Coeur Mining Inc (CDE) 2009 Q1 法說會逐字稿

Good afternoon. My name is Valerie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Coeur d'Alene first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions).

At this time, I would like to turn the call over to Ms. Karli Anderson, Director of Investor Relations. Ma'am, you may begin your conference.

Thank you. Thank you for joining us today to discuss the company's results for the first quarter 2009. 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. Telephonic replay of the call will be available for one week afterward on our website. On the call today here in Coeur d'Alene are Dennis Wheeler, Chairman, President and Chief Executive Officer, Mitchell Krebs, Senior Vice President and Chief Financial Officer, Richard Weston, Senior Vice President for Operations, Don Gray, Senior Vice President of Latin American Operations, Leon Hardy, Senior Vice President of North American Operations, and Don Birak, Senior Vice President of Exploration.

Any forward-looking statements made today by management come under securities legislation of the United States, Canada and Australia and involve a number of risks that could cause actual results to differ from our projections. Please see our full cautionary statement on slide two. With that, I'd like to turn the call over to Dennis.

Welcome and thank you for joining us on today's call. 2009 is off to a roaring start at coeur. We've produced an all-time first quarter company record for silver. We bought Palmarejo, the world's newest large silver and gold mine into production on time and on budget. We achieved significantly improved results at San Bartoleme in Bolivia, in terms of both cost management and production. We've got two new silver mines at Coeur, explosive growth, a rock solid balance sheet, and enjoy great silver and gold fundamentals.

Each one of Coeur's mines and its employees contributed to this quarter's success. As a company, we are all united in meeting our commitments to you, our shareholders. We've set some aggressive goals for this year. It includes increasing our 2009 production by 66%, with the ramping up of production at our two new silver mines, lowering our cash cost, and strengthening our balance sheet. Today's results indicate that we are well on our way to meeting these commitments. Over the last nine months, Coeur has commenced production at two of the world's largest silver mines. Coeur's period of heavy capital spending is now behind us. As Palmarejo ramps up and San Barts performs consistently, we are poised to deliver positive and significant cash flow generation and growth for our shareholders. While our production grows and margins expand, Coeur continues to enjoy an industry leading production and reserve profile among North American silver producers.

Our Company growth strategy is coming together at a time when market conditions where precious metals are particularly favorable. We are seeing an escalating demand for silver as an investment vehicle, as evidenced by the continued strong performance of the silver ETFs, which are at record levels. Meanwhile, we're seeing new and exciting silver applications continually emerging, the most recent being silver applications to be used in the popular iPod to improve high speed memory and faster communications between chips. It seems our growth in production could not have come at a better time.

In the first quarter we produced 3.9 million silver ounces, a 65% increase year-over-year, and an all-time first quarter company record. While San Bartoleme was our largest contributor, we saw good results from all of our operating mines. I'd also like to point out that since Palmarejo began production in late March, its contribution to Coeur's financial results is yet to come. We'll begin to see Palmarejo contribute to financial results and production in the second quarter.

Our production results help underpin our 2009 outlook. We're certainly confident 2009 will look very different from 2008. Specifically, we expect to increase our silver and gold production by 66% and 85% respectively. Our focus on cost management has produced concrete measurable results over the past few quarters. We are looking to drive cash operating costs down 11% for the year and operating cost down 37%. Margin expansion is the name of the game here, and we expect it to translate into better operating cash flow, $100 million for 2009, which would be a 733% increase over last year.

I'd like to turn it over now to Richard Weston to talk about our operational results.

Thank you, Dennis. Our Palmarejo silver and gold mine in northern Mexico reported its first silver and gold in late March. It is on track to reach full capacity in July. We expect to produce 5.3 million ounces of silver and 72,000 ounces of gold in this partial year of production. We still expect to have cash operating costs of negative $0.50 per ounce of silver. Due to its low cost of production, we expect Palmarejo to significantly lower cash operating costs company-wide and to support the margin expansion Dennis touched on earlier.

I'm also pleased to report that our Palmarejo mine exhibits the high standards of safety and social responsibility you have come to expect from Coeur. During the quarter, Palmarejo earned the socially responsible business distinction award for 2008 for the mine's demonstrated excellence in social responsibility during its development and construction. The award is a national recognition of Coeur Mexicana and its ongoing contributions to the community in this area. Our contractors at Palmarejo are now demobilizing and our capital spending on the project continues to decline. We shipped our first silver and gold in mid-April.

I'll now turn the call over to Don Gray to discuss San Bartoleme.

At San Bartoleme, we produced 2.1 million silver ounces in the first quarter. Our cash operating costs of $6.74 per ounce was very close to our full year guidance of $6.50. It is a terrific accomplishment to have our cash costs near guidance so soon after start up. On slide 10, we've shared with you the monthly production and cash operating costs per ounce at San Bartoleme. I think you'll be impressed with the quality and consistency that our team is delivering there.

Thanks, Don. Now Mitch is going to talk about the financial results.

Thanks, Dennis and good morning. We are beginning to see the impact of the company's new mines in our first quarter financial results. We had operating cash flow of $6.8 million and net income of $6.1 million during the quarter. As Palmarejo ramps up throughout the year and expands its contribution to our financial results, we expect an upward trend in operating cash flow towards our goal of $100 million for the full year, based on current prices. Coeur ended the first quarter with cash and equivalents of $38.1 million. During the quarter, capital expenditures totaled $78.3 million, $65.5 million of that expense at Palmarejo achieving production start up. And CapEx will continue to trend downward throughout the remainder of the year company-wide and into 2010. As operating cash flow continues to increase and CapEx continues to decline, we expect to see our net cash flow turn positive in the third quarter.

As Dennis mentioned, we continue to focus on reducing our non-operating costs. In October of last year, Coeur announced its intentions to reduce non-operating expenses by $10 million or approximately 40% in 2009. We remain on track to achieve this objective. During the first quarter, G & A expenses declined 11% year-over-year.

We reduced $100 million of our debt so far in 2009. Slide 13 summarizes these reductions. This outstanding debt balance compares to a balance sheet totaling $3 billion in total assets and $1.9 billion of shareholders equity. Since the beginning of 2007, Coeur has invested heavily in its two new silver mines, $240 million to complete construction at San Bartoleme and $250 million to date to build Palmarejo. Slide 14 shows how the lion's share of this strategic capital spending of these new assets is now behind the Company. We believe these investments position the Company to generate significant and sustainable net cash flows for shareholders going forward which we are now just in the early stages of delivering.

I'd now like to turn the call back over to Dennis.

Thanks, Mitch. Certainly precious metals Markets remain very dynamic and we continue to believe poised for further long term price appreciation. Silver has reestablished itself as a monetary metal and a clear store of value, separated from the base metals. As you can see on slide 16, silver's performance has vastly out performed the base metals over the last six months. Coeur's production is 100% precious metals, which differentiates us materially from our competitors, all of whom have significant exposure to base metals.

As we said in our opening remarks, silver has a unique mix of investment and industrial demand. Silver offers investors the opportunity to protect against inflation, while also retaining upside when we see global economic growth regain momentum. Investment demand for silver continues to be heavily influenced by the international banking and credit markets, both of which seem does to remain uncertain and in search of leadership. As governments continue to play an active role in banking and credit markets, we have seen firm pricing in the precious metals markets and growing investor demand for safe haven investments. We think silver is developing as a long term asset class for investors, and the most recent report by Goldfield's Mineral Services reported that silver investment demand is expected to remain strong with projected silver prices remaining well into the double digits for the balance of this year.

It does seem like investors are moving capital into the growing investment vehicle such as ETFs, which added more than 63 million ounces in the first quarter and stand at record levels of over 270 million ounces, which by some estimates represents three-fifths of above-ground stocks. Our industry contacts continue to report a shortage of silver coins, further indicating that demand for physical silver remains strong. The outlook for industrial demand is equally compelling. Silver is the world's most widely used metal. Exciting new applications such as radio identification tags, solar panels, laptop batteries, and the memory chips which are used in electronic devices like iPods are continuing to show themselves as new uses for silver.

As we touched on earlier, the supply dynamics for silver underpin the upward price action in the metal. Today, about 70% of silver is mined as a by-product of base metals. A significant research group recently noted that silver production among the top miners will be down an estimated 5% for the year, and we believe further reductions in production may be forthcoming unless base metal markets revive themselves. This favorable precious metals environment comes as Coeur has achieved several important milestones in the first quarter. We completed two of the world's largest silver mines in the last nine months, a real testament to the performance of our technical, operational and financial teams. We strengthened our liquidity position by retiring over $100 million of debt so far in 2009 and by lowering G & A costs.

Fortunately, all of the heavy capital spending is behind us, and we think in summary that we have positioned the Company to significantly grow its cash flow for our shareholders. In the near term, we can point to several catalysts that merit close attention. First of all, we're going to continue to deliver strong and consistent production at both San Bartoleme and Palmarejo, which will support 66% of our silver production this year. Palmarejo will be in full production through the second half of 2009.

We will complete our internal review of the Cerro Bayo mine plan later this year, as we target a new mine plan with a minimum three year mine life and cost profile in line with historical production and cost. The US Supreme Court should soon render its decision on our only gold development project, the Kensington Mine in Alaska. On the finance side, we'll continue to de leverage the balance sheet and strengthen our capital structure. We've got the major capital spending behind us, the cash flow in front of us, and along with the continued strength in silver and gold markets, we think a very bright future to come. We know the importance of following through on our commitments to you, and we believe that our first quarter results are just the beginning.

Now, we would like to open the meeting for our questions from you.

(Operator Instructions). Our first question will come from the line of John Bridges of JPMorgan.

Yes, this is Ankush Agarwal on behalf of John Bridges. Hi, Dennis, Mitch, everybody.

Good morning.

Hi.

Congratulations on the successful start at Palmarejo and for achieving steady state at San Bartoleme. On Palmarejo, could you give us some guidance as to or some sense how you expect the production build up to be, the production pipeline to look over the quarters?

We'll we building up to full production levels by July or in July of this year.

Okay.

And then this is Mitch. Just to follow on to Richard's comment, that ramp up between now and July will then lead on to the full year estimate of 5.3 million ounces of silver and 72,000 ounces of gold.

Okay. Now that San Bartoleme has achieved a steady state and Palmarejo is up and running, the focus should be on Kensington. Could you just detail us a bit about this latest supplementary briefing, the questions that the Supreme Court has asked and what are your alternates?

Well, the Supreme Court did request some limited additional briefings. Frankly, we don't see this as any indication one way or the other after the legal team has reviewed this matter as far as the eventual decision. We're hopeful that it will come soon, and we don't make projections for the court.

Okay, so these are regular procedural things that are in your opinion?

We don't see anything unusual about the questions that have been asked at all.

Okay, that's helpful. And finally just bookkeeping, could you just please give us the gross tax amounts for the gain on the debt extinguishments and the loss in derivatives?

Could you ask the question again? I didn't quite catch everything. Just outstanding balance?

The two items in the income statement, gain on debt extinguishments and the loss in derivatives, just looking for the post tax amount for that?

Post tax amount. We can get back to you on that off line, when the Q is filed later today you'll see an abundance of detail in there and in the I think the K should be helpful but happy to follow-up with you to walk through those details.

Sure. I'll do that thanks and good luck with the Kensington.

Thanks.

(Operator Instructions). The next question will come from the line of Andrea Cheung of Cormark Securities.

Thanks. Good afternoon. Just a few small questions. First of all, at San Bartoleme, if you look at the production that was reported this quarter, it's a little bit less than what you're suggesting you might report for the year if you annualize the quarterly number. Could you give a sense of where we might be able to see a bit of improvement over the year?

Well, Andrea, this is Dennis. Let me say that as the case with many mines when you're going through the start up and reaching the full production at the mines, you do encounter some quarter by quarter variances. I think our group has been approaching that question very well. We've upgraded the quality of our management at the mine site, significantly bolstered the training for our workforce there, and I think we're indicating this quarter that we're feeling reasonably well about the future direction of the mine. But you'll see from time to time quarterly variations in operations.

Sure, but I mean, would we see more variances in throughput or grade or recoveries, where? Where do you see, where do you think that--

I don't think you'll see major variations in the type of metrics you're talking about. I think the question really for us is to continue to improve on consistent performance with the workforce in general.

Okay. And just wondering, at Palmarejo, I was on site and things looked to be coming along reasonably well. Just wondering when we could see production reflected in the financials?

Yeah, hi, Andrea, it's Mitch here. Palmarejo will be reflected in the second quarter financial results. Commercial production will be in the third week of April, we'll determine that specifically during our second quarter to review what the financial impact of Palmarejo will begin to be seen in the current quarter.

And then just the last question. What's your CapEx profile going to look like for the remainder of the year? Are you still guiding towards I think it was $130 million or $135 million?

Yeah, we really haven't changed the full year, obviously with the $78.3 million in the first quarter, that really reps over half of our entire year' s CapEx budget, so we'll continue to see the company's CapEx decline from there throughout the rest of the year.

Okay, very good. Thank you very much.

Thanks.

(Operator Instructions). The next question will come from the line of Chris Lichtenheldt of UBS.

Good afternoon. My question just relates to guidance. It looks like there hasn't been any change to the 20 million ounces expected for 2009; is that right?

That's correct, Chris. Hi.

Hi. So if we look at the 20 and the 9 roughly expected from San Bart, and the 5.3 I think you're looking for from Palmarejo, it looks like the remaining operations during the quarter at least tracked sort of ahead to what they would have to fill in that gap. Are they just tracking ahead of expectations or might we see a decline in their production profile throughout the year then?

Yeah, the remainder when you take the 20 and back out what we expect from Palmarejo and San Bartoleme, I think that leaves something a little less than six and that's broken up really equally between Martha on one hand and then the other chunk between Rochester and the two Australian interests.

Right, okay, and so I think during the quarter if I look at it, they did around 1.8 million ounces but sort of a quarter of that difference between 20 and the larger two operations it would be sort of 1.4, so are they tracking ahead of expectations or is it a little early to say?

I think it's a little early to say based off of one quarter. Dennis mentioned in relation to San Bartoleme, you'll see variations from quarter to quarter but we're still sticking with the 20 million in total as well as the 5.3 at Palmarejo and the 9 at San Barts.

Okay, great. My second question relates to administrative and general costs. Q1 versus Q4 of last year was up a little bit. Can you just describe what causes that to increase?

Yeah, we get hit in the first quarter with some non-cash accrual items that makes the first quarter G & A total higher than say the fourth quarter of 2008. Those are items that don't recur in the remaining three quarters of the year, so that's what you're seeing there between the fourth quarter and first quarter.

Okay so for accounting for that you're likely a little bit lower?

That's right. If you looked at cash G & A, it would be lower than the total G & A reported on the income statement.

Great. And just my last question, you've been pretty successful converting debt with shares. Do you expect this may continue or at this point would you expect to carry a majority of the balance until 2011 or 13?

I think Dennis said in his comments, we'll continue to be opportunistic there and continuing to reduce the leverage on the balance sheet throughout the remainder of the year as we add cash from operations beginning in the third quarter. So those I think are the two big themes to the balance sheet throughout the remaining three quarters of 2009.

Okay, that's great. Thanks a lot.

Thanks, Chris.

There are no further questions at this time. Do you have any closing remarks, sir?

We would just like to thank everybody for attending today's call. I can assure you we remain dedicated to delivering the results we've talked about here today for the balance of this year and look forward to seeing you on our next call. Thanks very much.

This concludes today's conference call. You may now disconnect.