Coeur Mining Inc (CDE) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Coeur d'Alene Mines earnings conference call. Just as a reminder, this call is being recorded. At this time, I would like to turn the conference over to Mr. Scott Lamb. Please go ahead, sir.

Well, good day, everyone, and thank you for joining us on the call to discuss the Company's results for the first quarter of 2007. In accordance with our standard practice, this call is also being broadcast live on the Internet through our Website at coeur.com where we have also posted the slides that acCompany our prepared remarks. The telephonic replay of the call will be available for one week afterward as well.

Today's presenters include Dennis Wheeler, Chairman, President and Chief Executive Officer; and Jim Sabala, Executive Vice President and Chief Financial Officer. We also have a number of other executives here with us in the room to assist with Q&A. Before I turn it over to Dennis, I need to tell 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 projections. With that, I'll turn it over to Dennis.

Thanks, Scott and welcome, everybody. Before we turn specifically to our first quarter financial results, I'd like to recap the highlights of the announcement this past week regarding our proposed friendly combination with Bolnisi Gold and Palmarejo Silver and Gold, which will result in Coeur owning 100% of the Palmarejo Silver and Gold project in Mexico. Upon completion of the transaction, and following the commencement of production at Palmarejo, Coeur will clearly be positioned for some time as the world's leading primary silver producer, both in terms of silver production and silver resources.

Coeur is expected to produce approximately 32 million ounces of silver, and approximately 290,000 gold ounces in 2009. With silver accounting for approximately 2/3 of this total production by value. Based on the contribution from Palmarejo, as well as our other two projects, San Bartolome and Kensington, we also expect to have a leading growth profile among our peers with a compound silver production growth rate annually of approximately 47% and a gold production compound growth rate of 54%, between now and 2009. Clearly, this transaction provides our shareholders and the shareholders of the other two companies with unmatched growth in the silver sector.

New Coeur will also have the largest silver resource base of the peer group, 716 million ounces in all categories of silver equivalent ounces. The Palmarejo project's anticipated low operating cost, combined with ours, are expected to materially reduced new Coeur's overall cash costs, making the new Company the most competitive low-cost producer in the sector. Following commencement of production at Palmarejo and San Bartolome, we anticipate that operating costs will be below $2 per ounce of silver, giving effect to buy product credits.

And new Coeur has the capacity to comfortably finance all three of these growth projects with spending well underway at San Bartolome and Kensington. And with the addition of Palmarejo, we expect to very comfortably finance all of these growth projects without further equity delusion. New Coeur will have a strong cash balance of nearly $380 million. And after deducting the planned CapEx expenditures at Kensington, San Bart's and Palmarejo, the Company expects to retain a strong cash balance without considering the cash flow generated by the Company's operations. In 2006, for example, Coeur generated $91 million of operating cash flow. In coming weeks, we're going to continue to meet with you and others, to give you a better understanding of the transaction and to respond to any of the questions that you might have. We do expect we're going to be mailing our proxy statement to shareholders this next month. That, of course, will describe in detail the proposed transactions. And I think you'll see why the Coeur Board of Directors unanimously and strongly recommended that our shareholders vote in favor of the proposed transaction.

With that, I'll turn now to a brief discussion of the Company results for the first quarter of 2007. We reported very strong operating performance in the first quarter of this year. Specifically, a 32% increase in our pretax income, which rose to almost $18 million. And we also reported a 32% increase in cash provided by operations, which reached nearly $23 million. Aided by higher prices, our sales of metal rose by 13% to nearly $51 million.

Overall, production totals were solid and our Rochester, Endeavor and Martha mines all reported higher production than in a year ago period. And we do expect in future quarters for the production for the Company to be reported at higher, stronger levels than the first quarter. After the close of the first quarter, at San Bartolome, we were particularly pleased to see an increase in our silver reserves and indeed a quantum leap of 32 million ounces in our silver resources at San Bart's. We've got a series of slides for you here today, eight, nine and 10, that really demonstrate the Company's performance that I've just talked about.

With regard to our production and cash cost performance in the first quarter, and reflected on slide 11, I'll tell you that we expect to see quarterly production levels for the balance of 2007 consistently above these levels of the first quarter. With those comments, I'm going to ask Jim Sabala now to discuss each one of our properties and their performance with you. Jim?

Thank you, Dennis. At our Rochester mine in Nevada, silver production for the first quarter of 2007 increased from the level of the year ago quarter due to increases in recovery of silver from the leach pad. Gold production declined due to lower grade. However, Rochester remains on track to achieve full-year silver cash costs of well below $1 per ounce. First quarter silver cash costs increased relative to the year ago period due to decreased gold byproduct credits for this quarter.

At our Cerro Bayo mine in Chile, gold production 7% relative to the year ago period, due to sharply improved grade. The increase in gold production and the resulting byproduct credits caused silver cash costs per ounce in the first quarter of 2007 to decline 65% to $1.21 per ounce. Silver production in the first quarter of 2007 was below the level of a year ago, despite an increase in grade because the mill processed fewer tons, as Cerro Bayo continued to transition to higher grade areas of the mine, specifically, the Cascada vein system.

The Company began obtaining ore from the high-grade Cascada wide vein system in the fourth quarter of 2006 in connection with the development work. Remember, the time frame from discovering this vein system to production was less than a year. The Company now has all necessary permits to commence full-scale mining operations in the Cascada vein system.

At our Martha mine in Argentina, silver production in the first quarter of 2007 increased nearly 15% on a sharp improvement in grades as compared to the first quarter of of 2006. Silver cash costs per ounce increased relative to that of the year ago period, due largely to increased royalties associated with higher realized market prices and increased labor costs. Construction has commenced on a new mine facility, which is expected to be operational near the end of the year.

The mine is intended to support the Company's continued success in expanding the high-grade reserves and resources at Martha, as well as the mine's significant exploration of site potential. At the Endeavor mine in Australia, silver production in the first quarter of 2007 increased 90% from the level of a year ago as the mine more than doubled its tons milled. Silver cash costs per ounce in the first quarter of 2007 was higher than it was in the year ago period due to higher smelting and refining charges associated with the increased market value of silver deductions charged percent to the smelting and refining contracts.

At the Broken Hill mine in Australia, silver production in the first quarter was below the level of a year ago, due to a temporary curtailment of operations early in the period following an accident at the mine. Silver cash costs per ounce was higher than that of a year ago period again due to higher smelting and refining charges associated with the increased market value of silver deductions pursuant to the smelting and refining contracts. By the way, I'd like to note that the Endeavor and Broken Hill mines together have generated nearly $35 million of operating income for Coeur since we acquired our interest in those mines in 2005. This $35 million represents close to half or 46% of our original investment recovered in that short period of time.

The Company continues to have a rock-solid financial position. We ended the quarter with more than $320 million in cash and short-term investments. Even before consideration of the positive cash flow we're generating, this is clearly more than adequate to address our capital needs this year, which we expect to be about $35 million, mainly devoted to the Kensington and San Bartolome projects.

On the explorations front, we spent nearly $4 million during the quarter, primarily in South America and Tanzania. Slide 18 highlights the drilling totals and the specific activities at each of the target properties. We continue to be optimistic about our ability to add reserves as the year progresses.

But the most exciting news is what Dennis mentioned earlier. The increase in reserves and resources at our San Bartolome project in Bolivia as of the end of April. As compared to year end 2006, reserves increased by 3.5 million ounces to a total of 155.4 million ounces. And our indicated silver mineral resources increased to more than 32 million ounces from what had been less than 1 million ounces. With that, I'd like to turn it back over to Dennis for an update on the Kensington and San Bartolome projects.

Thanks, Jim. At Kensington, recent work is focused on completion of the surface processing facilities and the underground tunnels. We do expect to complete the construction of all surface facilities, with the exception of the tailings facility, the subject of legal action, by September of this year. With the main underground tunnel being completed in July. In addition, we continue to progress with the required mine development work to enable the mine to begin ore extraction. This work includes ramps and horizontal tunnels that provide lateral access to the ore bodies.

A few things are important to keep in mind. 2006 was a good year at Kensington. We increased our total reserve resource base there by more than 300,000 ounces of gold. And we experienced a 25% increase overall grade at the mine to 0.3 ounces per ton, as a result of the year's exploration work. We are encouraged that the plaintiffs recently suggested in a Juneau newspaper ad that they would like to work with the Company to find a solution to the tailings issue in the present litigation.

After San Bartolome, we continue to make great progress in advancing the construction work. As you see on slide 21, we now have more than 23 contractors and 600 people, most of whom are Bolivian, working on the site. I'm proud of our safety record. We've worked nearly 1/3 million man-hours without a lost time accident.

We're more than 93% complete with engineering procurement and we're nearing completion of site preparation for the processing plant construction. The concrete batch plant is cranking at full tilt, and much of this material is going into the foundations for the leach tank areas. We're looking forward to completing this mine on schedule and on budget by the end of this year. And we clearly expect to begin commercial production in January, 2008, with 9 million ounces of silver produced that year.

On a related note, we're pleased to see that the government of Bolivia last week issued a decree that very broadly affirms its respect for mining property rights. In our case, of course, as we have said many times, it is the government itself with whom we hold most of our mining leases. And we continue to have strong support from the Morales government, as well as the community and district governments for the project in Potosi.

In conclusion, let me say that we currently believe that ongoing market comments about Bolivian mining risk are somewhat overstated and we are quite confident that San Bartolome is going to come onstream, on schedule and on budget. We continue to be very bullish about the long-term prospects for the silver market and this explains our great enthusiasm for the Palmarejo transaction. We believe that industrial demand for silver is going to steadily grow in the coming years. Combine that with the growing demand from the silver ETF and the long-standing gap between mine supply and demand, and it's no surprise to us that we expect to see this robust price environment continue.

Coeur will perform very well financially in such an environment. We're looking forward to a busy and exciting remaining 2007. We expect to complete the Palmarejo transaction in the third quarter of this year. We're also looking forward to higher quarterly production levels from our existing assets with improved performance at Cerro Bayo in particular. And we do expect to report lower overall cash production cost for the full year.

That really tells you in a nutshell where we're headed as reflected in the first quarter results for the year and what our expectations are for the balance of the year. And we'd be very happy now to respond to your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from [Tom Havens.] Please go ahead, sir.

Good morning, gentlemen. Silver is up 100% and your stock price is down 50%. Based on that scenario, did you consider doing your current deal with debt to leverage the earnings versus the stock dilution that you have?

Well, of course, the seller has something to say about this. And the seller is keenly interested in Coeur shares, believing that there's significant upside with the projected production from San Bartolome, combined with Palmarejo and what it does in terms of the new Company. So, they like; One, the tax efficiencies of utilizing Coeur shares. And secondly, what they feel is going to be the re-rating of the Coeur share price following these transactions and developments.

Okay.

(OPERATOR INSTRUCTIONS) Our next question comes from [Daniel Slack.] Please go ahead.

Yes. Mr. Wheeler, on these $180 million of debentures, does anybody on your Board or yourself, own these debentures now?

I can't answer that question. I certainly don't .

What about the Board?

Well, I don't know. But I'd suggest you can contact Scott Lamb following the call and he can let you know.

Okay.

Our next question comes from [Thomas Delarosa] of Wachovia Securities, please go ahead.

Hi, gentlemen. Just calling, wondering about the deal and how something like that comes about? Did you solicit it from this firm or was this a bank, where your bank is introducing this deal? Or is this something you had been eyeing for a while? How long --?

I get the drift of your question, Tom. Actually, I first stopped into see Norm Seckold of Bolnisi in the fall of 2005, just for some general discussions. And of course that led to an in-depth study by several of the people at Coeur, our technical group, as far -- as well as several consultants. And we have a very good, I think, view of the asset following that extensive process. I think we probably know it as well as Palmarejo and Bolnisi. And we are clearly comfortable that it is one of the few great silver opportunities out there in the world being developed today, which is the reason why we have valued it as we have.

Thank you and our next question comes from John Bridges. Please go ahead.

If we look at the ratios between yourselves, Bolnisi and Palmarejo, there seems some sort of discrepancy there. Some are premiums, some are discounts. Any thoughts on what's driving that?

I would say that our stock, we believe, is traded within about the range we would have expected since the recent announcement of the deal. With regard to Bolnisi, it seems to us that we've had some more market recognition in recent weeks from Palmarejo, that had been not as well noted in the market than Bolnisi, which had had a pretty strong run for a number of months. But we're really not seeing anything presently that we consider to be unusual.

Okay. Any other sort of feedback from the market as to how it's accepting the deal?

Pardon me?

Any other sort of feedback on how market is reacting to the deal?

Well, we're taking a look, of course, every day, John. And our view at yesterday's end, of about six analysts, we feel pretty good about their comments with regard to the transaction overall.

Okay, Dennis. Thanks. Good luck.

(OPERATOR INSTRUCTIONS) And Mr. Lamb, it seems we have no further questions.

Okay. Thank you. I'll turn it over to Dennis for concluding remarks.

Thank you for joining us today on today's call. We'll continue to keep you, of course, advised of the progress of our joint optimization committee that is going to be formed and working with the group at Bolnisi and Palmarejo about the evolution of the project there between now and the approval of the transaction, which we expect in August. And we are very excited about the contribution that new Coeur is going to make to the silver community. We continue to maintain our focus and are very comfortable about the outcome of our San Bartolome silver mine in Bolivia. Very pleased with the substantial increase in the resource base there that we've talked about here today.

We make -- we're determined to find the right answer at Kensington so that it can contribute to the gold production, silver equivalent profile, that we've talked to you here today, in 2009. And we remain totally focused here at Coeur to continue to bring about lower cost of production. So with that, I think I've given you the things to watch for, for balance of the quarter for our next call. And we'll look forward to keeping in touch. Good-bye.

Thank you, everyone, for joining today's Coeur d'Alene Mines earnings conference call. This call has concluded. You may now disconnect.