Coeur Mining Inc (CDE) 2003 Q3 法說會逐字稿

Welcome to the third quarter results conference call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions and comments and instructions will begin at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, director of investor relations. Mr. Tony Ebersole.

Thank you, Tom, good morning everyone. I'm, Tony Ebersole Director of investor relation for Coeur. This is our third quarter conference call. The call is also being broadcast live on the Internet through our web site www.coeur.com where in the investor relations section, you can both hear the presentation and manually scroll through the slide, highlighting third quarter information. The slides and audio replay of the call will be available for two weeks afterward on our web site.

With me today are Dennis Wheeler, Chairman and Chief Executive Officer of Coeur; Bob Martinez, President and Chief Operating Officer and Jim Sabala, Executive Vice President and Chief Financial Officer. There will be a question and answer period following a brief presentation by management.

As most of you are aware, any forward-looking statements made today by management come under the Private Securities Litigation Reform Act of 1995 and involve a number of risks that could cause actual results to differ from projections. And with that, I would like to turn the call over to Dennis.

Thank you, Tony, and welcome everyone to Coeur's third quarter conference call. Since we last spoke with you when we reported on the second quarter, we believe that Coeur has continued to make significant progress on a number of key objectives that have significantly strengthened our company and allow us to actively move ahead on our growth projects. Most significantly, we're in the strongest financial condition in almost a decade with the just completed successful stock offering in September where we added $76 million of cash to our balance sheet, providing the financial resources we need to continue growth.

The response to the offering, we believe, was a reflection of the underlying fundamentals of Coeur and its growth prospects, as well as of course, the continued strength of the silver market. Today, silver prices are $5.14 an ounce, representing an increase of 16 percent from last year at this time with a clear upward trend emerging for the balance of the year. The underlying fundamentals in the world's most widely used metal remain found, tied in part to the overall economy which continues to improve. As the largest primary silver producer and with all of our silver production unhedged the policy of Coeur, we think our share price has reacted much more positively to silver price movements than our competitors'. And of course, gold has also been very favorably acting in the marketplace since April of this year, today holding at $384 an ounce, and we believe that expectations for both metals remain positive based largely on strong underlying fundamentals.

I am pleased to tell you today that we will remain on track for a strong company-wide gold and silver production for the year. Our cash costs are on target, declining as we speak and as the year progresses as we indicated we felt they would during our last conference call.

Looking at your nine-month slide, the first nine months of this year have seen our cash cost declined 9 cents an ounce, or 10 percent below the cash cost for both the first six months of this year and 9 cents below the nine-month period of a year ago. Much of the improvement in cost came through our ongoing successful efforts at Rochester, which we described for you last quarter to continue to improve our performance during the completion of the crusher relocation project. The project is now completed, online and within budget and with a new pressure in place, we're looking forward to greater efficiencies and throughput for the remainder of the Rochester mine's life.

Our South American operations continue to perform well. At Cerro Bayo, we saw growth in gold and silver production for both the third quarter and the nine-months with cash cost remaining at an extremely low $1.18 (technical difficulty) in the most recent quarter, compared to 73 cents per ounce for the nine-month period largely as a reflection of the decision to increase our development efforts there. And we believe that Cerro Bayo will continue to be one of the lowest cost silver mines in the world.

Because of our ongoing exploration success in South America, we've accelerated our drilling programs there and we've increased the exploration budget by a combined 35 percent at Cerro Bayo and Martha for the remainder of the year. And we continue to find new veins and extend the known existing vein systems at these highly prospective properties and remain on target to add nearly 267,000 gold equivalent ounces in new resources this year, which represents 18.7 million silver equivalent ounces at a very low discovery cost of less than 10 cents an ounce.

Our long-range exploration plan at Silver Valley is underway. Exploration drilling and development work the first key part of the plan commenced during the third quarter. We know that Silver Valley remains one of the world's richest silver regions and we have the key land position there and it remains and will remain one of our major long-term assets. The initial part of the expansion plan involves bringing in new reserves designed to expand production to 7 million ounces a year level by 2006, which would represent a 40 percent increase in our production at Silver Valley, while lowering our cash cost to below $4 per ounce, a key target there. We have seen strong improvement in our operations and cash costs have resulted in significantly improved cash flow. A positive $6.4 million EBITDA for the first nine months, which represents a $13 million improvement from a year ago.

We believe your company remains in a unique position to continue its dominance as the world's largest primary silver producer. Our balance sheet today is strong, with nearly $94 million and cash and equivalents and short-term investments with zero net debt. We now have the flexibility needed as we continue to explore for new low-cost ounces at our existing properties, as well as accelerate the development of our two development stage (ph) projects now in the final feasibility process -- Kensington and San Bartolome. The projects are on track and they have the potential internally to double production on both a silver equivalent and gold equivalent basis.

I'm sure many of you are aware of the political change that has taken place in Bolivia, so I thought I would take just a few minute's to give you at least Coeur's perspective on the changing government in Bolivia. As you probably know, former President Goni (ph) has resigned and has been replaced by the newly named president, former vice president Carlos Mesa. It is important to note that new president Mesa was installed according to the procedures established by the Bolivian Constitution and represents a continuation of the democratic processes established for Bolivia. The United States State Department has recognized the new government and upon resignation of the former president, all demonstrations immediately ceased and peace and normality have been restored.

We expect there will also be positive changes in the Ministry of Mining going forward, which will be positive for Coeur and should facilitate further progress at San Bartolome.

In summary, I can tell you that we are on very solid ground with the new government, and if anything, we think our position has improved. It's an opportunity for the new government to continue to show progress in creating new jobs and economic revival, and we know them well and we're confident that it's going to be beneficial to San Bartolome. So we're excited about what we're seeing, both within the Company and in the precious metals markets themselves. Standard & Poor's has recently improved its outlook on Coeur from negative to positive, obviously a welcome update on the prospects of the Company by one of the two major rating agencies and a reflection of the efforts of many people here at Coeur.

We are also very pleased that yesterday, CIBC World Markets initiated analyst coverage of Coeur with an initial sector outperformed rating. This is going to again broaden Coeur's exposure in the investment community, something that we constantly work at on behalf of our shareholders.

Now I would like to ask Bob Martinez to give us a third quarter and nine-month review of operations. Bobby?

Thank you, Dennis. I'd like to start with Cerro Bayo and Martha, where we continue with very positive results for both the third quarter and the first nine months. Third quarter silver production decreased 31 percent over last year’s third quarter to 1.2 million ounces. Gold production was consistent at 15,220, compared to 15,089 in last year’s period. Cash and operating costs in the quarter were $1.18 per ounce, and very close to the 91 cent per ounce in last year’s third quarter. Cash costs were slightly higher due to new vein development in Javiera which will be in full production in the fourth quarter. For the nine-months period, silver production more than tripled to 3.8 million ounces; gold production grew 2.5 times into 52,173 over last year's first nine months. Cash cost through the first three quarters were 73 cents per ounce of silver, a reduction of 48 cents an ounce from the $1.21 per ounce in the first nine months of 2002. This Dennis mentioned, we think operating costs at Cerro Bayo remain among the lowest per ounce of any primary silver mine in the world.

In the third quarter because of the success we've had in South America, we have expanded our exploration budget by a combined $900,000, or 35 percent at Sara Bayo and Martha. We're continuing to locate new veins and vein systems and extensions of known veins and we still are on target to add 267,000 ounces of new gold equivalent resources by year end, much of which will be upgraded into reserve status.

Next slide shows some of the expanding exploration targets around Sara Bayo, where we are continuing to have a great deal of success. The light green on the map shows exploration targets during the third quarter and in blue, our planned targets for the fourth quarter. We have had continued good success on the Javiera Sur vein, which is an extension of an existing vein and on the new Veronica vein just to the east where a recent fixed high-grade drill intercept recorded 27 feet of .77 ounces per ton of gold equivalent. A third production portal was added recently into the Javiera vein (indiscernible) this newly discovered extension and the Veronica vein can be brought into production quickly and economically. So far this year, we have drilled 106,000 feet and 270 holes at Cerro Bayo using three (indiscernible). The total 2003 exploration budget for Cerro Bayo is now at 2.2 million, which represents a 22 percent increase over the previous budget.

Next slide is of the Martha exploration targets. We also increased the exploration budget there in the third quarter by $500,000, or 63 percent to a total of 1.3 million for all of 2003. Work now includes two full-time drill rigs and one reverse circulation rig around the existing mine. Recent drilling continued to look for extensions of the high-grade metallization around the R4 Zone located just southeast of the Martha vein on the map. This is an area of very high-grade horseshoes just 600 feet from the Martha mine along the eastern extension of the Martha vein. Average grades in the R4 Zone are in excess of 100 silver equivalent ounces per ton. Current exploration is delineating both shallow open pit reserves and a southeast extension of the R4 Zone. Based on information from this new drilling, we're putting together a new geologic model for R4 which will be used in defining new resources and reserves.

At Silver Valley on the next slide, third quarter production was impacted by the temporary suspension of operations in the third quarter while maintenance work prepared the mind for startup of our long-term development plan. The Galena mine has been back up and running since mid-August. Third quarter silver production of .4 million ounces, a third of last year’s third quarter production, is a direct result of the temporary suspension of our operations. Cash operating costs were $5.46 per ounce in the quarter due also largely to the suspension. This also showed up in the nine-months period with cash cost of $4.62 compared to $4.20 per ounce for the same period a year ago.

The next slide gives an overview of what we expect from our work the next couple of years at Silver Valley, a program designed to increase production and lower costs through the year 2010. We are expecting production to increase to 7 million ounces by 2006, or 40 percent above current levels and costs are expected to decline below $4 per ounce. We think with the multiple exploration charges we already know about that there is a potential to develop up to 53 million new silver ounces.

Highlighted on the next slide are some of the areas we will be developing in Galena. The early focus of this optimization work is on exploration on a number of new high-grade silver veins above the 5200 foot level and extensions of the more prolific vein systems at depth, both key to the success of the find. We've also identify a number of quality targets we can explore between the 5500 level and the surface. In addition, we now have access to the upper country above the 2400-foot level where we have begun development activities, which will be another focus of exploration. Because of proximity to existing operations, newly discovered ounces can be brought quickly and economically to production, either through the Galena facilities or the existing shaft and mill at the core.

Next slide shows Rochester where we're glad to report we've finished the removal of the old crusher and the installation of a new state-of-the-art crushing facility. We mentioned earlier this year when costs were higher due to the project that we took a number of remedial measures to lower cost by year end. I'm pleased to report that the measures implemented have been successful. Cash costs were at $3.66 an ounce during the quarter, a decline of 15 percent from the second quarter and 43 percent from the first quarter. With the new crusher now in and giving us greater throughput and efficiency, we should see a stabilization of costs returning to their lower historical levels. Moreover, we're now in the position to access some of the highest-grade (indiscernible) at the mine, which are located under the old crusher. So operationally in the third quarter, we have positioned ourselves at both Rochester and Silver Valley to improve future performance. With that, I will turn things over to Jim for the financial report.

Thank you, Bob. The major financial event during the quarter was the completion of the equity offering of 23.7 million shares which raised 76 million in capital for the Company's funding of its growth initiatives and thereby significantly strengthening our balance sheet. This now gives us cash equivalents and short-term investments of over $94 million and puts us in a net debt zero position with debt of only $18.7 million. During the period, we did see cash costs increase slightly over the previous year, however, that was due to the factors Bob mentioned, which were the issues relating to the Rochester crusher relocation and Silver Valley's temporary shutdown associated with certain maintenance items. However, a key factor has been our EBITDA, which has grown to $6.4 million from the prior year, a positive $12 million swing from the previous year.

The next two slides give us an overview of the third quarter and of the nine months. In the third quarter 2003 compared to last year, we saw silver production bounce slightly by 1 percent due to the temporary suspension of operations at Silver Valley in connection with our maintenance program associated with the expansion program there. I'm pleased to report that operation is back in production and operations are normal. Gold production (indiscernible) 10 percent, which was the difference at Rochester in the quarter, not untypical of Rochester and something we expected, and actually a very good performance when you take into account the crusher relocation. I'm also pleased to report the crusher relocation is complete and we expect costs which have shown significant improvement during the course of 2003 to continue to improve.

While cash did increase 4 percent due to the maintenance of core (ph) Silver Valley and the crusher relocation, we expect costs at both of these operations to improve in the future. In addition, one bump in the road in connection with the shutdown at Silver Valley, we had the effect of lowering metal sales by about $1 million. Again, since that operation is back (indiscernible) operation, we would expect that not to be an issue in the future. For the nine-month period, all-important trends remain very positive and we're on track. Silver production was up 7 percent to 10.7 million ounces, gold production is up 27 percent from last year’s nine months at 93,410 ounces, metal sales are up 29 percent and operating cash flow before working capital changes improved to a positive 5 million from a minus 13 million in last year’s comparable period, representing a positive swing of $18 million.

On a per-share basis exclusive of the charges for interest expense and losses related to the early retirement of debt, we would have shown a loss of 6 cents per share, a significant improvement from the 51-cent per-share loss in the first nine months of last year.

The next slide shows an overview of the balance sheet which has improved dramatically over the past quarter. As mentioned earlier, cash equivalents and short-term investments stand at a healthy 94.2 million; total assets stand at $268 million and we have eliminated -- or excuse me -- we have just 18.7 million in convertible debentures outstanding after the elimination of an additional 42 million in convertible indebtedness during the quarter. this leaves us with a net debt position at zero and total debt as a percentage of our total (indiscernible) now stands at just 8.7 percent. So our balance sheet is strong, which gives us tremendous flexibility to continue our exploration programs and the development of new projects which we have in inventory and which are ready to be further studied. So with that, I turn the presentation back to Dennis for closing remarks.

Thanks, Jim. This slide shows the dramatic increase in the value priced on Coeur in the marketplace. We have seen 130 percent rise in your share price from $1.39 on June 30th to $3.25 on October 17th. Our market capitalization has more than tripled close to $700 million. And during the same period, silver prices have risen nearly 9 percent. Because of our consistently unhedged leverage to silver prices, we have outperformed our competitors as well in the gold and silver market. We think this is a strong message set by the marketplace on the future of your company and in silver. We're not going to slack off, even though we're in the best position in years as we close in on 2004. Our cash position and our balance sheet is strong; operating costs are coming down, but there is more to do. We have exploration and development in existing (indiscernible) designed to raise our future production and lower cost and we're making very good progress in the two development projects which will significantly increase future production at very competitive operating costs, and we remain positioned finally to capitalize on metal markets, particularly silver that remains robust. Those are the ends of our formal comments, and we will be happy now to entertain your questions.

(Operator Instructions). Mike Curran (ph), CIBC World Markets.

Good morning gentlemen. I was wondering, the nice drill hole from Veronica, the .77 ounces per ton gold equipment, could you give us more of a breakdown on how much of that would be gold? Is it sort of half gold, or is that mostly still high-grade silver?

Basically, that will be about 50 percent silver and 50 percent gold.

So definitely higher than the average grade that you've been mining at Cerro Bayo for the last year or so?

Yes, I would say so.

That's great.

(Operator Instructions). George (indiscernible), a private investor.

Hi, gentlemen. I'm a new investor in the Company, and I wonder if you can describe to me your operations from the time you bring the ore to the surface -- what happens to it from that point on? Do you do your own refining of the ore, making it ready to be sold to the public? And how do you lock in your price? Do you do forward sales on the anticipated amount of silver you're going to refine?

George, we appreciate your interesting quarter. You have asked a multifaceted question with regard to the different operations, the responses will vary. I mentioned to you that we do not hedge silver at Coeur, we produce either concentrates or dore (ph) at our mines that are sold to refiners. What I'd like to suggest is that in order that you can get a good grounding of the Company, and we're appreciate your interest, you can contact Tony Ebersole, our investor relations director who's number is on the press release, and he will be able and willing to talk to in more depth about the Company, and if necessary, he will involve Bobby Martinez from an operations point of view, and I think you will be on solid footing.

All right, thank you.

Adam Graf, Bear Stearns.

Good afternoon gentlemen. I just wanted to ask my favorite question again about the Cerro Bayo delivery schedule as you guys see it going forward, and how much was left sort of on the dock, so to speak, at the end of the third quarter?

Good to hear from you again. With regard to our delivery schedule at the end of the quarter, we had virtually a full quarter's production sitting right on the dock. The boat left the port I think the second or third of October, which was that boat's normal schedule.

In terms of shipments -- so that shipment will settle during the course of the fourth quarter. In addition, we have planned now an additional shipment, and depending upon the boat schedule, would likely go in November -- late November, mid-November-ish, which would be the second settlement for that particular quarter.

So, taking those two shipments into account, probably will it average a normal shipment, assuming (multiple speakers)

It will be a little bit larger, Adam.

A little bit bigger than normal?

Yes, it will probably be about one-half times the normal quarter.

And are operations scheduled to go at a regular pace through the December period? Is there a rainy season or something like that that affects operations down there?

No, it is the middle of summer down there.

And that's not the rainy season?

No.

Okay, thank you.

Terence Orselin (ph), TSO & Associates.

Thank you, good afternoon. Obviously you're getting a lot of exploration success, and it is giving you every reason to spend more for 2004. Could you give us some indication of the budget you're entertaining and your thoughts and to how the dollar's going to be spent on the share activity?

Well right now, our preliminary plan, and realizing that we have yet to finalize our 2004 plans and budget, but we are looking broadly at an $18 million exploration program over the next three years.

2004, 2005 and 2006?

Yes.

And the focus next year is going to be where, Dennis?

Were going to stay within our existing mine sites, for the most part.

Come back to -- you commented, and I'm glad you highlighted the Bolivian situation. Donnie (ph) has been a friend of the mining industry and his family owned the mining stuff, so that's fine. But the Bolivian never really was in the bank's -- let's call it goodwill -- section to loan money and all that. I was hoping the natural gas business (indiscernible) improving the Bolivian situation. I'm kind of baffled that a major project of natural gas has set back the government and gone ahead to go. In the meantime, I'm wondering in terms of projects, there is only very few, and you rank very high, in terms of coming into the mining sector. Am I correct?

Yes.

So how do you see this thing playing out, because the new President, the ex-VP I think he's (indiscernible) 2007 probably will not last because he wants to call an early election, and I think your position is mostly the natives, which want to control the government. So I don't know how this is going to play out, although biggest strike element was the miners themselves and the coca growers on the street?

I think you obviously have done your homework. You have outlined the landscape there well, Terry, and are welcome to this morning's call. I think a couple of comments, maybe. First of all, most -- I think the number one issue with regard to the gas project was the decision by going to route the pipeline through Chile. Now, whether or not that is the right operational decision, who knows. But there is a historic relationship between the two companies that is sometimes fiercely competitive, and I think that raised an issue as to whether or not that was the proper route. We have -- I'm glad you mentioned the natives in Bolivia -- we have, as you know, a number of strategic alliances with all of the major mining cooperatives in Potosi that represent the mine workers. And these cooperatives are going to provide most of the workers for the development and operation of that San Bartolome. And our relationships there in the community remain very strong. So while Goni was a president obviously well-versed in mining with his own the mining company Com Sur (ph), from time to time, I think that presented some questions in the people's minds there. And as I say, we know the new players in the government well and our management down there does and we're very comfortable that San Bartolome is going to remain on track.

So you don't schedule and you're committed to the project and you don't see any slippage, right?

Don't see any issues now. The feasibility study is moving forward favorably on all tracks and we expect it to be completed on schedule during the first quarter.

Thanks, Dennis.

Tripp Sheppard (ph), Axle (ph) Capital.

Good afternoon. Can you tell me when cash flow from operations will turn positive?

Sure. Let's take a look at where we are actually for the quarter. The quarter we were virtually there. We had a small deficit of $200,000. Now let's analyze what went during the quarter so we can determine what impact that would've had on a pro forma with the events that we know. First off, we know that we have 34 cents change in silver price, between what that is realized and the activity we've seen in the market since then. So when you apply the factor alone to our production factor, you would see that we would get up to a positive operating cash flow. Secondarily, there is one other factor we had. We did indicate that Coeur's Silver Valley was down due to a temporarily maintenance situation in connection with the expansion plan, and that also had the impact of delaying about $1 million out of the Company's cash flow. So absent those two items alone, we would add a significant positive operating cash flow.

Thank you.

Gentlemen, there are no other questions in queue at this time. Please continue.

Again, we'd like to thank everybody for joining us in today's conference call. If you have any further questions, please contact Tony, and we look forward to the balance of the year and keeping your apprised of the developments at Coeur. Thanks again.

Ladies and gentlemen, this conference will be available for replay after 4:30 p.m. today until October 30th at midnight. You may access the AT&T executive playback service at anytime by dialing 1-800-475-6701 and entering the access code of 701799. International participants may dial 1-320-365-3844. That does conclude our conference for today. Thank you for your participation.