. Thanks, Mitch. Appreciate the color. Mitch Krebs: Yeah. Thanks, Mike. Operator: The next question is from Mike Siperco with RBC Capital Markets. Please go ahead. Michael Siperco: Thanks. Thanks guys for taking the question. Back to the quarter for a second, could you get into a little bit more detail on the inventory charges at Rochester in the quarter. Maybe what the specific cause was of the lower recovery that you’re seeing and if we should be expecting any further impacts just going forward there? Mitch Krebs: Yes. Sure. I’ll just start with one or two quick comments and then pass it over of to Tom and Mick both looking at me, nodding their heads. But that Stage IV pad, Mike, as you know, it’s a legacy mature pad, deep, a lot of noise that exists within that pad is the way we’re trying to derisk that. In the interim, here in the near-term is mitigating that with some inter-lift liners. And so all of this sort of goes away then as we transition over to Stage VI once it’s completed. But there has been, as we’ve mentioned in the past, some ore in the pit, variable ore types that have led to the creation of fine, some with some higher sulfide content, that material sits out there on Stage IV as we’ve mined and crush that and learned about those different ore types. And so all of those learnings essentially have gone into then the need to adjust that estimate in terms of the recovery rate on Stage IV. I don’t know if that gives any good color, but maybe Mick, Tom, over to you to fill in any blanks that I left out. Mick Routledge: On the ore type, it was a new ore type, a little bit softer. So the balance between soft and hard ores and it’s been a great learning for us. We’re doing some additional core drilling over the next 18 months to make sure that we’ll have a really good characterization of that orebody and the orebody knowledge as we head into Pad 6, so really, really good timing for us to get that knowledge. Tom Whelan: And maybe just last piece of your question Mike was, do you expect anything more. So the answer is, no. No, again, we’ve gone back, looked at the data, analyze it, and as Mick said, going forward, we’ve got a 56% recovery rate on Stage IV for the remainder of the life of that pad. And so we’re comfortable that we took the accounting charge that was required. Michael Siperco: Okay. That’s great color. Thanks very much. And then maybe just back to a higher level question, depending on how you look at it. You have maybe four or five projects on the go between Rochester, Silvertip, the extended exploration program, and maybe Crown, as well as whatever hands up happening in Victoria. So you have off-take financing potentially, you have some downside protection from the hedges you have available credit? But can you talk a little bit more about your confidence in executing on all of these priorities over the next couple of years in the context of the balance sheet, maybe some of the inflationary pressures you’re seeing, are there other levers to pull there, are you looking at maybe your equity investments as a source of capital. How are you thinking about all these things, appreciating that it’s an ongoing process? Mitch Krebs: No. It’s a great question. It’s kind of the key question certainly one I’ve devoted a lot of time to. Maybe I’ll take the kind of bandwidth question that you’re asking. And then, Tom, you can cover maybe the levers and the balance sheet aspect of the question. I think with the Board over the last few years around development of our strategy. Along with that came a concerted effort to kind of bolster the team to align with our strategy to be able to deliver on the strategy. And then sitting on top of all of that has been a lot of work that has gone into culture. I know people like to talk about culture. But we have one here that is very much of a performance-driven, make an impact and achieve meaningful things, and we have a, I’d say, highly motivated and inspired group. Not and I’m not talking about the people just in this room, but even deeper into the organization that have a high level of motivation about achieving great things and getting this company from kind of here to there and that there looks really exciting. Every time I’m talking to a group of people here at the company about where these initiatives can take this company, there is a lot of enthusiasm in the room and a lot of excitement and a lot of alignment around making it happen and so that’s contagious. I think we’ve got a -- we have a lot on the move, but I think we’re able to prioritize and stay above kind of a lot of the noise, because we have good teams underneath this that are handling a lot of the blocking and tackling and allowing us to really focus on these high impact initiatives that you kind of walk through there. And so, three years or four years ago capacity bandwidth definite challenge. Now I think we’ve built the organization up to where it’s capable of delivering on the strategy and delivering on those priorities and I wouldn’t be able to say that in years past. Tom, do you want to cover the other aspect of the question. Tom Whelan: Sure. Sure, Mike, you kind of answered it almost for me, but again between our cash on hand. The debt capacity and the cash flow from operations is essentially the key that way that we’re going to fund. Again that debt capacity, just as a reminder, we’ve got a $300 million revolver completely undrawn. There is $100 million accordion. It’s completely at our discretion that we could draw upon and then, again, Silvertip we talked about earlier in the call the off-take agreement. I mean other things that we do have at our disposal that we’ve got $175 million of equity investments, which include a big chunk of that. Victoria Gold, how that plays into the future funding. All this kind of underpin with robust scenario analysis that we go through with the Board once a quarter in tremendous detail, flexing all of the various assumptions, commodity prices, capital cost, et cetera, et cetera. So we feel really confident in our ability, and most importantly, we talked about this a lot, everything still within our control and we look forward to telling you more of about the story as we make some more decisions throughout the rest of the year. Mitch Krebs: And I’d just add tack on at the end here, Tom. The pie of funding sources can’t overstate the importance of the free cash flow coming from Palmarejo, Wharf, Kensington and then Rochester is own operating cash flow as it continues to improve quarter-over-quarter. That combined those from that our multi-asset kind of portfolio here. That’s a big chunk of the funding that goes along with all the other levers and options that Tom mentioned. So $1,800 gold and $25 silver obviously help. But together we feel you put all those pieces together and you look at this year and next year and we feel good about the balance sheet. Michael Siperco: So, I guess, if I can, maybe I’m backing into a CapEx question for Silvertip, but I guess and what you are saying is, it’s fair to say that you can maintain the level of exploration spending at least into -- partially into 2022, fund the restart of Silvertip and Rochester, and you’re comfortable doing all of that within the available capital that you have the balance sheet that you have today without really doing anything else, that’s a fair statement? Mitch Krebs: Fair statement, mix got to execute on the operations, and gold and silver can’t fall through the floor. But with those two caveats, yeah, you’re statements is a fair one. Michael Siperco: Okay. Great. Thanks very much for the time guys. Mitch Krebs: Yeah. Sure. Good questions. Operator: The next question is from Dalton Baretto with Canaccord. Please go ahead. Mitch Krebs: Hey, Dalton. Dalton Baretto: Thanks. Hey, Mitch. Good morning. A couple of questions from me, just kind of in that same vein, let’s start with Silvertip and off-take financing. If memory serves, there was an off-take agreement with Ocean Partners. Is that completely falling away? Mitch Krebs: Tom, do you want to take that? Tom Whelan: That agreement just is invalid right now, because we haven’t been able to produce a concentrate quality that within the specification that’s required by that contract. We’re again hopeful that, with the restart we will be in a position to have a concentrate quality that we know we can produce consistently and we’ll be able to have a further discussion with them and others around the finding happy on for the concentrate. Dalton Baretto: Okay. But it doesn’t get you in any way from talking to other off-take? Tom Whelan: Correct. Dalton Baretto: Got it. Okay. And then as you were listening off your funding sources, you didn’t mention the ATM. What are your plans around that? Mitch Krebs: Great question, You are two for two, Dalton. First question is a good one. That’s a good one too. We put that in maybe a little over a year ago, maybe actually in April, when the darkest of days of COVID and a lot of uncertainty, a lot of unknowns. One thing at that time, we felt like we could probably consider unknown is just liquidity in our shares and so we thought, look, we should put something in place, so that we have a last resort source of liquidity, if things really go upside down here. And at that time, of course, it seems like forever ago, but we didn’t know where things were going to go. Now fast forward to today, we’ve just -- we have left it there and don’t have any plans to use it or tap into it. But it’s not a bad arrow to have in the quiver, it is just almost like a mixed shelf just maintain that. So if things play out in a way that are totally unanticipated, it’s there, but that’s kind of how we think about it. Tom, did I… Tom Whelan: Yeah. Mitch Krebs: … anything you want to add. Okay. Does that help, Dalton? Dalton Baretto: Yeah. No. That makes a lot of sense. And then given what you were saying about inflation around the remaining contracts at Rochester, are you moving to secure anything at Silvertip ahead of time? Mitch Krebs: Well, it’s good question. Also we part of the early works was, let’s get some of the stuff done before the planning on some of the stuff goes back a little ways, so that we were able to lock in some kind of pre-escalation levels on some of this work. It’s another kind of moving target as we work here in the second half toward a more definitive capital estimate too. So we are now -- we are kind of -- we rush to get some of this early work stuff in and remove some of that escalation risk in the very near-term. Now as we think about the next -- the larger build out. Now we’re going to have to really sort of take the full effects of escalation into account and thinking through that and then how can we potentially mitigate that, how can we approach our strategy, our contracting strategy potentially in this world that we’re now all kinds of living in? So it’s a good question and it’s something that we’re -- it’s going to be incorporated into a lot of the aspects of what we’ll need to do up there Silvertip. Dalton Baretto: Okay. And then on the $300 and change million that’s been committed already for Rochester. Those contracts, are they fixed either from a -- on a unit pricing from a volume perspective or are there escalators in there? Terry Smith: It’s a blend of -- hey, Dalton, it’s Terry. It’s a blend of lump sum and unit rate contracts. Dalton Baretto: Okay. Great. And then just maybe one last one for me, Mitch. I know you said you wouldn’t comment on Victoria, but I’m just wondering, Eagle is reasonably proximal to Silvertip. Are there any form of operating synergies there at all? Mitch Krebs: Yeah. Dalton potentially just on a map, but too early to say, not a question that for now is one that’s probably worth trying to answer, but it’s duly noted and something that worth keeping in mind. Dalton Baretto: Great. Thanks again, guys. Mitch Krebs: Yeah. Sure, Dalton. Thanks. Operator: The next question is a follow-up from Mark Reichman with Noble Capital Markets. Please go ahead. Mr. Reichman, your line is open. There you are. Mark Reichman: Hi. Thank you. Just a quick follow-up on Silvertip. Mitch Krebs: Yeah. Mark Reichman: So you’re increasing the investment ahead of the economic analysis and really head of the signing of any off-take agreements to kind of lock in the economics. And so everything seems to be moving in a really good path there, really good direction. But my question is, you mentioned the off-ramp, so if you decided not to move this forward, how much of that $75 million to $90 million would you have spent or how much would you end up kind of writing off of that. I mean in terms of versus the alternative of waiting to spend that money or commit that capital after the economic analysis? Mitch Krebs: No. Fair question. I think, the way we think about it, Mark, is almost everything that we need to do up that we’re doing actually right now needs to be done, no matter what. And whether that is for us, whether that’s for somebody else, if we look to monetize it down the road. These are things that are adding value to the project, when you have a long-term kind of lens on Silvertip. And just pulling back to lens a little bit further, we’re trying to balance as a company a few priorities, right? We want to, number one, POA 11 we’ve got to deliver a successful project there and we don’t want Silvertip. We’ve heard this feedback from a lot of our stockholders don’t let Silvertip take our eye off the ball at Rochester and we have -- we’re very mindful of that and we’re not letting that happen. We also want to -- we’re very committed to that 2023 positive free cash flow objective. We’ve staked a lot on that and I think that’s important for our investors as we think about potentially getting into a place where we can think about returning capital rather than investing capital into our assets, and I think, delaying that out into the future is not a good thing for the company. But then we also we don’t want to strain, unduly strain the balance sheet especially in 2022. And so, those are all the pieces that we’re trying to find the right sort of combination with some variables still unknown to get that mix right and try and ensure that we’re satisfying all of those priorities. And so one of that, with that 2023 goal in particular investing this capital now at Silvertip is really essential to allowing us to kind of achieve that schedule that we talked about a little bit ago with the prior question, in terms of how that 2023 startup would go. In order to do that, we’ve got to do this work now that we’re doing. So I don’t know if those thoughts help, but that’s how we’re thinking about it. Mark Reichman: No. That was really helpful. I really appreciate that. Thanks, Mitch. Mitch Krebs: You bet. Thanks. Operator: The next question is a follow-up from Brian MacArthur with Raymond James. Please go ahead. Brian MacArthur: Thank you for taking my follow-up question. Two things just back to Silvertip. First just I’m really clear because sort of Dalton had a question about that historical concentrate contract and you sort of said, you never met the qualifications, which makes sense. But just to be clear, do they still have a right, because you never met that qualification, so that there is something enforceable with that contract? Did they have a right-of-first-refusal or anything or do we start with a clean slate if we go down that route, meaning we can get, there is no historical concentrate deals that have to be filled first, which would have some impact on the potential financing going forward? Mitch Krebs: Tom, do you want to take that. Tom Whelan: Sure. Yeah. So look it’s fair to say, the company has a strong relationship with Ocean Partners. They were great partners for us, while we are in Silvertip of production. When we were not producing concentrate qualities where they need to be. We sell some off -- the concentrate at Kensington with them. And so, we’ll find a commercial agreement. I think that again goes back to what we’ve been saying all along that a majority of the Silvertip funding of the capital will be funded be an off-take and I’ll just leave it at that. Brian MacArthur: And I guess, to be fair, obviously, if you build a bigger operation, you have more con to play around with anyway. So that gives you more flexibility, right? Tom Whelan: And a consistent attractive product as well, yeah. Brian MacArthur: Yeah. Mitch Krebs: Yeah. Brian MacArthur: Yeah. Mitch Krebs: More… Tom Whelan: Yeah. Brian MacArthur: Okay. And sorry, my second question, and I realize this is not bit of a factor making a decision on Silvertip. But are there tax pools that would enhance whatever returns that you decide you could get at Silvertip if you go ahead, because again as we talk about allocating capital around the world, tax is an important part of the equation? Mitch Krebs: Great question and short answer is, yes. Tom, over to you, do you want to fill in the blank. Tom Whelan: Yeah. No. There is -- we have nearly $300 million of operating losses that will help to shelter some of the taxable income that we will be generating. So, absolutely that is a factor in any capital allocation decision that we make across the company, but obviously helps just with when it comes to Silvertip that the amount of tax that we will be paying is not as high as you might otherwise think. Brian MacArthur: Great. Thanks very much. I thought that was the right, but I just wanted to check. Thank you. Mitch Krebs: Yeah. Yeah. No problem. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mitch Krebs for any closing remarks. Mitch Krebs: Okay. Great. Well, hey, we appreciate everybody’s time this morning and a lot of great questions and we look forward to speaking with you all again in the fall to discuss our third quarter results. Thanks again. Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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Related Analysis

Coeur Mining, Inc. (NYSE:CDE) Shows Promising Growth and Strong Fundamentals

  • Coeur Mining, Inc. (NYSE:CDE) has seen a 30-day gain of approximately 14.25%, indicating strong investor interest and positive market sentiment.
  • The company's stock experienced a 5.87% decline over the last 10 days, potentially offering a strategic entry point for investors.
  • Analysts have set a target price of $10.25, reflecting confidence in CDE's growth potential, with a projected stock price increase of 16.21%.

Coeur Mining, Inc. (NYSE:CDE) is a well-established company in the mining sector, primarily focused on the exploration and production of precious metals such as gold and silver. The company operates several mines across North America, contributing to its robust production capabilities. Coeur Mining competes with other major players in the industry, including Barrick Gold and Newmont Corporation, which are also prominent in the precious metals market.

CDE's recent performance has been impressive, with a 30-day gain of approximately 14.25%. This indicates strong investor interest and positive market sentiment. However, the stock has seen a 5.87% decline over the last 10 days. This dip might be a strategic entry point for investors who anticipate a rebound, given the company's solid fundamentals and market position.

The growth potential for CDE is promising, with a projected stock price increase of 16.21%. This potential is underpinned by the company's strategic initiatives and market positioning. Analysts have set a target price of $10.25, reflecting confidence in CDE's ability to achieve its growth objectives. This target suggests significant upside from current levels, making it an attractive option for investors seeking capital appreciation.

Financially, CDE is in a strong position, as evidenced by its Piotroski Score of 8. This score indicates robust financial health, highlighting the company's solid fundamentals, including profitability, leverage, and operating efficiency. Such a strong score suggests that CDE is well-managed and capable of sustaining its operations and growth.

The recent decline in CDE's stock price has brought it to a local minimum, which could be a buying opportunity for investors who believe in the company's long-term prospects. This strategic consideration aligns with the overall positive outlook for CDE, making it a noteworthy stock pick for those looking to invest in the mining sector.