Coeur Mining Inc (CDE) 2005 Q4 法說會逐字稿

Good day everyone and welcome to today's Coeur d'Alene Mines Corporation Fourth Quarter Earnings Conference Call. Just as a reminder this call is being recorded and now at this time I would like to turn the conference over to Mr. Scott Lamb. Mr. Lamb, please go ahead.

Thank you and good day to everyone. Thanks for joining us on the call to discuss our results for the fourth quarter 2005. In accordance with our standard practice, this 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 afterwards on our website.

Today's presenters include 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 Jim Duff, President of South American Operations.

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

Thanks Scott and thank all of you for joining us here today. You've all had a chance to see our headline numbers so, I won't repeat them here. But I would like to just comment on the fact that at nearly $10 million our net income in the fourth quarter set an all time new quarterly record at Coeur. And we've also seen new records set this past year for quarterly and annual revenues.

The highlights include very healthy production levels for both silver and gold, a 30% decline in our silver cast cost from the first to the second half of 2005 and a 13% increase in our proven and probable ore reserves this past year. Based on what we've seen so far in publicly reported results from our peer companies, it does seem that Coeur in 2005 has clearly retained the title as the world's largest primary silver producer. And with our expected production of 18 million ounces of silver in 2006, we plan on further extending our position as the market leader.

Now a few particulars, the key drivers in the fourth quarter performance were both solid operating results, combined with strong market prices for both silver and gold. We're clearly seeing the benefits of our strategy to significantly increase our low cost production ounces, reserves, cash flow and resulting earnings, a strategy strengthened in 2005 by our two Australian acquisitions.

If you're looking on the slide show on the website, you can see next that we've charted our 2004 and 2005 quarterly production and realized prices there. The thing that is interesting to us is that the trend lines for both production and price realizations are clearly moving up and it's our goal that we will see additional upward movement in 2006. At the same time, you can see that we reported operating improvements resulting in a significant decline of our cash cost per ounce of silver during 2005 high increased cost for fuel and other supplies that have impacted the entire industry.

I'd like to give hats off to this outstanding performance by the team at Coeur for the fourth quarter and I think it indicates that the company continues to deliver to you against the strategic plan that we laid out early in the year. With that I'd like to turn it over to my colleague Jim Sabala, the Chief Financial Officer for some comments on each of our properties.

Thank you, Dennis. In general our properties performed well in relation to the year ago quarter. If you're looking on the slides on our website, I'll just hit the highlights. The Cerro Bayo had a cash cost of $0.54 per ounce for 2005. Cerro Bayo remained the lowest cost mine in our system. Coeur's exploration efforts during 2005 at Cerro Bayo were extremely successful increasing proven and probable silver mineral reserves by 22% and gold by 14%.

In addition, measured and indicated silver mineral resources increased by 12% and inferred by 107%; while measured and indicated gold mineral resources increased by 18% and inferred by 59%, all compared to year-end 2004 levels. Fourth quarter silver production continued to trend a successfully higher quarterly production during 2005 and was 18% above production in the first quarter of this year, due to improved grade.

At Martha, silver production in the fourth quarter of 2005 was up 9% relative to the year-ago quarter. Silver cash cost per ounce was generally consistent through the year at $4.60. Coeur more than doubled its inferred silver mineral resources during the year at Martha and also reported an increase in silver proven and probable reserves despite record production levels at the mine.

At Endeavor, since Coeur's acquisition of the reserves and production at Endeavor in May of 2005, this property contributed 316,169 silver ounces at a low cash cost per ounce of $2.05. Silver production in the fourth quarter of 2005 was affected by a previously disclosed uncontrolled rock fall that limited mining activity and affected cash cost per ounce. Since that time, the issue has been addressed and mining has recommenced. We expect 2005 production to approach an annual rate of approximately 1 million ounces with more than half of that amount coming in the second half of the year. Endeavor contributed more than 23 million ounces to Coeur's proven and probable mineral reserves and the acquisition is a good example of our strategic objective to increase our low-cost production and reserves.

At Broken Hill, since Coeur's acquisition of reserves and production at that property in September of 2005, this property contributed 657,093 ounces of silver production at a low-cash cost per ounce of $2.72. Silver production in the fourth quarter was 574,083 ounces. In addition to providing low-cost silver production, Broken Hill contributed nearly 15 million ounces to Coeur's proven and probably minimal reserves. The performance of Broken Hill has met all of our expectations and just like the Endeavor acquisition it is another excellent example of our strategy to increase our low-cost production and reserves.

At Rochester, this property had an exceptionally strong second half of the year. The silver production 44% above that of the first half of 2005 and gold production 48% above the level of the first half. Additionally, silver cash cost per ounce declined 52%, during the second half of 2005 despite an upward trend in the price of energy and steel that has impacted the entire industry.

At Galena, silver production for the fourth quarter of 2005 was below that of the fourth quarter of 2004, due to lower than expected ore grades and shorter vein lengths in certain areas of the mine. These same factors caused an unacceptable increase in cash cost per ounce of silver for the fourth quarter 2005 relative to the year-ago period. However, over the course of the fourth quarter and into early 2006, we did begin to see a trend of improving monthly production and indications of higher ore grades at Galena and we expect 2006 production to recover to roughly 3 million ounces as we continue the resolve those issues. As previously discussed the company is evaluating strategic alternatives for Galena and the associated assets of Coeur Silver Valley, the company has said these alternatives could include the possible sale of this subsidiary.

The company finished the year with a strong balance sheet. At year end we had $240 million in cash and short-term investments. Capital spending for the full year totaled $116.8 million, primarily associated with Kensington and the acquisitions of the Endeavor and Broken Hill assets in Australia. We currently expect capital investment in 2006 to approximate $182 million, primarily associated with Kensington, the resumption of a more aggressive construction schedule at the San Bartolome silver mine in Bolivia, and the remaining payment due on the Endeavor acquisition. Shareholders equity finished up for the fifth consecutive year, that's 16% versus end-year 2004. Now, I'd like to turn it over to Don Birak our Senior Vice President of Exploration to give you exploration highlights.

Thanks, Jim. In the exploration arena, the company invested $11.9 million during 2005. most of that devoted to our operating and development properties. As of the 1st of January 2006, the company's proven and probable silver mineral reserves totaled over 221 million ounces, a 13% increase relative to the level of January 1, 2005, largely due to increases at the company's South America properties and the acquisitions in Australia. Our measured and indicated silver mineral resources increased by 37% year-over-year to 73 million ounces and our inferred mineral resources increased year-over-year by 91% to 47 million ounces of silver. We continue to be optimistic about additional increases in our silver reserves as 2006 progresses.

Proven and probable gold mineral reserves at January 1 were 1.3 million ounces and the company remains optimistic for expansion of our gold reserves due to ongoing exploration drilling at Kensington where Coeur has focused on further definition and expansion of its mineral resources and reserves. In the second half of 2005, the company completed 34,000 feet of core drilling from 74 drill holes at Kensington. Of these holes, 87% encountered gold mineralization equal to or greater than 0.12 ounces of gold per ton, which is the cut-off grade for our mineral resources. In addition, 5,000 feet of core drilling was completed on the adjacent Jualin property. The company will spend $3.6 million for drilling at both properties in 2006 and will update its mineral resources and reserves at Kensington later this year. Dennis?

Okay, thanks Don. I'd like to spend a few minutes now to update you on the projects, both Kensington and San Bartolome. In regard to Kensington, as you know the U.S. Army Corps of Engineers temporarily suspended the mine's Section 404 Permit. This process allows the Corps to review and reaffirm its records supporting the permit. We believe the process is nearing completion, but meanwhile we have continued to conduct construction activities not associated with the Section 404 Permit. And we do believe that the permit will be reinstated upon completion of the review which we expect soon.

We spent approximately $26 million of capital there during this period and approximately $44 million in all of 2005. We continue to drill as Don said and trust that this work will add to the mineral reserves and resources during this year. Background is really pretty straight forward. Due to a broad increase in the cost of materials and supplies impacting the industry in general, we thought it was prudent to retain an independent engineering firm to review the capital cost estimate for Kensington in the later part of 2005. As a result of the increased earthwork cost requirements, increased storm water management programs, the cost associated with challenge to the permits and a general increase in most supply prices, we determined that this independent review was in order and this is what has resulted in our revised estimate. However, we do continue to pursue some other optimization opportunities.

We're still planning for the project to have a minimum annual production rate of 100,000 ounces and the cash operating cost per ounce remains at $250 today. According to our plan, we will extend the total capital investment at Kensington this year of $77 million and we are still targeting start up of operations in the latter part of 2007. Fortunately, gold prices have continued to climb and we do remain optimistic in our long-term view of gold prices.

I'm very pleased that Jim Duff joins us for the first time as our president of South American operations to give you a first hand view of the status of San Bartolome. Jim?

San Bartolome construction continued in the fourth quarter at a measured pace. The total capital expenditure for the quarter at San Bartolome was about $2.5 million and for the year it was about $10 million. The good news here is that a recent updated project review has confirmed the $135 million capital cost estimate. This review also confirmed that there are no unresolved technical issues that would impede our forward progress on the project.

We are targeting a mid-year 2006 -- or target mid-year this year to resume full-scale construction work there. And we are cautiously optimistic that we can hit that target and subsequently complete construction and start up during 2007. In advance of that, we will continue to move forward during the first half of this year with key areas of focus being access roads, initial rough-cut grading, construction of ore stockpile areas and fencing.

Now on the political side, we were very pleased to see that Bolivia completed its presidential election in a transparent and democratic manner. So, far we have had very positive feedback in our meetings with the new Mining Minister, the governor of Potosi and the government owned mining company COMIBOL. And we look forward to working closely with members of the new government. Recently, President Morales commented that generation of employment is one of the government's top priorities and that his government is working hard to establish the long-term legal security that investment in the mining industry requires. In short, I believe that we're starting to see some very positive and constructive political developments in Bolivia that will position us to get us across the goal line there, with the project. Dennis?

Thanks Jim. Our view at Coeur of the silver and gold markets remains bullish, certainly regarding silver. Industrial demand remains very strong and we're excited about the potential the silver ETF has to add to physical demand for the metal which we estimate to be approximately 130 million ounces or 20% of the current world mine production.

In addition, we continue to see above-ground stocks being depleted and significant new uses of silver continue to be found every year. To us, this all adds up to a very robust market for silver. Likewise, we like what we see in gold. Gold demand remains firm not only due to geopolitical dynamics, but shrinking reserve and production bases and a weak US dollar. So that's the story.

Looking ahead to the balance of 2006, we expect to generate record level production of about 18 million ounces of silver, that would represent about a 30% increase over our 2005 production and as we mentioned earlier, would further distances us from our other silver competitors.

Expect the consolidated cash cost of production of a little more than $4 per ounce of silver this year. Granted, this will be a bit of a challenge for our operating folks, in light of the increasing cost we've seen for materials and supplies, but I'm confident they can get the job done. Our gold production this year is targeted at 129,000 ounces.

We're optimistic at Coeur and we continue to look forward to a very productive year with strong cash flows at today's metals prices, additions to our reserves, significant progress at our two development projects San Bartolome and Kensington and a dedicated continued pursuit of external growth opportunities.

Regarding this latter point we have established an office in Sydney, Australia to help us maximize the value of our existing investments there while building a pipeline of new silver opportunities in that part of the world.

We are delighted that a seasoned industry executive, a guy who formally worked for us in New Zealand, as Managing Director, Richard Weston has again joined Coeur. Richard is a mining engineer with over 30 years of mine development, project development and operations experience in Australia, New Zealand and Indonesia. And he joins us shortly after having just completed a new mine for another major gold mining company.

We look forward to his contributions that he'll make to our growth initiatives and welcome him back enthusiastically. On that note, Scott, I guess we're ready for questions.

Thanks Dennis. Operator, at this point we can take questions from the investment community?

[OPERATOR INSTRUCTIONS] Our first question today will come from John Tumazos with Prudential.

Good afternoon Dennis and Jim, and congratulations on everything.

Thanks John.

The world today is a little stranger or riskier than in the past with the Indian and Bolivia, environmentalists in Alaska. I think it was 1990 or 1991 we went fishing outside Kensington, and even Chile's got the royalty and the lady President whose dad got killed by Pinochet. What are the range of things that you might do to try to reduce risk and safeguard the company, i.e. merger, joint-venturing properties, viewing things so that a particular setback at one of these large construction sites doesn't set back the shareholder too much?

Well John, I think the most important thing for a company is to maintain strong, local relationships in the place where it does business. That's certainly true in North and South America. I think throughout the company we have people who are dedicated to doing community relations right. I think that we have very fine programs for our employees in the benefit area, in wages and salaries. And we join in the communities to participate in community projects that are important to these people.

To me, that's the important thing while at the same time maintaining reasonable government relations. I think that if Coeur continues to lead in those areas we'll do fine, even though you've correctly pointed out one of the major external challenges for the whole industry, and that's changing trends in the world.

I do think though that we're in some of the less risky places overall and I think as Jim has pointed out here today, we're seeing positive changes in places like Bolivia.

Thank you.

[OPERATOR INSTRUCTIONS] And there appear to be no further questions at this time.

Okay, thanks Operator. Dennis any final words?

I think Scott we'd just like to thank people for joining us here today and hearing the year-end report from us at Coeur. Clearly we feel good about our financial performance in the last quarter and in 2005.

I think all of us believe the company is poised to continue a trend of solid operating performance given current market conditions. And we think we have the right strategy and the right growth story to deliver significant long-term value for our shareholders that join us here today.

Let me just close by saying that at Coeur we are driven to be, and remain, the world's leading silver company. And thanks to everybody and have a good day.

And that does conclude today's teleconference. We would like to thank everyone for their participation and wish everyone a great day. And now at this time you may disconnect