Coeur Mining Inc (CDE) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second quarter earnings teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS] As a reminder, this teleconference is being recorded.

I would now like to turn the conference over to the Vice President of Investor Relations, Mr. Scott Lamb. Please go ahead, sir.

Thank you, Bill. Good day, everyone, and thank you for joining us on the call to discuss the Company's results for the second quarter of 2005. As per our standard practice, the call is also being broadcast live on the Internet through our website at www.coeur.com where we have also posted the slides that accompany our prepared remarks. The slides and the audio replay of the call will be available for two 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; and Harry Cougher, Senior Vice President of North American Operations.

I need to tell you that any forward-looking statements made today by management come under the Securities Legislation in the United States and Canada and involve a number of risks that could cause actual results to differ from projections. With that, I'd like to turn the call over to Dennis.

Thanks, Scott, and let me just say it's a pleasure to welcome you here today as the newest executive to the Coeur team as the Head of Investor Relations at Coeur, and that it's exciting to have you here as we continue to grow Coeur and our dominant silver position.

For the benefit of our regular listeners, we have changed the format of our presentation today and you'll see that going forward in an effort to more streamline our remarks and leave more time for your questions. And after I provide you with some introductory comments, Jim Sabala then is going to review the Company's financial operations performance and I'll step in again and then Don and Harry are available to also talk to you about exploration and development. And we'll have some comments then about the overall outlook for the Company.

So with that, let's begin with my introductory comments. I think the common theme that is beginning to emerge and that runs through our second quarter is the forward transformation of Coeur as a Company whose asset base will consist primarily of very low-cost and long-live mines. It's a transformation that we believe is well on the way to realization and one that we look forward to generating significant value for our shareholders. This transformation is backed by our very strong balance sheet, which showed a cash position of more than $280 million at the end of the second quarter.

As you have seen, the Company delivered improved financial performance during the second quarter due not only to improved operating performance at our South American mines and higher metal prices, but also solid growth. The Company-wide EBITDA before predevelopment activities rose 76% from last year's second quarter. And this result was achieved even though we continued to robustly invest in the Company's future with nearly $3.3 million of exploration expenses during the quarter, and this $3.3 million investment in exploration in turn yielded our shareholders a 38% combined reserve increase and added to the mine lives at Cerro Bayo and Martha.

We're pleased today to reconfirm our previous guidance regarding our 2005 production numbers and we expect silver and gold production to be in line with our prior guidance of 13.5 million ounces of silver and 130,000 ounces of gold. And it's clear that at these levels Coeur will continue to be at year-end unchallenged as the world's largest primary silver producer.

We did have some production shortfalls at Rochester and Silver Valley during the second quarter, but very late in the period, and today we are seeing steady improvement at both of the these operations and we expect to see these ongoing efforts reflected in the results during the second half.

We completed our acquisition of the silver production and our interest in the Endeavor Mine in Australia, where we gained 1.3 million annual ounces of silver at a most favorable cash cost of $1.89 per ounce. Endeavor will contribute going forward to Coeur's cash flow, income, silver reserves, and production. And the Endeavor transaction demonstrates our No. 1 strategy of pursuing opportunities that will add to the Company's cash flow, income, silver reserves, while lowering our overall production cost.

We don't think that any of our competitors today provide a growth story that can match Coeurs. We are advancing two major development projects, continuing to invest heavily in exploration, and our shareholders are being rewarded handsomely for it, and we continue to actively pursue additional acquisition opportunities outside the Company that will also lower our overall production cost and positively impact our production reserve cash flow and earnings profile. We do remain bullish about the long-term future of the silver and gold markets, and that's why we continued to maintain an unhedged position in our production at Coeur.

Now I'm going to ask Jim Sabala for a financial operational review of the quarter. Jim?

Thank you, Dennis. As Dennis mentioned, the improved operating results were due to higher shipments and realized prices and drove our earnings before interest, taxes, depreciation and predevelopment expense to 7.2 million, a 76% increase from 4.1 million in the year-ago period. During the quarter we continued to invest in the future with a total of $7 million of investment in two areas. Predevelopment costs of Kensington and exploration costs at our other operation.

Silver shipments were up slightly to 3.5 million ounces compared to 3.3 million in the year-ago period, while gold shipments were up 26%. These shipment figures generated a 40% increase in metal revenue, silver and gold prices, as you already know, were up about 14 and 8% respectively. Partially offsetting these favorable factors was the increase in our consolidated cash cost for silver due to factors that I'll describe in just a moment. Actual production numbers in the quarter were 3.1 million ounces of silver and 30,000 ounces of gold.

Let me take just a minute to summarize the key factors at each major property relative to the year-ago quarter. At Cerro Bayo, silver production was up 20%, gold production was up more than 30% and reserves increased. The increased production of both gold and silver was due to higher grades and higher mill recoveries. Cash costs for silver declined sharply to just $0.76 per ounce, due mainly to the increased gold production which resulted in an increase in the by-product credit. Going forward, we expect Cerro Bayo to perform well for the balance of the year, with silver production of about 2.8 million ounces at a cash cost similar to that in the second quarter. Gold production at Cerro Bayo is likely to be in the neighborhood of 60,000 ounces.

At Martha, silver production was up 27% due to an increase in the number of tons processed, as well as higher mill recoveries and reserves increased here just as they did at Cerro Bayo. Overall production costs have increased at Martha and that translated to a jump in cash costs per ounce, which was the result of expenses associated with the transmission of owner mining from contract mining during the quarter. We expect to reap the benefits of this change in future periods. Going forward, we expect Martha to produce a full-year silver total of about 2 million ounces and a cash cost per ounce that's modestly above the second quarter level.

Our most recent acquisition at the Endeavor Mine in Australia got off to a good start in the Coeur system. Once we completed the acquisition in the second quarter, Endeavor generated more than 58,000 ounces of silver at a cash cost of about $1.89. Going forward, we expect Endeavor to generate about 700,000 ounces for us, for the full-year 2005 at cash cost most of that of the second quarter.

At Rochester silver production was down 8% due to slower than projected recoveries from the pound [ph]. Silver cash costs per ounce at Rochester were up noticeably because of budget increases and maintenance costs, as well as higher fuel and reagent costs and lower absorption of fixed costs driven by the slower recovery. Going forward at Rochester, we believe full-year silver production will come in at around 5.3 million ounces at an average cash cost of slightly more than $5 per ounce, approximately 30% below the Q2 level.

You may recall that earlier in the year we'd engaged consultants to advise us on the Stage IV leach pad at Rochester. That review confirmed that the life-of-mine production numbers for Rochester are realistic. In addition, during the second quarter, we also moved forward to execute a number of the recommendations arising for this -- from this review, we are pleased to report that by the end of June, we did in fact begin to see the expected higher daily production and recovery rates at Rochester and we expect this trend to continue in the second half.

At Silver Valley, silver production declined due to two factors, lower grade ore and shorter strike length in two particular veins and some production delays resulting from ground conditions that impacted stope development. Those same factors caused the cash costs per ounce at Silver Valley to increase to an unacceptable level. During the second half of 2005, we expect to be working in higher grade ore veins, and as a result, we expect to see full-year production figure of about 2.6 million ounces from Silver Valley at a cash cost that's still not ideal but well below the second quarter number. The staff at Silver Valley is continuing to evaluate the overall mine plan, with the goal of identifying additional high-grade ore zones that have been intercepted through initial diamond drilling.

That concludes my summary of the financial operating results. And I'd now like to turn it back to Dennis.

Thanks, Jim. We'd like to take just a few more minutes to review the latest developments in our ongoing acquisition, exploration, and development programs. I've already said a few things about the Endeavor acquisition, which we feel very good about, but beyond that we'd like to provide you with an update at Kensington, our South American projects, and describe the MOU we've just signed that represents the long-term strategy and a beginning for Coeur in China.

Now first Kensington and I'd like to call in Harry Cougher. Harry?

Yes. This is Harry Cougher, Senior Vice President of North American Operations. At the Kensington gold property, as many of you know, we received all remaining permits in the second quarter and with Board's approval have begun construction of the mine. Kensington is currently a beehive of activity. In particular, mine crews are on-site and we have increasing numbers of drillers, electricians, geologists, and others arriving. The camp is in good shape and the construction activities are well underway.

Production time table are roughly 18 months, we would expect initial production to begin in January 2007. Production levels are projected at 100,000 ounces with estimated cash costs of $250 per ounce of gold. We have revised the construction costs upwards somewhat to 105 million of direct construction costs. But with that revision, we are more confident than ever in economic and environmental soundness of the project.

At Kensington, we recently initiated a drilling program that aims to expand Kensington's reserves. We expect that drilling program to cost about $3 million. In addition, on August 5th, we completed a long-term extension of our mining lease at the Jualin property, south of and adjacent to Kensington. Subject to certain conditions, the lease now extends to 2035. Thus, we will be rehabilitating underground workings and conducting a second drilling program to expand and define known mineralization on the larger Jualin property. Dennis?

Thanks, Harry. I guess the story out of South America for Coeur this quarter was the sizable increase in our combined silver reserves at Cerro Bayo and Martha, and I'm going to ask Don Birak, who heads up our exploration, to recap the news there. Don?

Thanks, Dennis. Through our aggressive and sophisticated drilling and exploration program, we added 3.9 million ounces of reserves at mid-year at Cerro Bayo and Martha. That represents an increase of 38% in the combined silver reserves for these mines. The program is ongoing, and we expect to report additional increases and reserves for both these properties.

Beyond South America, exploration work was underway at other properties as well. As Harry mentioned, we initiated a major underground surface exploration program at Kensington -- at our Kensington project and look forward to reporting positive results from it in the near future. I'll turn it back over to Dennis.

Thanks, Don. A few comments about San Bartolome in Bolivia. At San Barts, we continued with detailed engineering and procurement work in the second quarter. We've talked to you previously about the political landscape in Bolivia, and we're continuing to take a prudent approach to the project. Basically, matching our construction schedule to ongoing political developments there. We have ordered our long lead time items such as the mill, and continue to move forward at San Barts. This strategy still enables us to maintain our objective of seeing initial production during 2007, while prudently watching the investment of our shareholders in Bolivia.

We have strengthened our management team there by making Jim Duff the President of Coeur Bolivia. Jim's been with us for some time. He's got more than 37 years of mining experience, 25 years of which have been primarily focused in South America, but he's been with San Barts since we first acquired the property in 1998.

San Barts is engineered for production levels of 8 million ounces annually. In the first five years with an initial cash operating cost of $3.50 an ounce. And with 152 million ounces of silver, it can strongly add to our mine portfolio with a reserve of nearly 15 years.

You've begun to see our longer term strategy at Coeur with the Memorandum of Understanding we've just signed with Shanghai Kuntai Non-Ferrous Metals Company Ltd. of China. This MOU forms a strategic alliance between one of China's prominent silver companies and Coeur in the exploration mining and acquisition of opportunities primarily in China. Under this agreement, Kuntai will identify a minimum of at least two specific opportunities for consideration by Coeur, and will act as a liaison with the Chinese business community and various governmental bodies. In return, Coeur's going to provide its mining and exploration expertise to evaluate these opportunities, and the companies will expect to participate in part as partners in the development cost, operating cost and silver production from any commercially viable opportunities.

Let's turn now to the strong metals markets. We continue to experience good markets in both silver and gold, and we at Coeur expect that this trend is going to continue supported by a number of fundamental factors. Both metals continue to be influenced by positive supply and demand fundamentals. On the gold side, obviously geopolitical dynamics and the dollar valuations have supported prices. In addition to the physical characteristics of the market of declining production and reserve profiles.

On the silver side, the most important story for silver, the fundamentals are basically the same. Strong fabrication demand being driven by worldwide industrial and economic growth and ongoing silver supply deficits which have been sustained for more than 10 years now. Continuing to deplete above-ground stocks. We've seen average silver prices rise nearly 45% since 2003, and gold prices having moved up nearly 18% in the same time.

We're very comfortable at Coeur with silver in the $7 range. And new developments continue to unfold for silver. For example, just yesterday President Bush signed the Energy Policy Act of 2005, which contains funding for a research program for the use of silver in industrial and automotive catalyst. And the U.S. Treasury and Mint have announced the creation of a coin honoring the more than 230-year existence of the U.S. Marine Corps.

With regard to our second half outlook, we plan to execute our strategy ongoing to capitalize on these positive metal fundamentals. We confirm our previous guidance regarding 2005 production of 13.5 million ounces of gold and 130,000 ounces of silver. In the second half we will bring greater efficiencies to our operations and lower our cash costs through the remainder of the year. Currently, we expect full-year cash cost of silver to be about $4.35 an ounce.

We continue to bring strong cash flow at current metals prices to the Company, and we're going to continue to build on our successful reserve growth strategy through expanded exploration ongoing at Cerro Bayo, Martha and our efforts in the Silver Valley. And we're beginning our drilling program at Kensington, which we have a high level of confidence will extend the future mine life there.

We continued to evaluate other external transforming acquisition opportunities that will add near term to the Company's cash flow, income and silver reserves while lowering our overall production cost. We can do this because our strong balance sheet gives us the means to fund growth and we will continue to exercise discipline as we use it to the best advantage of our shareholders. It seems clear to us, based on the recent reporting of companies that are considered to be our competitors, that Coeur is in fact on track with our production forecast to remain clearly the world's largest primary silver producer in 2005.

Thanks, Dennis. Operator, that concludes our prepared remarks. We're ready to go to Q&A.

Thank you. [OPERATOR INSTRUCTIONS] And, Mr. Wheeler, please continue with your presentation.

Thank you. Well in closing, let me just thank you for joining us on today's Coeur's second quarter conference call. We're going to continue to look forward to reporting to you improved performance of the Company, and ongoing growth at Coeur, generating further value for you, our shareholders. I really feel about as good at Coeur as I'm sitting here today as I have and I think we're a Company on the move and look forward to keeping in touch. Thanks again for your interest.

Ladies and gentlemen, that does conclude your teleconference for today. Thank you for your participation and for using the AT&T executive teleconference. You may now disconnect