Coeur Mining Inc (CDE) 2004 Q4 法說會逐字稿

Welcome to the fourth quarter earnings full year 2004 results conference call. At this time all participants are in a listen-only mode. Later we will conduct a questions and answer session. Instructions will be given at that time. If you should require assistance during the call please press star than zero. As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Mr Tony Ebersole. Please go ahead.

Thank you, Greg. Good morning, everyone. I'm Tony Ebersole, Director of Investor Relations for Coeur. This is our fourth quarter and full year 2004 results conference call. The call is also being broadcast 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 the slides highlighting fourth quarter and 2004 information. The slides and audio replay of the call will be available for 2 weeks afterward on our website. On the call today from Coeur are Dennis Wheeler, Chairman, President and Chief Executive Officer, Jim Sabala, Executive Vice President and Chief Financial Officer, Don Birak, Senior Vice President of Exploration, Ray Threlkeld, President of South American Operations, and Harry Cougher, Senior Vice President of North American Operation. Any forward-looking statements made today by management come under securities legislation of the United States and Canada and involve a number of risks that could cause actual results to differ from projections. With that I will turn the call over to Dennis.

Thank you, Tony, and thank you for joining us this morning. I am very pleased to report this morning, with the other members of Coeur's management team, the Company's profitable fourth quarter 2004 results which reflect the successful completion of Coeur's strategy which has now shifted our focus to development of our new low cost mines, expansion of our exploration to development new low cost ore reserves, and improved Company operations capability. This focus has not only improved our profitability but strengthens Coeur's position as the premiere silver investment, exploiting our vast exploration holdings at very low discovery costs at or near our existing low cost operations. You've seen the results of this strategy reflected in our fourth quarter net income of $13 million compared to a loss of nearly $13 million in the same period of 2003. Included in our 2004 quarterly profits are $1.8 million of operating income, nearly $9.1 million of tax benefits associated with the expected utilization of past net operating losses and $2.1 million related to the reduction and depletion and income taxes for the year. Both gold and silver production levels were very strong in the recently completed quarter.

Our silver production was up 23 percent from the previous year to 4.3 million ounces. This was an improvement of 43 percent from the third quarter of 2004. Our consolidated gold production, meanwhile, increased 80 percent to 47,000 ounces quarter to quarter with strong production at both Rochester and Cerro Bayo. And our fourth quarter gold production was up 46 percent from the same period in 2004. The fourth quarter was marked by significantly lower consolidated cash costs thanks to the efforts of our operations group, which were $2.22 per ounce for the quarter, a reduction of 36 percent from a year ago and 49 percent lower from the third quarter of 2004, in large part assisted by our increased gold production levels. In South America our young mine Cerro Bayo and Martha had excellent fourth quarter and full year results with strong metals production and low operating costs, $0.60 per ounce of silver net of gold production credits in the fourth quarter and $2.07 per ounce for the full year. Also our exploration results exceeded even our own expectations and continued to extend the mine life in South America.

Our cash position at year-end, at $322 million with zero net debt, gave Coeur its strongest balance sheet and financial position in over a decade and the financial flexibility to fund our growth projects including San Bartolome and Kensington. And also continues to allow us to look for new opportunities to further expand Company-wide production, reserves and cash flow. Construction activities have commenced at San Bartolome, our newest major silver project for an excellent construction and operate team are now in place and moving the project towards 2006 start up. And Ray Threlkeld, the head of our South American group, will have more to say about that later on this morning. San Bartolome is expected to produce approximately 8 million ounces of silver production annually which will increase our total silver production by 56 percent over 2004 levels with anticipated strong cash flows at existing silver prices. We are also pursuing newly identified optimization opportunities to further reduce capital expenditures and operating costs. Consistent with our policy we confirm to you today that none of our silver or gold production is hedged which continues to allow our investors maximum leverage to gold and silver price movements.

Interesting, last week Coeur stock reached its high for the year, trading as high as $4.50 per share, representing a 19 percent increase from the beginning of the year. Silver prices since the beginning of the year have increased 18 percent, demonstrating our direct high price correlation to silver prices. We continue to maintain our position as the largest primary silver producer, producing 14.1 million ounces last year, more silver from primary silver mines than any of our competitors and a level consistent with our previous year while we await the start up of our new mines. Gold production was strong as well for the full year, totals up 8 percent to 129,000 ounces. And I believe that one of the great stories for Coeur in 2004 was the outstanding year we had with our exploration group who increased silver reserves nearly 12 percent to a total of 196 million ounces, a new record for the Company. Due to the success of this program Don Birak, who will describe this in some detail later, we have expanded our exploration program for 2005 with most of this increase drilling to take place at our extensive land holdings near our existing operations.

Company cash cost in 2004 were a competitive $3.66 per ounce of silver, less than half of today's current silver market price. We continue to strive to maintain our leadership in the silver space because we think that in addition to strong production, we also have the industry leading internal growth profile and plans in place. The construction of San Bartolome, now underway, with the expected production level in 2006 at 8 million ounces of silver per year, will represent a 56 percent increase over last years level. We saw reserves triple at our 2 young South American mines at load discovery costs which we expect will lead to further future low cost production. Meanwhile here at home we continue to develop new reserves at Silver Valley in Idaho, where we have been producing silver for more than 50 years. Our current program at Silver Valley, when successful, would double current production rates there. And we are also seeing on growing progress at the Kensington project in Alaska, where we are growing our gold production through the development of that mine designed to add 100,000 ounces of gold a year on an annualized basis beginning in 2006.

All of our operating and exploration properties remain 100 percent owned and operated. So we are in full control of our destiny on the operations development and exploration front with an exceedingly fine team. Our strong cash position will continue to give us the financial resources to proceed with our growth to the next discussed level. The Coeur story is one of reserve growth and exploration success with our silver reserves increasing 12 percent through 2004 to a total of 196 million ounces. And we continue to see significant exploration upside at our operating and development properties. Our reserve program last year was expanded from 2003 and the success we had in 2004 has led us to enlarge the program again by another 22 percent in 2005, with the majority of these dollars focused again on existing operating properties and land positions which has been a successful and continued cost-effective strategy for us. Now I'm pleased to turn the meeting over to Harry Cougher who will tell us about the results of our North American operations and an update on our Kensington project. Harry?

Thanks, Dennis. The Rochester Mine operation had an excellent fourth quarter. Silver production was up 21 percent from a year ago to 1.7 million ounces. This was an increase of 30 percent over the third quarter of 2004. Gold production was more than doubled what it was a year ago in the fourth quarter, a total of 24,544 ounces which was an increase of 41 percent over the third quarter. Gold production levels accelerated at Rochester in the fourth quarter due to the leaching of higher grade gold ores placed on the pad early in 2004 and with the completion of the new stage 4 leaching area, which all allowed for the higher than normal production rate. With higher gold production our average costs in the fourth quarter was just $1.97 per ounce of silver. For the full year gold production was 69,456 ounces, an increase of 33 percent from 2003. Silver production was 5.7 million ounces, slightly higher than the year before.

Due to the higher gold output , average 2004 cash costs were $3.93 per ounce, a reduction of 16 percent from a year ago. At Silver Valley, on the next slide, fourth quarter silver production total was 874,573 ounces. Average cash cost during the quarter were $5.94 per ounce of silver. Full year silver production was 3.5 million ounces of silver at an average cash cost of $5.46 per ounce of silver. In 2004 drilling at the Galena Mine succeeded in identifying approximately 3 million new ounces. Overall, however, the reserves decreased at the Galena Mine due to the production depletion, higher operating costs and the external increases in smelting and refining costs, which resulted in an overall increase in the ore reserve cut off grades. As we said in the past, the mine has had an historically kept 2 to 5 years of production since it began production in 1955. And we have every confidence that this trend will continue.

We are progressing on our exploration and development plan at the mine with a targeting a goal of an eventual annual production to 7 million ounce per year. And the infrastructure is in place for these production increases. Through Silver Valley, which includes the Coeur and Galena Mines and the Caladay exploration project, Coeur controls the heart of the Coeur d'Alene mining district, one of the most prolific in the world with over 1 billion ounces of historical silver production. At Kensington, on the next slide, the permitting process passed a major milestone in the fourth quarter with the issuance by the U.S. Forest Service of its record of decision for the final supplemental environmental impact statement. An appeal to the record of decision was filed on February 8th with the Forest Service, which has a 45-day period to respond. We think that the appeal is without merit. With receipt of the remaining permits the Company's Board of Directors could make a construction decision in the first half of 2005.

The construction at Kensington is expected to take 18 months with production start up expected during year 2006. Initial annualized production at Kensington is projected at 100,000 ounces of gold over a planned 10 to 15-year mine life. Estimated initial, direct capital cost remain at $91.5 million and the per ounce operating costs are still projected at approximately $220 an ounce. During 2005 Coeur is planning a $2.6 million drilling program at Kensington designed to define 300,000 to 400,000 ounces of new gold reserves which would significantly increase the initial mine life from the current level of 10 years and to identify higher grade sections of the deposit that might be mined in the early years of the operation. I would now like to hand the presentation over to Ray Threlkeld, who will give us a look at the South American operations.

Thank you, Harry. At Cerro Bayo both gold and silver production increased in the fourth quarter from the third quarter, resulting in low cash cost of just $0.60 per ounce of silver. Fourth quarter production totalled 1.7 million ounces and 22,511 gold ounces. For the full year 2004 production totalled 4.9 million ounces of silver and 59,876 ounces of gold, produced at an average cash cost during the year of $2.07 per ounce of silver. We continue to see production from 5 different vein systems at Cerro Bayo including the high-grade ounces from the Javiera and Cerro Bayo system. During the quarter mining at Martha included ore from the R4 Deep and Mina Martha deep zones. With higher grade silver ores contributing to increased silver production in the fourth quarter. Since we commenced production at the Martha mine we have mind 64,900 tons of ore with an average grade of 76 silver ounces per ton which we think qualifies the mine as one of the richest silver mines in the world.

As Don will talk about next the exploration program at both mines is very productivity in 2004. Total proven and probable reserves at December 31, 2004 at the combined properties measured 10 million ounces of silver and 121,000 ounces of gold. Giving effect to 2004 production, this represents a more than tripling of reserve levels. The 2005 exploration of both Cerro Bayo and Mina Martha has been expanded with a near term target of at least 3 years of production. At San Bartolome in Bolivia construction activities have commenced with a targeted construction start up in 2006. We have assembled our construction management team, a group that has experience with major mines all over the world with a combined 120 years of mine construction and engineering between them.

Our general manager of the eventual operation of the mine, Americo Villafuerte, has managed large scale mines throughout South America for both U.S. and other international mining firms. We are extremely confident in our construction and operating team with San Barts. Construction costs of the open pit milling operation and processing facility is projected at $135 million. Initial average annual production is expected at 8 million ounces of silver during the first 5 years of production with an anticipated cash operating cost of $3.50 per ounce of silver. However, at the moment we are also doing optimization work to lower capital expenditures and operating costs. Proven and probable reserves are 152 million ounces of silver with a minimum 15-year mine life.

An important part in the successful development of San Barts includes, or involves working relationships that we've developed and the partnerships that Coeur's developed with the mining co-op at Atevus(ph) in Potosi. They are very supportive of the project and view it as a major economic and employment benefit to the entire region. The facility will be located near established industrial infrastructure near Potosi which has a long silver mining history that goes back hundreds of years. San Bartolome is the largest new silver mine being built in the Americas in decades and represents not only a major boost to the local economy but to Bolivia itself. We are looking forward to bringing San Bartolome on line over the next year and have gotten off to a very good start. Now I'd like to turn the presentation over to Don Birak who will talk about our exploration results for 2004 and the program ahead of us for this year. Don?

Thanks, Ray. As Dennis mentioned, Coeur had a great year on the exploration front. Our proven and probable silver reserves increased 12 percent to a record 196 million ounces, the most dramatic exploration results came at our South America operating properties. At Cerro Bayo giving effect to 2004 production, silver levels increased 316 percent over prior year to 6.1 million ounces. Similarly, gold reserves grew 372 percent over 2003 levels to 116,000 ounces. At Martha silver reserves nearly tripled to 3.9 million ounces, extending the mine life through at least 2006. All of this came at very low discovery cost which helps to keep future operating costs low at these already low cost mines. The new ounces were all added near existing infrastructure so we can bring them very economically into future production.

We continue to believe that through Cerro Bayo Martha, Coeur has some of the lowest cost of discovery ounces. At Cerro Bayo new discover cost that averaged about $0.25 per silver equivalent ounce and at Martha, since we acquired the property in 2002, new discovery costs have averaged us $0.21 per ounce. A new program in 2005 will consist of approximately $3.9 million and continue to focus on some of the same vein systems as last year. The 2004 drilling program continued the exploration and development of the multiple Cerro Bayo deposits and focused on discovery of the Lourdes Norte and Mercedes veins under post mineral gravel cover. Discovery of additional covered veins will be a significant part of future exploration at Cerro Bayo with a near-term target of at least 3 years of future production. We consider the exploration potential excellent to discover additional high-grade veins within the entire Cerro Bayo trend which is 2.5 miles east west by 6 miles north-south in size. We control about 118 square miles of exploration rights around Cerro Bayo for future exploration and so far over 100 veins have been discovered there.

The following slide shows a three-dimensional view of Javiera, Lucero, Luz Eliana, and the new Celia veins. Discovery of additional veins proximal to known veins in mine operations will also be a significant part of future exploration at Cerro Bayo. At Martha year-end silver reserves tripled to 3.9 million ounces extending mine life to at least mid 2006. Last year's successfully discovered extensions of high-grade ore along the strike of the Martha vein, within the mine itself, and several new high-grade ore shoots at the nearby R4 zone. Over just the last year we have increased mine life by 100 percent. Discovery cost has been approximately $0.21 per silver equivalent ounce. Martha remains among the highest grade silver mines in the world with average grades of mined so far of 76 ounces of silver per ton. Extension of the reserves that Martha has far surpassed the parameters on which the acquisition of the property was based.

Our 2005 exploration budget is, at Martha, is $2.7 million, an increase of 58 percent over 2004 levels. Our near term target is a minimum of 3 years production. The next slide is a three-dimensional image of some of the target areas of Martha, including newer Catalina, Francisca and Nordeste veins in addition to the Martha and R4 Deep zones. Current exploration program continues to focus on extensions of the high-grade ore shoots known to exist on the property and 2 drills are operating full time. In addition we think there is excellent potential to discover additional silver resources on the prospects within our 530 square miles that we control in the Santa Cruz province including that at the Martha Mine. At Silver Valley, as Harry mentioned, we continue to see some positive results from drilling which further supports our long-term development plan. Last year we added over 3 million ounces to the program with an expenditure of $1.6 million U.S.

The targeted areas include the 4,000 level of the Polaris fault, 2400 upper country silver vein and initial drilling on the Coeur Deep where we encountered an almost foot wide hit of 51.3 ounces of silver per ton. With the recent results at Silver Valley there are indications that potential vein extensions exist on the adjacent Caladay property as well. The three-dimensional map shows some of the recent exploration targeted areas of which our extension -- some of which are extension of known ore bodies. New mineralization was discovered at the 4,000 level of Polaris fault and 2400 upper country silver vein. Definition drilling also commenced at the 4300 to 4600 vein target. Initial drilling on the deep Coeur target intersected an extension of the 43 vein and 5 of 8 holes with thin but high-grade silver. Program at Silver Valley in 2005 calls for $1.6 million in exploration and development to advance the optimization program there. I will turn the presentation over to Jim Sabala, now, for a look at the financial results.

Thank you, Don. As Dennis mentioned earlier, Coeur had one of its best quarters in a long time from a financial perspective this past fourth quarter. Fourth quarter gold production was up 80 percent to 47,055 ounces, silver production increased 23 percent to 4.3 million ounces. And a 23 percent increase from a year ago and 43 percent higher than the third quarter. Revenue was up at 46.1 million, an increase of 48 percent from last year's fourth quarter, due to higher metals production and higher metals prices. Meanwhile, our average cast cost declined 36 percent to $2.22 per ounce of silver, compared to a fourth quarter a year ago, and a reduction of 49 percent from the third quarter. For the fourth quarter of 2004 the Company reported net income of 13 million or $0.05 per diluted share, compared to a net loss of 12.9 million or $0.06 per share in the fourth quarter of 2003.

The fourth quarter results consisted of 1.8 million of operating income, the effective of cumulative reduction in depletion expense in income taxes for the year of 2.1 million and a 9.1 million benefit for income taxes associated with the expected utilization of net operating losses. During the quarter we invested 2.8 million in exploration expense related to the Company's successful program which is increased our silver reserves and 2.7 million in predevelopment costs for the development of the San Bartolome and Kensington Mines. Average realized metal prices in the recent quarter were $7.08 per ounce for silver compared to $5.12 a year ago and $427 per ounce for gold, compared to $365 per ounce in last year's fourth quarter. 4 year silver production was 14.1 million ounces compared to 14.2 million ounces in 2003. Gold production was 129,332 ounces, up 8 percent from 2003's levels. Our average cash cost per ounce of $3.66 compared to $3.27 the previous year. Revenues increased 21 percent over 2003 levels due to higher gold production and higher metal prices.

For the full year 2004 the Company reported a net loss of 12.2 million or $0.06 per share compared with a net loss of 66.2 million or $0.39 per share in 2003. Results for the year also included the effect of a cumulative reduction in depletion expense and income taxes of 2.1 million and 9.1 million benefit for income taxes associated with the expected utilization of past net operating losses. Also included in full year results were 11.4 million in predevelopment costs related to San Bartolome and Kensington projects and 15.7 million in onetime business development expenses. Absent these items the Company would have reported a profit of $14.2 million for the year. Last year's expenses also included 11.1 million of exploration expense, the results of which were reported in Don's presentation. Coeur's balance sheet is the strongest it has been in more than a decade.

Over the past several years we have strategically reduced our debt and removed it while nearly tripling our year-end cash position to over 322 million at December 31, 2004. This gives us the financial resources to continue our plans for growth. Coeur's policy is not to hedge any of our production which allows investors maximum leverage to underlying metal price movements. Because of this historically unhedged position Coeur's stock price has demonstrated the highest beta to silver price leverage of any North American primary silver producer over the past several years according to independent research reports. Each 5 percent increase in average silver price, or about $0.35, increases our EBITDA by 16 percent. Each 5 percent increase in average gold prices, or approximately $21, increases EBITDA by 10 percent. So our cash flow returns are increased expedientially by rises in metals prices. The next graph shows how far silver price has tracked relative to silver prices since the beginning of this year. As of last week Coeur's shares had traded as high as 19 percent above levels at the beginning of the year which is approximately the same percentage increase in silver prices over the same period.

Now I would like to turn the presentation back to Dennis for a look at the silver market and his closing comments.

Thanks, Jim. We continue to position Coeur to be the right company at the right time in silver. Clearly these are good times for the silver market with prices at several year highs and we have every confidence these prices will be maintained. Over the past year silver has outperformed gold and is the best performing of all the precious metals. And the most fundamentally sound of all the metals in our judgment. Prices in 2004 increased 36 percent and this year we've already seen additional gains of 18 percent early in the year. We think that's because silver's lustre is not only as a precious metal but because it is a very strong industrial metal with supply demand fundamentals that only keep improving.

We continue to see strong fabrication demand worldwide as economies in China and the rest of Asia need more silver to modernize and grow and no metal today is more essential to technology growth and modernization than silver. Everything from medical applications, electronics, computer and solar energy systems, super conductivity, cars and protective glass, silver's unique properties each year continues to create new and innovative uses, increasing the industrial consumption. This is also the major contributor to the ongoing supply and demand deficit in silver between mine production and world industrial demand that continues to drawdown the supply of government and private stock. And we think, led to the rise in prices over the past 18 months. We believe that Coeur is positioned like none of our competitors to take advantage of these strong silver markets.

The management of Coeur, the team here, continues to have a solid plan focused on growth this year and coming off our best exploration year in the Company's history. We have expanded our 2005 exploration program by 22 percent. We continue to see significant upside potential to add additional ounces at low cost in our wholly owned properties because of the extensive high perspective land positions that we control 100 percent. Most of our drilling this year is going to continue to focus near our existing operations and infrastructure at our highly perspective properties. And construction at San Bartolome is expected to be well underway by the end of the year with anticipated initial production in 2006. We are getting very close to the goal line of the permitting process at Kensington with very good progress made in recent weeks. And we do expect the construction decision to be made this year. Our financial position removes any doubt about our ability to carry through on our projects for growth with nearly $320 million in cash and short term investments. And we continue to remain unhedged in our production, allowing our investors the maximum leverage of any silver company to metals prices and the potential upside for silver.

We do expect to remain the leader in silver on a number of fronts. Our production profile, our growth profile in both silver and gold, our exploration program which continues to add new reserves at industry low costs per ounce, our strong balance sheet which would match up against any competitor, and our focus at the Company on environmental stewardship and mine safety which continue to be the increased focus of NGOs worldwide. In closing, let us thank you for joining us here today. We look forward to continuing to report our 2005 progress to you and we will be happy now to respond to any of your questions.

[Operator Instructions] Your first question comes from the line of Mike Curran from CIBC World Market. Please go ahead.

I didn't hear much on Rochester in terms of exploration potential. Wondering if you can give us a sense of is there still some dollars worth spending on Rochester to sort of prolong the mine life there or are you guys more in the cultivating mature mine phase there?

Hi, Mike, this is Don Birak. Yes, we do have a small amount of money devoted for -- in 2005 to test some new ideas that we have at Rochester on conversion of resources to reserves. And based upon the success of that we will allocate additional funds if necessary and warranted.

Great, thank you.

[Operator Instructions]

Thank you, Operator.

Yes, there are no further questions.

Again, we would like to thank all of you for joining us at Coeur's conference call today. In the event you have any follow-up questions, please feel free to contact us and we look forward to seeing you at the May release of the annual silver survey in New York for the Silver Institute, if not sooner. Thank you.

Ladies and gentlemen, this conference will be available for replay after 1:30 Pacific time today, through March 21st. You may access the AT&T Teleconference Replay System at any time by dialing 1(800)475-6701 and entering access code 773714. International participants dial (320)365-3844. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.