Coeur Mining Inc (CDE) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings conference call (OPERATOR INSTRUCTIONS). (indiscernible) the conference over to your host Mr. Tony Ebersole, Director of Investor Relations.

Thank you, Stacey, good morning, everyone. This is Tony Ebersole Director of Investor Relations for Coeur. This is our fourth quarter conference call (technical difficulty) the call is also being broadcast live on the Internet through our Website, www.coeur.com. Where in the Investor Relations section you can both hear the presentation and manually scroll through slides, highlighting fourth quarter in year-end information. The slides and audio report of the call will be available for two weeks afterward on our Website.

On the call today from Coeur are Dennis Wheeler, Chairman and CEO; Bobby Martinez, President and COO; and Jim Sabala, EVP and CFO.

There will be a question-and-answer period for investors and analysts 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 involved a number of (indiscernible) risks that could cause actual results to differ from projections. With that, I would like to turn the call over to Dennis.

Thank you, Tony, and thank you, everyone, for joining Coeur today for our fourth quarter conference call.

This past year represents the successful completion of Coeur's restructuring and the final execution of our strategic plan put in place more than two years ago.

Our new generation of low-cost mines in South America continue to lead our near-term growth, while the progress of our major development projects continues to position us to have two new long-live mines in production by early 2006. Lower costs and longer mine lives are two important hallmarks for Coeur's management as we move forward.

All of our previously issued high coupon convertible debentures have been converted or redeemed. And thanks to the recently completed financing, we are in the best position in more than a decade with over $252 million in cash and equivalent, to pursue our existing, as well as new projects.

(indiscernible) Coeur's shareholders have been rewarded as CDE was the best performer among our peers in 2003, increasing more than four fold in the course of the year. And today, we stand with a market capitalization of nearly $1.5 billion, the second-largest North American precious metals Company listed on the New York Stock Exchange. Quite a change considering that in November of 2001 our market cap was a mere $38 million when we began executing our strategic plan.

Today our share price is above $7.00 a share. And I think it is reasonable to say that the market considers Coeur the sliver investment of choice. I think there are a few factors responsible for this.

Obviously our large position as the leading primary silver producer, but also the fact that our sliver production remains completely unhedged, a policy that we intend to maintain. Our consistently unhedged leverage to silver prices has enabled Coeur to significantly outperform our competitors, and give our shareholders superior leverage to silver as well as gold prices.

Obviously, both silver and gold have been responding very well. And the increase in global economic activity, as well as the weakness of the dollar, have continued to spur demand for our metals -- primarily silver, which is the most widely used and essential metal today to economic growth.

As the largest primary silver producer, we believe that the very strong fundamental picture for our metal is going to continue to bode well for the market prices. And we have been in the $6.00 range now with silver for some time, and this is a phenomenon that we have waited patiently for at Coeur for a few years, and I can assure you the management team is focused on intending to take every advantage we can of this price environment.

We now have one of the strongest, lowest cost growth profiles of any of the Company. And our two major development projects -- San Bartolome silver project in Bolivia, and Kensington gold project in Alaska -- are moving towards completion of updated feasibility studies in the second quarter, with construction decisions to follow.

So far, we have had no fatal flaws identified in our feasibility study work at either project. In fact, we have made significant progress. Our feasibility study work at San Bartolome continues to project 6 million ounces of silver production a year at a cash cost of $2.50, over a projected 14 year mine life.

At Kensington, the optimization of this project is framed on mine producing 100,000 ounces of gold a year at an average cast cost of $195 per ounce over the initial 10.5 year mine life with plenty of exploration upsides.

Kensington is still framed as a project expected to cost approximately $75 million based on the work to date, with a construction timeframe of 18 months. So we are potentially looking for production to start there in early 2006. Kensington would increase our Companywide gold production by 90 percent.

At San Bartolome, we have been telling you that the initial cost of construction was estimated at $80 million. We now believe that we have further opportunity to expand the mineral resource at San Bartolome, increase the plant throughput as a result, and improve our silver recoveries based on further metallurgical test work. And we are currently assessing the impact of these changes on project revenues, operating cost and preproduction capital.

With the low operating cost of both projects, Kensington and San Bart will significantly increase Company cash flow, and lower Company cash per ounce. (indiscernible) of the Company. Two further major objectives of Coeur's management.

On the reserve front, our year-end total measured 175 million ounces of silver, and 1.4 million ounces of gold. We had an additional mineralized material classification measuring 75 million ounces of silver, and 1.4 million ounces of gold. In fact, silver reserves increased more than 130 percent over last year's reserve base.

On the gold slide, our reported reserves were adjusted principally and only because of the new Kensington project definition and optimization work going on with connection with the feasibility study -- which is gear to get the project up and running faster, and an early focus on the highest grade material. Please keep in mind that our gold resource at Kensington remains the same. And once we start up the mine, we do look to upgrade those resources into the reserve category.

Our group is still looking at the Kensington property package with a 5 million ounce district gold potential.

I would like to say just one more thing about reserves before I turn the program over to Bobby Martinez, our COO. You know, last year was a major transition for Coeur. And we had the husband (ph) of limited cash resources. We simply were not able to devote as much money or time as we wanted on the exploration front.

Now, we are positioned -- and in 2004, we are stepping up our exploration program spending -- particularly in South America with the full intention of increasing reserves and mine life.

Companywide, we're planning to spend $11 million on exploration this year, more than double our exploration budget in spending for 2003.

We're very confident that our landholdings around Cerro Bayo and Martha hold vast potential for sustained reserve and production growth.

Now I would like to turn the review over to Bobby Martinez, our COO, who will discuss our operations. Bobby?

I would like to start with Cerro Bayo and Martha, which had an outstanding fourth quarter and full-year in 2003. We had 1.1 million ounces of silver produced in the recent quarter and approximately 15,000 ounces of gold for the two combined (indiscernible). Full year production was 4.9 million ounces of silver, or more than one-third of our companywide production. And approximately 67,000 ounces of gold, which is more than half of the total Company gold production.

Since last year, was that last first full year of operations at Cerro Bayo and Martha, total silver production was an increase of almost 50 percent on gold and 56 percent on total silver production in 2002.

Cash cost remained extremely low. In the fourth quarter, our operating cost were 52 cents per ounce of silver. For the full-year, they were 60 cents per ounce of silver. We believe these still rank among the lowest cost silver mines in the world. Current mining is continuing primarily on the Javiera vein, and we're also looking to begin open-pit mining in the Leguna Verda (ph) area, as well as Cerro Bayo itself.

At year-end, the reserves at the two mines measured 15.4 million ounces of silver equivalent.

The next slide, as Dennis mentioned, we have more than doubled our exploration budget companywide for the coming year to $10.7 million -- with the bulk of that being spent at Cerro Bayo and Martha. At year-end, proven and probable reserves at Cerro Bayo 5.4 million ounces of silver and 94,000 ounces of gold.

In addition, mineralized material measured another 16.8 million ounces of silver and 332,000 ounces of gold. We have had a very high conversion rate at Cerro Bayo -- around 70 percent -- moving these kinds of ounces into the proven and probable category.

We are continuing to explore extensions of the Javiera and Wendy veins of the Lucero and Veronica veins -- along with other veins shown in blue on the slide. These are all the (indiscernible) existing workings and can be brought quickly and economically into production.

There are now at least 130 veins identified at in (indiscernible) package at Cerro Bayo that are targets for future exploration and possible development. In 2004, we will concentrate on completing our medium-term exploration strategy.

The next wide shows the Martha exploration targets. The average mined ore at Martha in 2003 was approximately 76 ounces of silver per ton. Total reserves at Martha year-end were 1.4 million ounces of silver equivalent. In addition, there are approximately 24,000 tons of additional mineralized material at a grade of 78.4 silver ounces per ton.

Martha planned exploration expenditures for 2004 are about $2.2 million, a 69 percent increase over 2003. Our drilling focus will continue to be around the R4 Zone, which is also currently being mined. We have been having very good results in this area, finding shoots and extensions of existing veins systems.

Our current reserve levels are averaging 77 ounces per ton silver equivalent. The extension of the reserves at Martha now exceed the parameters upon which the acquisition of the property was picked. We will also be doing some additional exploration work in other areas of the Santa Cruz (indiscernible) where we control 450 square miles. Our goal is to discover 75 million silver equivalent ounces in our holdings within the district.

At Silver Valley, fourth quarter production was 1 million ounces of silver at a cash cost of $4.76 per ounce. For the full year, total production was 3.7 million ounces of silver at an average cash cost of $4.60 an ounce. The cost in both the quarter and full year reflected (indiscernible) our implementation of the long-range development plan that is now underway. The plan will deemphasize production in the short-term, while we focus on development.

The fourth quarter was the first full quarter in this development, and we focused exploration drilling on extensions of existing veins systems.

Our target is ramping production up to 5 million ounces in 2006, and eventually up to 7 million ounces per year in 2007 -- at which time we expect our cash cost to be below $4.00 an ounce. The program has a cost of $14 million.

At year-end, our reserves measured 15.4 million ounces of silver, at an average grade of 21.5 ounces per ton -- and mineralized material of 2.3 million tons at an average grade of 10.9 silver ounces per ton.

Over the 50 years of operations in the valley we have had great success in adding to reserves. And we expect that to continue. The geologic modeling, that is the basis of this current program, is on expansion with existing veins systems.

Highlighted on the next slide are some of the areas we will be developing at the Galena. And we think the multiple exploration targets we have targeted have the potential to develop up to 53 million new silver ounces. We have identified a number of quality targets we can explore between the 5,500 level and the surface.

In addition, we now have access to the upper country, which is designated above the 2,400 foot level, which will be another focus of exploration.

The next slide shows Rochester, which remains a great asset for Coeur. This past year, the mine surpassed 100 million ounces of silver production and 1 million ounces of gold production. And there is a lot more production left. At Rochester, fourth quarter production was 1.4 million ounces of silver, and 11,126 ounces of gold at a cash cost of $4.82 per ounce of silver.

Full year production was 5.6 million ounces of silver and 52,363 ounces of gold at an average cash cost of $4.67 per ounce of silver.

The fourth quarter saw the completion of the new crusher installation, which is the last major capital expenditure at the line, and gives us a much more efficient processing of ore through the remaining mine live. The removal of the old crusher also opens up access to some of the highest grade gold ores -- some of which have already been placed on the (indiscernible). We are still looking to continue active mining at Rochester another three years, at more traditional cost levels around $3.00 an ounce, with metal production continuing to total of eight more years.

As Dennis mentioned, our two major development projects are moving ahead on schedule. The next slide shows wide shows San Bartolome in Bolivia where our big silver project is moving ahead very well. We're on track for completion of an updated feasibility study along with all the necessary permits in the second quarter. At that point, we would be in a position to proceed with the construction decision.

Recent feasibility work in defining the ore body of San Bartolome has indicated the potential to expand mineral resources. As a consequence of this work, we are reviewing an alternative to increase the plant (indiscernible) throughput. Advanced metallurgical test work indicates that changes in the processing circuit may result with increases in silver recovery. The measured and indicated resources are currently under study and Coeur expects this to result in a market increase in the proven and probable reserves -- which were reported initially in July 2003 at 123 million ounces of silver.

Our feasibility work as shown we can commercially recover (indiscernible) as well. We are now assessing the impact of these changes on revenue, operating cost and capital associated restructured (ph) improvement.

So we remain very excited about our progress in Bolivia. This is a major long life, low-cost per ounce project. We have developed good relations with the people of Potosi (ph) where the mine will be, located, and they're looking at this project as a major, long-term stimulus to the local economy.

Kensington in Alaska is also progressing very well. The defining draft Supplemental Environmental Impact Statement was issued in January, which is a big boost to the permitting process. We are expecting all necessary permits to be in place in the second quarter, which puts us in a position for a decision on construction.

Kensington is planned to take 18 months to build, at a cost of $75 million. We have optimized the project in order to get it up and running more quickly. This has impacted the proven and probable reserve level -- since the focus at first will be on the highest grade material. However, our resource is the same, and once we start, we can look to upgrade these two reserves.

We are expecting Kensington to produce 100,000 ounces of gold per year at an average cash cost of $195 per ounce over the initial 10.5 year mine life. We will keep everyone posted as we move forward with both Kensington and San Bartolome.

Now I'll hand things over to Jim for the financial update.

Thank you, Bobby. The major financial events occurring in the fourth quarter and for the full year 2003 were the completion of the Company restructuring and further strengthening of the Company's capital structure. This has continued on into the early part of 2004, when we had our successful $100 convertible notes offering.

As a result, our cash, cash equivalents and short-term investment position at January 34, 2004, was $252 million. This gives us sufficient liquidity to finance the growth projects outlined by Dennis and Bobby and to aggressively pursue new opportunities.

Our revenue were up 6 percent in the fourth quarter over last year and up 16 percent for the full-year 2003 over the previous year. We had non-recurring charges in the fourth quarter and full-year related to the early retirement of debt. Excluding those non-recurring items, the Company would have reported a net loss of 4.8 million or just 2 cents per share in the fourth quarter, and 16.1 million or 10 cents per share for the full-year 2003.

These results were posted in a low-priced metal price environment than exists today. In the fourth quarter, we realized $5.18 for our silver, and $359 for our gold. Yesterday, gold was quoted at -- excuse me, silver was quoted at $6.73 per ounce, and London Gold at $414 per ounce. Had current metals prices been in effect in the fourth quarter, the Company would have reported a profit. I will have additional comments on our price leverage in just a moment.

The next two slides give a snapshot of production and a summary balance sheet. Last year, silver production was down just 4 percent, due mostly to the implementation of the long-range development plan at Silver Valley and the crusher relocation project at Rochester. This was balanced out by the strong performance in Cerro Bayo and Martha.

Total silver production was 14.2 million ounces compared to 14.8 million in 2002. Gold production was 120,000 ounces, compared to 117,000 in 2002 due to the strong performance at Cerro Bayo. And for the entire 2003 we produced 22.5 million silver equivalent ounces compared to our announced target of 22.4 million ounces -- thereby achieving our estimates provided for the year.

Metal sales were up 25 percent for the year to 107 million, which was a combination of consistent silver production, higher gold production and higher metals prices. Cash costs were up 13 percent from a year ago, again, due largely to issues previously discussed affecting Rochester and Silver Valley.

The next slide shows an overview of the balance sheet which gives effect to the recent $180 million notes offering, as well as our announced redemption call of the remaining $9.6 million convertible debentures due in 2005 which was announced in February. Taking into account the offering and redemption announced in February, our cash equivalents and short-term investments position would be a very healthy $245 million.

Total assets are $428 million, our outstanding indebtedness comes from the recent notes offering, which carry an interest rate of just 1.25 percent, and our convertible into equity at $7.60 per share.

As a result, our total debt position represents just 10 percent of our total market value capitalization. Shareholders equity stands at 196 million, so we are very healthy financially which guess us tremendous flexibility as we look ahead to our development project.

The next slide shows our EBITDA leverage to silver and gold price movements. We have no silver hedged and only nominal gold hedged. As a result, changes in metal prices report directly to the bottom-line.

For next year, every 10 cent move in silver prices impacts EBITDA by $1.4 million on an annualized basis, and every $10 move in gold prices impacts EBITDA by 1.2 million.

As mentioned, core stock price performed very well last year, far outperforming major indexes and the underlying metals themselves.

Against the S&P and the XAU (ph) Coeur was up on a relative basis 193 percent versus an increase of 22 percent for the S&P, and 40 percent for the XAU.

On the next slide we see that gold stock price last year well out performed both silver and gold. Coeur's 193 percent share increase measures against the 20 percent increase in gold prices, and a 23 percent increase in the price of silver. This would support the consensus that investors prefer equities to buying the metals themselves.

At this point, I would like to turn the presentation back to Dennis for some closing remarks.

Thank you, Jim. We are looking ahead this year at Coeur as one of continued major improvement and growth. We fully expect to remain number one as the leading primary silver producer, and our cash position puts us in a very strong position -- not only to fund increased exploration and continue forward with our development projects, but also to look at new business opportunities that may take Coeur to the next level of growth. Both of our new projects are low-cost, have long mine lives and will significantly increase over all gold and silver production and cash flow growth.

We are accelerating our exploration program, designed to develop low-cost reserves, extend mine lives -- particularly at our young South American mines. But I can assure you we will not lose focus on reducing cost, increasing production, cash flow and ultimate profitability.

We're in a position to expand our horizons now, and as you know, we have recently entered into agreement for early stage exploration work in Mexico and Tanzania. But our entries there will be measured, disciplined, focused and slow.

For example, our first year Tanzania budget will be only $360,000 -- the initial surveys of the licenses we have acquired there.

We think that these two countries and regions offer significant opportunity, new horizons for silver and gold, discoveries and growth. And they will assist us -- we are confident -- along with our new projects to demand the leading primary silver producer, and the silver stock of choice.

I think that concludes our formal comments today. And now, we would be happy to entertain your questions.

(OPERATOR INSTRUCTIONS). Michael Dudas, Bear Stearns.

Good morning, gentlemen. A question, maybe, for Jim -- adding up all the capital that you will spend on current operations, what is the capital budget capital budget look like for 2004?

It's going to be about $9.5 million for all of our sustaining capital projects, Mike.

Secondly, from a top-down of hedging going forward -- could you review for us how you look at the hedging aspect for silver and for gold? And primarily in conjunction with the two major development projects you have onboard?

Well, our hedging policy is very clear -- that, we don't intend on doing any of it. As you know, our silver production is totally unhedged, has been. We did have nominal gold production hedged, which was a result of a decision to maximize the operations of the mine, since gold by product is a significant component. But we have not hedged gold at all through the course of the second half of last year. And we have no intention on doing it at this time.

Question for Dennis -- as you, obviously, the Company has made tremendous strides in where it is today from where it was a few years ago. When you look forward, will we expect most of the efforts of core going forward as to better maximize and develop the discoveries and the projects you have currently as we see them now? Or, again, with this horizon of opportunity -- especially in the very positive trend for commodity prices -- do we expect Coeur to go through, and maybe get to other countries and other minerals, over the next three to five years?

We don't have any intention, Mike, to divert our focus (indiscernible) as the silver Company. We don't have any exploration programs planned for other metal. We are focusing very clearly on the Kensington and San Bartolome.

But by the same token, I think we have an obligation to our shareholders to size up any new business opportunities that come our way that might offer immediate production cash flow and growth to see how they stack up. I don't have anything to say about that particularly today, but we are always looking.

Dennis, one final thought, from you, relative to the silver market -- again, we have been seeing silver prices above $6.00 over the past few months. From your analysis and the people you talked to at the silver Institute and some of the folks -- give us just a little brief of how you guys are looking at the supply-demand fundamentals going forward up for this pretty volatile metal?

We are all aware of the recent announcements in the photographic sector, so I will not going into those in detail. I think on balance, it is the new areas of silver consumption in the technologies and medical (indiscernible) application areas, for example, that continue to excite us. And also the clean water (indiscernible) treatment areas. And we think that we are going to continue to see a picture going forward where total demand for silver exceeds supply. And that we are going to continue to have deficits to deal with. And I think that is the overall picture that we are keeping our eye on at Coeur.

Thank you, Dennis.

Barbra Murdock (ph). Private investor.

Is there any way to project the movement of the stock price?

I am sorry, I could not hear that question, could somebody assist me?

Yes, I will repeat my question. Is there any way to project the movement of the stock price?

We have never gotten into the business of forecasting stock prices on any kind of a sophisticated market basis. We are so dependent on the actual movement in the metals prices themselves, where we continue to enjoy, today, some of the best volatility in the sector to movements in prices and leveraged our shareholders. So that to the extent that gold or silver prices continue to move positively, we would expect that we would see greater leverage and higher share prices at Coeur.

Thank you.

Jeff Sview (ph), Private investor.

Hello, Dennis, Bobby and Jim. A couple of questions for you -- but first congratulations on San Bartolome, certainly one of the world's Premier mining properties -- you've done a great job bringing that in.

Secondly, regarding the Coeur d'Alene mining district and more specifically the Wire (ph) silver vein that runs through your Coeur and Galena mines, and continues on through to the Old Sunshine mine -- a precious metals information site on the Internet indicates a Company called American silver mining owns the claim between your Coeur d'Alene mines, and the Old Sunshine mine. Does Coeur d'Alene have a long-term exploration lease controlling that adjacent American silver mining Company claims?

Well, I think that it would not be appropriate for me to talk in terms of merits of the American silver wire silver vein, other than to say that you know, historically -- a number of years ago, work has been done on that vein. We had an agreement in place with American Silver for a number of years. We don't have any specific plans to highlight work in the American silver property as such. It lies in prospective ground, for sure, but I think we have laid out our overall approach to our long-term exploration program.

I am not suggesting in any way there is not potential at that property, but I will not say that we are focusing on it either.

The other one was probably for Jim. With the nice advantage of having some good loss carry forwards for tax purposes, how is that going to flow out as far you are looking at it in the future, ex-loss carry forward situation with Coeur?

Tax loss aren't -- I would say, income taxes aren't a big concern for me at this point. Because of the tax loss carry forwards. And within our planning horizon of three to five years, I don't see that becoming an issue. The reason simply is, is we do have the tax loss carry forward, number one -- but number two, we have some active development projects going on in a number of jurisdictions. And under the tax law the majority of developmental expenditures are deductible up front on a project. So when business is good, and you're building project, taxes are not a big concern. And then we've got the benefit of the tax losses behind that.

Very good. Thank you, gentlemen.

(OPERATOR INSTRUCTIONS) Adam Graf, Bear Stearns.

I guess a question for Bobby regarding South American operations. I was wondering -- it appears as if silver production seems to be trending down, presumably as less production comes from Martha. What guidance can you give us, if any, regarding production in '04 from the combination of San Bartolome, Martha, specifically on the silver side?

Well basically, the majority of the reduction of production was because of the (indiscernible) out of the (indiscernible) deposit around Cerro Bayo in 2003. The Martha has been very successful. We have over doubled our reserves there. And currently, they are going to be providing about 40 percent of the silver that is projected for next year.

So I expect that the resources that we discovered this year are going to be converted to reserves. I still hope that we're going to be able to improve upon that.

Do you have any guidance, just regarding expected sales levels from South America on the silver side? Do you expect it to be less than the 4.8, 4.9 million ounces you guys were able to generate in '03?

I am sorry, I missed the first part of that.

Just regarding silver production levels from South America, do you expect -- in what ballpark do you expect -- do you expect to be similar to the '03 levels of 4.8, 4.9 million ounces?

It will be fairly close.

And is that a sustainable level going forward, as you see it?

Right now, yes.

Arthur Thomson (ph), Smith Barney.

I just want to ask a question of the cash that you have. You have a pretty sizable amount of cash. What do you intend to do with it?

Well, our two development projects, to continue to progress those to a favorable feasibility study outcome and a construction decision. Those would require approximately, as we see it today, $160 million in capital spending. That exploration program increase that we talked about of nearly $11 million, and the pursuit of some new business development activities. And any mix of those that at the end of the day, generates the best return for our shareholders.

Thank you.

At this time, Mr. Wheeler, there are no further questions in queue. Please continue.

Okay, well that wraps it up for today. If you have any questions, by all means follow through and give us a call. And thanks again for your interest at Coeur and we will go back to work.

Thank you, ladies and gentlemen. This conference will be available for replay after 1:30 PM today, running through February 26 till midnight. You may access the AT&T replay system at any time by dialing 1-800-475-6701 -- international participant's dial 1-320-365-3844 and entering the access code of 720497.

That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.